Tag Archives: Customer Lifetime Value

3 Ways to Quantify Customer Service Success

Posted on 16 November 2010 by | 4 Comments

One of the reasons customer service is often relegated to the sidelines is that companies struggle to understand the value of delivering the service itself.  How much better could a company perform if service improved from good to great?

A recent HBR post by Whitney Johnson made me think about how customer service professionals can measure the value they provide.  We aren’t sales people, though we impact revenue.  We aren’t marketers, yet our frequent customer interaction shapes the brand (for better or worse).  Here are 3 ways to define the impact of customer service on company success.

  1. Renewal Rates – When customers continue to purchase a subscription (in the case of SaaS) or maintenance (in more conventional software license models) they are literally voting with their wallets.  An improvement in renewal rates increases the customer lifetime value and translates directly to profitability.
  2. Satisfaction or Loyalty Scores – All companies should measure customer perception of their organization, its products, and services.  Whether the measure is a customer satisfaction (CSAT) or loyalty through a measure like NetPromoter Scores, it is imperative to track changes in customer feedback.  Even the rate of response is something to measure since a decrease in response rate could signify a weakening loyalty to your company and its products.
  3. Referral Rates – When customers stake their reputation on your products/services you have achieved a level of loyalty that helps your sales team in future prospecting.  This premise is so important that companies will go to great lengths to ensure their first customers are true fanatics.

A word of caution… these measures cannot be used in isolation and must be used together.

  • High renewal rates with low satisfaction measures indicate that you have customers firmly in your grasp, but that customers want to escape as soon as possible.
  • High satisfaction rates coupled with low renewal rates may signify that your products/services are becoming less relevant in the marketplace.

The pivot point is that when customers tell us and others about their satisfaction and follow-up by renewing services/products, then we can be confident we are adding value.  Measuring the attributes above is a good start to gaining insight into the size and scope of the value.

What measures have you found useful to use when trying to quantify value?

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Posted in Best Practices, How to Deliver Customer Service, Why Bother with Customer Service

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The Top 1,000,000,000 Reasons to Listen to Your Customers

Posted on 19 July 2010 by | 2 Comments

While others write about the Top 10 Reasons to listen to customers more powerful examples are all around us.  After all, if Zappos can generate $1B in word of mouth (WOM) revenue why do companies continue to ignore their customers?  Satisfied customers are the best sales channels ever!

The Best Sales Channels:

  • Generate Additional Business – If customers are willing to speak favorably about your company or its products, they’re likely to make additional purchases.  This willingness to purchase more comes at no additional cost, the next benefit of WOM.
  • Are Cost-Effective – We often think in terms of acquisition costs.  Some businesses measure success with ratios of 3:2.  If it costs $3 to acquire a customer who spends $2 they declare victory.  This model only works with recurring revenue streams, when the customer lifetime value is considered.
  • Reach New Customers – This is the true power of WOM advertising, and why Fred Reichheld ‘s The Ultimate Question have gained such momentum.  Once a company has set a positive experience in motion with one customer that good reputation spreads and other customers seek out the company’s products and services.

    If WOM still seems touchy-feely (and the $1B doesn’t convince you) then it’s worth considering that any B-School professor would tell you that leveraging fixed assets is a wise choice; it magnifies benefits across a larger number of consumers.  The same applies to WOM advertising.  Respecting customer’s needs and supporting customer goals is really just good business sense.

    The pivot point is that by listening to customers you can continually spread your acquisition costs.  Happy customers encourage others to buy whereas unhappy customers actually increase the barriers and impediments to sell.

    With one billion reasons to listen to customers, where will you start?

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    Posted in Customer Service

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    Customer Loyalty Bad? Never!

    Posted on 26 April 2010 by | 1 Comment

    I read a good Harvard Business Review blog post that discussed when customer loyalty can be a bad.  The article is worth perusing, even though the authors have missed the point of loyalty.  Customer loyalty is never bad.

    The argument the authors ought to start with relates to unprofitable customers.   Mr. Keiningham and Ms. Aksoy write:

    “If typically most loyal customers in a firm aren’t profitable, how exactly does a customer loyalty strategy ever generate a positive return on investment? Instead asking whether you have enough loyal customers in your customer base, you need to ask yourself three more complex questions: 1) which loyal customers are good for the business, 2) how do we hang onto them, and 3) how do we get more customers like them.”

    Ah ha!  The important issue is customer profitability.

    “Unprofitable loyal customers tend to be loyal for one of two reasons: 1) they are driven by unprofitable pricing or exchange policies, or 2) they demand an excessive amount of service that they are not willing to pay fairly to receive.”

    If customer loyalty stems from #1, your company has a straightforward sales problem.  If loyalty comes from #2 then your company should stick to its guns and deliver a level of service that is profitable.  And if your company encounters #1 or #2 consistently you can be sure you have either an unviable business model or a management team that requires a wake-up call.

    Mr. Keiningham and Ms. Aksoy definitely get one point right – some customers can damage your business. (In fairness, the reverse is also true well – some businesses damage customers!)

    The pivot point:  don’t start by asking which loyal customers are profitable; start by understanding which customers are profitable.  Then either make profitable customers loyal or make loyal customers profitable.

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    Posted in Customer Loyalty

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