May 11, 2017
How to Measure and Optimize your CX
Part 5 in the Killer Customer Experience Series
By Bill Rossiter and Anita Holman
“What gets measured gets done.” That simple statement is a guiding principle for us — both at our agency and with our clients. Putting metrics in place around your customer experience (CX) shows the rest of your organization that you’re serious about CX, and gives you the data to measure progress and optimize the experience. But how do you quantify something as broad and intangible as “experience”?
There are several metrics commonly used to measure and manage customer experience. Choosing what’s best for your organization comes down to understanding the metrics that best match your business goals and the role you want CX to play in your business.
To get the right metrics, ask the right questions
In earlier segments of this series, we explored a broader definition of “customer” and created profiles to better understand your audiences. We created a customer journey map and learned ways to embed a CX philosophy throughout your organization. Our goal was to demonstrate how to construct the kind of exceptional customer experience that drives better business results. Now, how do we know if it’s working?
We’ll look at five different metrics. To make it easier to compare them, let’s look at each one in terms of the question it answers.
1. What is their (ongoing) business worth to you?
The Lifetime Value of a Customer (LVC) is perhaps the most significant metric to benchmark, and one of the easiest to calculate. Amazingly, it’s also one of the most overlooked metrics in business.
LVC is important because it will give you an idea of profitability: How much you should invest relative to the value that customer is likely to provide — over a lifetime, or even if you want to look at it annually. Once you know how much and how often customers typically buy from you, you can make more informed decisions about allocating resources to the customer retention programs and other services that keep your customers engaged and buying.
To calculate the Lifetime Value of a Customer (LVC), use the equation below. Tip: You can use estimated numbers if you’re just starting out. You can also break down this “lifetime” calculation into smaller time increments (such as 12 or 36 months) to align with your strategic planning and budgeting processes.
LVC = (Average Value of a Sale) X (Average Number of Repeat Transactions) X (Average Retention Time in Months or Years for a Typical Customer)
A cabinet manufacturer sells an average of 27 cabinets/home at a price of $250 each. Therefore, each home is worth $6,750 in sales annually. Now, here’s where those customer profiles come in handy.
The custom home builder who averages 4.5 homes annually is worth a little over $30,000 in sales per year to the cabinet company. The regional builder who averages 450 homes per year is worth just over $3 million annually. The LVC of each customer is the annual total multiplied by the number of years the cabinet company expects to retain the business.
Once you know the LVC, you can view your customer acquisition costs in two ways. One is the short-term view: the amount you’re willing to spend per customer per campaign, assuming the cost is less than the profit you make on your first sale. Then there is longer term view: the cost you’re willing to spend per customer, knowing that you may take a loss on an initial transaction (such as a trial period), but other products/parts of the business will absorb your initial investment while you are betting on the come.
Knowing the LVC can help you make more accurate projections and understand how many (and what kinds of) customers you need to reach your overall sales goals. Once you know that target number, look at your typical conversion rate to determine how many leads you need to put into the sales funnel to reach that number. Having this information can help you make more informed and targeted marketing decisions.
Of course, knowing what a customer spends with you doesn’t tell you why they remain loyal, what might send them to a competitor, or entice them to spend more. To understand what tips the scales for (or against) you, you need an additional kind of measurement.
2. What do they say about you?
Often the most valuable feedback comes straight from the customer. So, it’s important to find a way to capture Voice of the Customer (VOC) as accurately as possible. Approaches vary from standard quantitative surveys (which can be skewed if your questions guide them too much), to qualitative surveys that give customers more opportunity to express themselves in their own words. A favorite of ours is to listen to calls that come in to your customer service and, better yet, to your online chat platform. (You do have chat, right?) Not only does it reveal authentic, real-time Voice of Customer feedback, but it will also tell you how well your team is delivering the customer experience you are trying to create.
But perhaps the most valuable form of VOC is not what customers say to you, but what they say about you — because this voice is totally unfiltered. And that unfiltered voice can become a very real part of your brand. As Amazon founder Jeff Bezos has said, “Your brand is what people say about you when you’re not in the room.”
Fortunately, technology makes it easy to keep your ear to the ground. Numerous social monitoring tools and services exist to help you keep tabs on social media mentions, reviews, ratings, blogs and other interaction points.
If you are not capturing that information in real time, you’re missing out on valuable and actionable data. Think of it as an investment in real-time market research. The quicker you see problems or successes, the quicker you can fix them or leverage them for better business results.
Establish your key indicators of a great customer experience, then monitor them at regular intervals. Ongoing social monitoring can provide real-time qualitative feedback, while periodic surveys can provide more formalized quantitative data points for comparison over time. Your business cadence, budget and other factors will play a role in the scope and frequency of your VOC efforts. The important thing is to monitor it consistently and then be able to interpret and apply your findings appropriately.
3. Would they recommend you?
Word of mouth (whether in person or online) is consistently one of the top reasons people feel confident in making a purchase decision. It doesn’t matter whether that purchase is deodorant, building products or a car. Because of the high value of recommendations from others, one of the most utilized metrics in the field of customer experience is the Net Promoter Score, or NPS.
