# Learn how revenue weighted NPS helps understand survey responses at granular level

GET STARTED NOW

## Related Articles

Ah, Net Promoter Score. You have heard of it and you probably understand the importance of customer loyalty. The NPS system is a measure of customer loyalty with the correlation and reflection of a business’s profitability. Most companies measure NPS by asking customers right after a recent transaction via a survey.

However, very few companies actually take into account the different customer profiles when reporting NPS. In my experience with modeling, companies are losing out on a huge opportunity when they don’t leverage the power of weighted NPS.

Here’s an example:

Now, let’s calculate the standard formula for NPS: % of Promoter customers minus % of your detractor customers.

Drawn from the numbers in Figure 1, you get the following:

(Note: the NPS is always a measurement valued between -100 and +100)

### Calculating customer lifetime value into NPS

Now, lets bring in actual revenue. Let’s propose that the Lifetime Value of an Enterprise Customer is 4x higher than the value of an SMB Customer.

Let’s take the Customer Lifetime Values for Enterprise vs. SMB:

What if I told you that the absolute numbers (\$8,000 and \$2,000) don’t matter? Would you agree?

What the traditional model doesn’t take into consideration is that your Enterprise customer is 4X more valuable than the SMB customer, monetarily speaking.

Now this metric in this example we are using is revenue, but as you can imagine, you can replace revenue with any monetary metric, for example, profit margins.

### Revenue weighted NPS

With the NPS survey response at granular level, you can compute the NPS by taking into consideration the spend or revenue as per customer.

Now, let’s take into account the same NPS Score calculation, but using Customer LTV as an example. In the above example (Figure 1), we have two SMB promoters and one Enterprise detractor. Without taking LTV and the type of Customer into consideration, one would assume that approximately 40% are Promoters and 20% are Detractors. From a pure business and economics perspective, this assumption is flawed. Why? Since we are focused on the \$4,000 value of Promoters, we run the risk of losing double the amount (\$8,000) if we don’t hone in on understanding the value of different customer types.

To mitigate loss, we can “weigh” the Net Promoter scores based on LTV of each Customer Tier:

### Calculating the revenue weighted NPS

In our above sample dataset, we have two Promoters with a cumulative revenue of \$4,000 (2x\$2000). The cumulative revenue above totals \$22,000. This number is derived from adding our three SMB customers and two Enterprise customers together (3 x \$2,000 + 2 x \$8,000)

To weigh the revenue between Promoters, Passives and Detractors, you take the total Promoter, Passive, and Detractor value and divide that by your cumulative revenue. Each of these will yield a percentage: 18%, 45%, and 36% respectively.

NPS vs. Revenue Weighted NPS Score

To calculate our new Revenue Weighted NPS, we take our new percentage of Promoters, 18% and subtract that from our new percentage of Detractors, 36%. Our new Revenue Weighted NPS is -18.

Compared to our Non-Revenue, traditional NPS score of +20, our new NPS becomes -18 when we add revenue weight to the NPS. Without this insight, most companies will continue to make decisions that are directly orthogonal to growth.

### Using margins and profit in NPS

In the Revenue Weighted NPS example above, we used revenue as a metric to anchor and weigh the NPS. Companies in their lifecycle are generally interested in only two broad financial metrics, the Top Line and Bottom Line, synonymous to Revenue and Profit.

If your metric is based around profit, you can simply replace the model with your profit numbers. Rather than using the Lifetime Customer Values, use your Customer Gross Margin numbers for each Enterprise or SMB Customer.

### NPS assumptions risks losing revenue

The NPS model assumes that all your detractors are at risk of leaving you for your competition. If you measure this with the revenue weighted NPS model, you can assign a clear dollar value of that risk. From above, we calculated the revenue at risk to be \$8,000. This additional insight will help you prioritize your efforts and understand the impact.