How SaaS Companies Can Project Their MRR Using NPS (4 Actionable Tips)
Monthly recurring revenue, or MRR, is the lifeblood of any SaaS business. If your company is charging the clients on a monthly base, signing up new customers and keeping them onboard has an incredible impact on your revenue, growth rate and profits.
The only problem is that calculating MRR accurately can be notoriously challenging. As customers join and cancel, projecting the monthly recurring revenue for two, three or six months into the future can be a serious issue, even for the most data-focused businesses.
Add upgrades, downgrades, and discounts into the picture and staying on top of your projected MRR can become a major cost of time for your business.
Luckily, you can accurately calculate and project monthly recurring revenue trends using your NPS data.
In this post, we’ll explain how you can do this, as well as how you can use this data to adjust your business to increase MRR, improve retention and generate more revenue.
1. Pay close attention to your Detractors
If a customer is a Detractor, there’s a serious chance that they’ll cancel their subscription either in the next billing period of in the near future.
If a customer is right at the lower end of the Detractor range (for example, a score of zero or one out of 10), it’s almost a certainty that they’ll give up on your product and cancel before the next billing period.
This makes it important for you to pay close attention to your Detractors when calculating your company’s monthly recurring revenue trajectory.
If you notice the number of Detractors increasing, there’s a serious risk that your SaaS company could backpedal when it comes to monthly revenue growth.
Remember that Detractors can harm your MRR in several ways. They can cancel, costing lost revenue and negative publicity in the form of blog and forum posts, potentially hurting your MRR even more in the long term.
As the percentage of Detractors increases relative to Passives and Promoters, you might need to revise your MRR downwards to match the cancellations and impact on growth the Detractors can cause.
It’s easy to focus on customer acquisition, all while ignoring the serious risk posed by Detractors not only to your churn rate but to your ability to acquire new customers in the future.
Pay close attention to your Detractors, even if they don’t have a significant effect on your MRR at that particular moment. It only takes a small amount of negative publicity to hurt your brand, slowing customer acquisition and hurting your business growth. Try these 5 effective techniques to help you turn Detractors into Promoters.
2. Understand the true value of Promoters
Many businesses make the mistake of viewing Promoters only as loyal customers — people that are unlikely to cancel their subscriptions and stay customers for years into the future.
The reality is that Promoters aren’t only loyal — they can also be a valuable source of customer referrals that help your business build its monthly recurring revenue without much advertising, promotion or other marketing.
This makes it important for your business to measure the true value of Promoters both in terms of the revenue they directly generate and the customers they bring in as referrals.
The easiest way to do this is by implementing a referral program. Airbnb, which famously grew through a generous customer referral scheme, used its NPS data to correlate referral revenue with the likelihood to recommend (LTR) scores it received in NPS surveys.
Airbnb’s data showed that users giving a rating of 10 on the company’s NPS survey were 4% more likely to refer customers than Detractors — a small but significant increase in the likelihood that has a measurable impact on revenue.
This data allowed Airbnb to more accurately calculate the value of a Promoter, and gain a much deeper understanding of how customer satisfaction plays a role in the organic growth and long-term MRR.
3. Calculate the lifetime value using NPS data
Finally, the most effective way to use Net Promoter Score to calculate your company’s MRR is to correlate NPS likelihood to recommend scores with a specific customer value.
Like most CLV-related metrics, this data can take time to calculate. You’ll need a large audience and a big enough sample to calculate customer value without statistical insignificance getting in the way of accuracy.
Once you have thousands of likelihood to recommend ratings from customers, you can begin to calculate the average lifetime value of a Detractor, Passive and Promoter.
Doing this is relatively simple. In fact, you can use a simple LTV equation to calculate how much revenue you earn from each customer. Since you’re calculating by NPS category, you just need to sort your customers into Detractor, Passive or Promoter groups before using the equation.
If you have referral data for each customer type, make sure to add it to the total revenue of each category before calculating CLV, as it can be significant for Passives and Promoters.
With specific CLV data for each group, you’ll be able to quantify exactly how much a Detractor, Passive or Promoter is worth to you. You may be surprised by the difference between one type of customer and another, especially between Detractors and Promoters.
4. Use your NPS/CLV data to make better decisions
When you quantify the difference in value between a Promoter and a Detractor, it becomes far easier to see why customer satisfaction matters.
Most of the time, Detractors are worth far less than Promoters in long-term revenue. In some cases, Detractors can have a negative revenue figure for your business, making the gap between a happy and unhappy customer even greater.
With your NPS/CLV data in hand, you can make informed decisions to reduce the rate of customers that become Detractors over time. You can implement tactics to increase CLV or use customer service hacks to turn Passives into Promoters.
By reusing the LTV equations above six or 12 months later, you can even quantify how big of an impact these decisions have in real revenue terms.
Start using NPS to spot MRR trends as they happen
If you’re new to Net Promoter Score, there’s no need to dive into the world of complex software development to get started. Retently makes surveying your customers, responding to feedback and calculating your Net Promoter Score an absolute breeze.
To get started, create your Retently account now and send Net Promoter Score surveys to up to 100 of your customers free of charge.
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