NPS embodies a customer’s emotional connection (and thus loyalty) to a brand, and is already used by many companies as a standard measurement of overall customer satisfaction. It boils down to one simple but powerful question: “How likely are you to recommend this (product, brand or company) to others?”
Customers respond using a scale of 0—10. Those who answer 6 or below (negative to indifferent) are considered Detractors; 7 or 8 (neutral to preference) are Passive, and 9 or 10 (loyal to champions) are Promoters.
Source: How to Measure the Customer Experience by Carlos Molina
Note that only a score of 9 or 10 qualifies as a Promoter. It’s not enough to merely satisfy your customers. Customer satisfaction is simply meeting basic expectations. To be Promoters, customers must go beyond feeling “satisfied” to being invested enough that they become loyal advocates and champions.
Because of its wide acceptance and quick, simple format, NPS is one of the primary metrics frequently used to gauge momentum and success, and the one metric most often presented to senior leadership. But in its simplicity lies its weakness. NPS is merely a point in time. It can’t necessarily tell you where and how to improve.
As companies come to better understand the full impact of CX on their business, and as customers develop new expectations, new ways to measure it will continue to evolve.
4. Is it worth the effort?
Today’s consumer has very high expectations about access to information, pricing and the level of service they require. And don’t think that’s merely a millennial thing — it turns out that consumers in every age group have higher expectations. This new level of expectation has driven a new way to look at the customer experience. The Customer Effort Score (CES) measures level of effort that a customer must expend to research, select and purchase a given brand.
Similar to NPS above, the Customer Effort Score is based on how customers rate a simple question. In this case: “How much effort did you personally have to put forth to accomplish x?” (It could be to purchase a product, get information, make reservation, etc.) Customers answer on a scale of one to five, with one being extremely minimal effort and five being extremely difficult.
We have found that adding a second question helps with context: “How did this effort compare to your expectations?” Expectations have a significant effect on their score. If the customer expects a transaction to take little effort and instead it takes a lot, your experience and outcome are at risk.
Currently, the CES is most often used to measure the value of customer service interactions, but it is also expanding into a reflection of the actual purchase process. As consumers continue to expect more ease and convenience in their interactions, they increasingly take note of whether a purchase experience leaves them delighted or disappointed. As a result, some research suggests that CES may relate more closely to purchase and repurchase intent than other metrics.
Once you have asked these important questions, one final method of measurement is to compare your results to others.
5. How does your experience stack up?
We all want to be the best, or at least understand what “best” looks like, so we can devise a plan to get there. That’s why benchmarks are important with any kind of business comparison. This need for benchmarks rings true when measuring CX as well, as it is a relatively new concept in many industries and meaningful comparisons are not always easy to come by.
One standard benchmark that does exist, however, is the Forrester Customer Experience Index or CxPi. This annual survey evaluates the customer experience of more than 150 companies in the United States. To create a broader context, Forrester defines “customer experience” at three unique levels aligned to the Classic Needs Pyramid: basics, value creation, and (the one that tips the scales for us) surprising the customer. The index includes data compiled for various industries, and therefore is a great gauge to aspire to, especially for industries like building products that are well behind the CX curve.
Make it part of everyday business analysis
Building an amazing customer experience is not just about making your customers feel better, it’s also about optimizing your business results — outperforming your competitors and the industry. If you do it right, the impact to your business can be dramatic.
In the end, customer experience is part of your business strategy, and therefore should be business results oriented. To make CX relevant in the business world, we must align the more emotional and experiential metrics with business metrics, so that we can answer that question that every senior leader (especially the CFO) is going to ask: “How much more profit will we make if we raise our CX score by one point?” If we cannot answer that question and correlate CX to profits, it makes for a difficult board meeting.
To make CX part of your company’s day-to-day process, metrics and the dashboards they populate must be: easy to access and analyze; embedded within the other tools (like your CRM) your team uses on an ongoing basis; and finally, linked to and correlated with your business performance.
Some key questions you should be able to answer for each customer profile include:
- Premium price: Are consumers willing to pay more for a better experience? And what exact part of the experience is the key driver of that inclination to pay more, and how much (%) more?
- Frequency: What customer profile buys at what frequency and why? Can we influence frequency inside specific aspects of the experience?
- Share of wallet/unrealized opportunity: Does a better experience drive the customer to spend more at a single interaction interval? What part of the experience drives a larger engagement? After defining the LVC, what is our average sales versus the average interaction — or annual sales versus annual opportunity?
- Relationship duration: Do customers that enjoy a better experience have longer retention? How much longer will they continue to be our customers if we deliver a better experience?
- Referral: Do customers that have deeper experiences refer our company to other people at a higher rate?
We can all surmise that a better customer experience is better for our business than a poor one. But without the right metrics in place to understand what creates a great experience, you will never know how much to invest to positively impact your business.
Find a few meaningful metrics and start extrapolating several data points to help define and optimize the impact of CX. Ask yourself “What if?” as you explore different trigger points of the experience, and you will uncover your path to creating a killer customer experience and a highly profitable business.
Interrupt has helped numerous building products companies to drive a more dynamic and profitable customer experience process. To learn more about holding a CX JourneyPath™ Workshop or other customized CX support for your organization, email us at: contact@InterruptDelivers.com.