Tracking customer behavior and opinions are not only important for your business, they are expected for companies who are targeting hyper growth. They allow you to focus efforts on targeted goals and keep an eye on the growth potential and profitability of your business, which are all important indicators for investors.
Lets dig into 5 of the most looked for customer based metrics to start tracking if you aren’t yet.
“On a scale of 1 - 10, how likely are you to recommend [product/service] to a family or friend?” You’ve likely been asked this hundreds or maybe even thousands of times since it was first written about in the Harvard Business Review in 2003 by Fred Reighheld. This one question seeks to understand the growth potential of its business through current customer behavior. After coming onto the business scene by the partner at Bain Capital, it exploded into every industry from hospitals to shoe companies, from big tech to custom closets and beyond. In fact, it is used by more than two thirds of Fortune 1000 and has seen global precedent.
NPS seeks to understand if your business is turning customers into advocates by segmenting customers into three buckets: Promoters, Passives, and Detractors.
Promoters, those that select a 9 or 10, are happy loyal customers that will recommend your brand given the chance. Passives, those that scored a 7 or 8, feel they got what they paid for but its not certain they will recommend you, and are not loyal to your brand. A score of 6 or less is a detractor and means they are likely disappointed and not only will they not recommend, but would likely hurt reputation by sharing their experience or simply warning against your brand.
The concept of customer satisfaction surveys started back in the 1970s but how we think about CSAT today was really born when the University of Michigan established the American Customer Satisfaction Index (ASCI). It’s a measurement implemented to identify the value of goods and services to consumers based on how satisfied they are with their purchase. CSAT is utilized by asking a customer to rate the service or the company right after an interaction, like after a product is delivered, after an interaction with customer support, or during the product life cycle. It’s usually measured on a 5 point scale, from “very unsatisfied” to “very satisfied”, but sometimes you’ll see it measured across sad, neutral, and happy faces or even up to 100 point scale.
Understanding customer satisfaction is key to optimizing for customer retention. While NPS speaks to brand loyalty, customer satisfaction scores will detect customer retention and profitability. Afterall, it's a lot easier to generate repeat purchases than it is to find new customers; at least 4.6x easier.
First decide on whether you are going to use a 5 point scale, a 100 point scale, or something in between. After a meaningful interaction, ask customers to rate your product or service. Be sure to follow up the rating with an avenue for feedback. Customers like to give feedback, both positive and negative. You can ask them survey style with an open text field or you can follow up with a customer interview to hear feedback and ask questions in real time. Lastly, use a qualitative review of the feedback to optimize for satisfaction.
Developed in 2010 by the Corporate Executive Board (now Gartner) the customer effort score seeks to understand the level of effort it takes for a customer to use your product or resolve their issue. It’s even further quantified in The Effortless Experience, where the authors found 96% of customers with a high-effort service interaction became more disloyal compared to just 9% who have a low-effort experience.
“Loyalty is driven by how well a company delivers on its basic promises and solves day-to-day problems, not on how spectacular its service experience might be. Most customers don't want to be "wowed"; they want an effortless experience. And they are far more likely to punish you for bad service than to reward you for good service.” - The Effortless Experience
So what is a high-effort experience? Think about support you’ve called and had to sit on hold for any amount of time, only to be transferred to sit on hold again, or worse be transferred back to the department you originally spoke to. I once moved states and had to register my vehicle in the new state I moved to. It took 7 visits over 8 months to finally get a temporary registration for a year while I had to convince my lien holder that the state I moved to requires the lien held title to get it properly registered. Luckily, I didn’t owe too much more so I just figured out a way to pay in full, however I don’t think I will ever finance anything through that provider, or the company that owns them, ever again. That’s high-effort.
Ask your customers to answer a short survey after their support interaction. Use a Likert scale from 1 to 7 where 1 equals “Strongly Disagree” and 7 equals “Strongly Agree” and ask “[company] made it easy for me to handle my issue.” Follow this question up with an open field for feedback asking them to give you more specific information why they chose their answer. You should benchmark the Customer Effort Score over time and also review the feedback data in a qualitative manner to generate insights on how you can streamline your product or processes to create more “low-effort” experiences.
When researching who, or what company, made customer acquisition cost popular, I couldn’t find an answer. When I finally asked both ChatGPT 4 and Bard, they both said it starterted in the late 90’s and early 2000’s as the internet began to transform how businesses acquired customers and became even more important with the rise of software-as-a-service (SaaS) companies. CAC seeks to understand how much money is spent to acquire one customer. It is calculated by taking to total amount of marketing and sales costs (ad spend, salaries of sales and marketing employees, bonuses, commissions, cost of marketing and sales tools and softwares, and any other expense directly related to marketing and sales) over a period of time and dividing it by the total number of new customers over the same period of time.
Obviously you want to be making more than you are spending, however, customer acquisition cost can tell you more than this basic unit of economics. When tracked over time it can tell you if it’s getting more or less expensive to attract customers. It's closely tied to other metrics like customer lifetime value, retention, average contract value or purchase price. It is also an indicator at how efficient your sales and marketing are as well as some insight into whether macroeconomics are messing with the cost of doing business.
Add together all of the spend for marketing and sales over the course of a month, then divide that number by the total number of new customers you got that month.
It's a pretty straight-forward calculation, as long as you don’t have a long sales cycle. And if you do, that’s OK, you can basically do the calculation for any period of time, like a quarter or a year if you want, to see how it is framed over the course of your company’s specific sales cycles.
Sometimes called attrition rate, churn is basically the measure of the percentage of customers you lose over a specific time period (typically a month). Much like Customer acquisition cost it was born out basic economics as business models evolve, likely getting its start in telecommunications industries in the 90s. It has evolved over time as subscription based models have also evolved. Calculating churn is not as simple as it may seem. This article by Shopify does an excellent job at explaining the complexities of accurately calculating churn and is actually a pretty great read for a very complex subject.
It is a very important metric to consider when looking at customer retention, alongside a few other aforementioned metrics, and can be a powerful metric to target to improve customer experience.
I highly recommend if you are looking to setup churn metrics in a dashboard you work closely with a data analyst or even data scientist to get it setup correctly. And as the article above mentions, if you get three data analysts into a room and ask them to define the churn equation, likely all three of them will come up with different solutions. Be sure you align the definition you plan to use with your investors and board members, or at the very least run a few different kinds of calculations and scenarios to see how different d=models may work for you before deciding which to move forward with.
These 5 metrics are very import customer metrics for any business, especially any business based upon a subscription model. It provides a data driven approach to customer acquisition and retention, aligning teams around common goals for growth.
Oops! Something went wrong while submitting the form :(
.png)
