By itself, your Net Promoter Score doesn’t mean a lot. A score between -100 and +100 can’t tell you what to do next. It can’t tell you how to improve your customers’ experience. And it can’t tell you how much revenue you have at risk.
Converting your NPS results into a dollar value is important because it helps develop those all-important actionable insights.
There are two problems that a revenue-associated NPS solves:
We don’t always know where to start.
Deciding which project to embark on can be tough. One way to prioritize improvements is by identifying which action will result in the highest return on investment (ROI). To do so, you need to understand the revenue impact of your NPS. Are you more likely to lose money on detractors? Or is the bigger opportunity hidden in your enthusiastic promoters?
We need to justify using resources to improve CX.
Every company has a limited budget. Determining how that money is spent is a careful balancing act. When CX teams can point to financial metrics and say “spending X would result in an increase of $Y” they are far more likely to receive the budget allocation they are looking for. Not only that, but it’s also a more responsible way to spend money.
Instead of going by gut instinct, use the hard numbers to decide what projects will be more profitable and more likely to grow your business in the long term.
Here are the six steps towards connecting your NPS data with financial returns.
Six steps to connecting net promoter scores to financial metrics
Step 1: Measure your NPS
The first step to understanding the revenue impact of your NPS is to measure it - correctly. In order to use your survey responses for further calculation, you’ll need to know which account each response is coming from.
If you’re surveying customers over email, you can likely trace their email back to their customer account and purchase history. If you’re using another channel, you may need to ask customers to provide their account information or self-identify their plan type. Whatever method you are using, anonymous NPS surveys are not helpful.
Secondly, you’ll need to be asking the right follow-up questions. Once you’ve calculated the dollar value of your NPS results, this information will be invaluable to understanding your next steps.
Step 2: Calculate your customer’s ARPU (or other metrics)
Decide which financial metric is most appropriate for your company. For many, the average revenue per user (ARPU) makes the most sense. However, you may also consider monthly recurring revenue (MRR), gross margin per customer, or lifetime value (LTV).
For each customer who has responded to the survey, calculate their ARPU. This is easier if your survey tool is connected to a CRM that stores demographic and operational data on your customer. Having the context for each customer’s past behavior attached to their NPS response makes calculations a breeze.
Step 3: Check your customer’s behavior
It’s a commonly accepted assumption that your detractors will likely churn within the next 90 days, passives will churn within the next 180 day and promoters are more likely to repurchase or even recommend your services to their friends and family.
If you like, you can simply continue this assumption and calculate the overall revenue that is at risk for the next 90 and 180 days (and the potential revenue available from expansion or referrals).
However, if you have historical data available, you can check these assumptions for your own customers. Perhaps detractors don’t actually churn that often. Maybe passives are more likely to upgrade than promoters.
Whichever approach you’d like to take, state your assumptions so anyone who uses the data understands what they are looking at.
Step 4: Bucket your detractors, passives, and promoters
Instead of calculating an overall value for your calculated NPS score, it’s best to calculate each bucket of customers individually.
Why? Because you’ll have a very different result depending on the distribution of your high-value customers.
Consider the following two scenarios:
Business 1: NPS of 27
Result: 50% Promoters - 33% Detractors = NPS of 27.
However, their only detractors are Enterprise customers with a combined MRR of $7000 (a substantial part of their $7180 MRR). While their NPS would be considered a fairly average score, they are in serious trouble if they ignore the revenue that’s at risk.
Business 2: NPS of 27
Result: 50% Promoters - 33% Detractors = NPS of 27
This business has the same NPS as the other company. However, they are in much better shape as $7000 MRR (out of their $7180 total) comes from Promoters. If they made big changes to appease their Detractors, they may be at risk of disappointing their top clients (who are currently quite happy!).
Step 5: Calculate at-risk and potential revenue
Using your assumptions, calculate the total revenue represented by each category.
Keep in mind that this only represents the revenue associated with customers who have responded to your survey. Depending on your survey response rate, you may have a large number of clients unaccounted for - which is dangerous to make assumptions on. To increase your overall data set, keep surveying customers periodically through different channels (email, SMS and in-app).
Step 6: Use this data to help make decisions
Now comes the fun part: action!
Dig deep into each bucket of your NPS results to understand what drives each customer’s response. What could you do differently to improve their responses in the future?
Questions to ask:
- What would be the financial impact of moving X% of our detractors to passives?
- Which bucket represents the biggest opportunity for us to focus on?
- How can we validate or improve on our assumptions?
Many of these questions can be answered using text analytics. Uncovering the underlying themes hidden within customers’ qualitative responses and combining this with your quantitative data will help you decide what to focus on first.
Connecting the dots between your NPS survey results and your business’ financial goals is essential to your success. If you aren’t translating customer responses to revenue impacts, why are you even taking the time to survey in the first place?
By bucketing customers into detractors, passives, and promoters and then calculating the associated revenue, you can make better business decisions.
Over time, you can test your assumptions and move more customers up the ladder to become promoters.