It would be fabulous if we could have just one single customer related measure that told us all we need to know to build a huge, profitable and loyal customer base.
But many of those indicators are used wrongly. Customer satisfaction is used a measure of customer loyalty. Net Promoter Score is used as a proxy for business growth. Researchers have found that claims like these are tenuous, and modest at best, and certainly not consistent across all industries.
A little common sense, and taking a moment to think about the results we want relating to customers, can release us from the confusion about which customer measure is the right one, the silver bullet. Let’s explore this by looking at three very popular customer measures.
It’s THE most commonly used measure of customer performance but Customer Satisfaction is also one of the most widely mis-used measures of customer performance as well. Too often it’s seen as the panacea for all manner of things, including a predictor of business growth, customer loyalty, customer lifetime value and market share.
Come back to the result that the measure is evidencing: it’s how customers feel about the product or service they experienced from you. It’s value is that it helps you know if and when to take a closer look at your products and services and improve their quality, functionality and the experience they give your customers. Your business can’t grow if you don’t have what people want.
Net Promoter Score
A very trendy customer KPI right now is the Net Promoter Score. Much of it’s appeal is in its simplicty, but also in the exciting claims that NPS is a strong predictor of business growth. So what’s it really measuring?
You measure NPS by asking your customers the question “How likely is it that you would recommend us to a friend or colleague?” It’s value is that, once you have tested the correlation with actual referred customers, it helps you predict the number of new customers that will come by way of referral. And thus it prompts you to focus on how you can improve the likelihood that your existing customers will refer you.
Customer Lifetime Value
Mistaken at times for a measure of customer loyalty, the CLTV is actually a measure of the dollar value of a customer’s long term relationship with you, from go to whoa. You measure CLTV by a few numbers, so it’s not a trivial measure. You need to know customer spend, profit margin, costs of managing the customer relationship, cost of acquiring the customer, and their probability of retention. So clearly, customer purchasing behaviour and customer retention are drivers of their LTV.
The value of CLTV is that it focuses you on two important things that will drive business growth: how profitable your customers are that you are attracting, and how well you can retain them.
Revelation: there’s no silver bullet!
When you think about the specific performance result that each type of customer measure is truly reflecting, you can quickly see that it’s horses for courses. There is no panacea, no silver bullet customer performance measure that tells you all you need to know. So, which customer performance results are currently important to you? Start with that, and then select the measures that matter for those results! Consciously choose the measures you need.
About the Author
Stacey Barr is a specialist in organisational performance measurement, helping corporate planners, business analysts and performance measurement officers confidently facilitate their organisation to create and use meaningful performance measures with lots of buy-in. Sign up for Stacey’s free email tips at www.staceybarr.com/202tipsKPI.html and receive a complimentary copy of her renowned e-book “202 Tips for Performance Measurement”.