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10 Boardroom metrics to monitor your customer strategy

You aim for bottom-line impact with your customer-centric strategy? Get to know the 10 boardroom metrics to have on your radar.

  • #1 Customer Lifetime Value
  • #2 Customer Effort Score
  • #3 Monthly Recurring Revenue
  • #4 Customer Satisfaction Score
  • #5 Net Promoter Score
  • #6 Average Order Value
  • #7 Revenue from returning customers
  • #8 Closing rate
  • #9 Customer Retention rate
  • #10 Customer Churn rate

Find out in this article:

  • Why you should monitor those 10 metrics, to evaluate the impacts of your customer strategy.
  • Which (sometimes disturbing) questions you should ask yourself about the underlying performance factors.
  • What are the pro’s and con’s of each of those metrics.

#1 Customer Lifetime Value (CLV)

The question

Are you aware of the actual value of your customers to your business?

The metric

Customer Lifetime Value = customer value x average customer lifespan.

Next to the average value of sales, customer value accounts for: acquisition costs, operating expenses and costs to produce the goods or services.

The pro’s

Customer Lifetime Value, also called Lifetime value (LTV), helps you to prioritise and tailor marketing, as well as your operational efforts, to maximise future return on investment.

It points the way towards successful customer acquisition and retention strategies per customer segment. 

It switches the dynamics in your organisation to a focus on the customer, by forcing the business to examine their accomplishments with their customers.

The con’s

This metric is not relevant if hard data (eg. turnover, acquisition cost, customer service cost, …) are not available.

The future is difficult to predict, even with the best data at your disposal. Customer lifetime value (CLV) remains a predictive metric.

#2 Customer Effort Score (CES)

The question

Do you know exactly where it hurts?

Do you capture the true needs behind the cry of pain of your customers?

The metric

Customer Effort Score is the score you get when asking your customers how easy it was to interact with you. (on a scale of 1 to 7, from 1=very hard to 7=very easy).

Measuring the efforts required by a customer to interact with the company, is mainly used to evaluate the quality of an interaction and to estimate customer loyalty.

The pro’s

The Customer Effort Score metric provides a critical insight on the quality of a process or a service. It is objective and very reactive, considering that it is measured just at the end of an interaction.

It is complementary to other metrics, such as NPS or CSAT that we will introduce later. It is closely linked to satisfaction, loyalty, and generally to speaking customer experience.

The con’s

The Customer Effort Score does not provide much insight when the metric is not followed-up over time. The trend gives more qualitative insights than the absolute value.

Collecting additional data (qualitative) and information on customer sentiment is necessary to complement information from CES.

#3 Monthly Recurring Revenue (MRR)

The question

How impactful is your customer strategy?

The metric

Monthly Recurring Revenue = expected recurring revenue per customer per month x number of customers.

The pro’s

The Monthly Recurring Revenue is an ‘advanced warning’ metric: it helps you to understand the drivers of revenue growth and to identify opportunities to optimise your customer strategy. For example: improving acquisition, retention, pricing strategy.

It strongly supports budgeting/financial forecasting. And is useful to validate the relevance of a decision taken.

The con’s

For business models other than subscription -based models, the Monthly Recurrent Revenue metric can be more difficult to track.

We do not recommend this as a stand alone metric. You get better insights when combining MRR with your customer acquisition cost. And when correlating with your Net Promoter Score.

#4 Customer Satisfaction Score (CSC)

The question

How can you reduce friction points in your customer journey? What steps can you take to streamline your processes?

The metric

Customer satisfaction score = the score achieved when asking your customers how satisfied they are on a scale of 0 to 10.

It measures ‘in real time’ how well commitments are delivered to customers.

The pro’s

This metric gives valuable insight on customer’s overall experience with the products and/or services that you provide.

The Customer Satisfaction Score gives you real-time feedback on the impact of your actions. It is easy to implement, easy to understand for your customers. And thus more likely to provide multiple data points.

The con’s

The Customer Satisfaction Score does not provide you immediately with actionable information. And it requires a qualitative follow-up question to fully understand the score given.

Capturing verbatims is important to better understand where to prioritise your actions.

#5 Net Promotor Score (NPS)

The question

How many of your customers claim to be advocating for you?

The metric

Scores from 0 to 10.

NPS = % Promoters – % Detractors. It is calculated with:

  • Promoters: respondents who scored  9 or 10.
  • Passives: respondents who scored 7 or 8.
  • Detractors: respondents who below 6.

The pro’s

Generally used and easily recognized across industries.

The same question can be used for customers and staff.

The con’s

The metric is not “valid”: people who claim to recommend you are not necessarily doing so in reality.

The claims of a causal link to growth stronger than CSAT have been proven wrong.

#6 Average Order Value (AOV)

The question

Is your customer strategy actively leveraging cross- and upselling opportunities?

The metric

The average amount spent every time a customer places an order.

AOV = total revenue/amount of orders placed

The pro’s

This metric helps to assess which strategies are driving your customers to spend more.

It also puts the focus on ways to increase the profitability of your existing customer base.

The con’s

The average order value metric can be affected by a few extremely high or extremely low value orders.

It focuses on the monetary value of individual transactions, not on the long-term customer retention and loyalty.

#7 Revenue from returning customers (%)

The question

Are your processes nurturing customer loyalty?

Does your business model foster repeat business?

The metric

Revenue from returning customers = a percentage of total revenue

The pro’s

Comparing revenue generated by new customers to the cost of acquiring those customers can provide insights into the effectiveness of efforts. It helps tracking customer loyalty and identify opportunities to improve customer retention.

The con’s

Revenue from returning customers does not take into account the frequency or the volume of purchases: a high number of returning customers may not necessarily lead to sustained revenue growth if they make only smaller purchases.

The relevance of this metric may vary depending on industry and business model.

#8 Close Rate (%)

The question

Are you presenting the right value proposition to your sales leads?

The metric

Within a period, what’s the percentage of conversion of new customers over the total number of leads generated.

The pro’s

A drop in close rate can be an opportunity to reassess customer expectations. This metric is both tactical (performance of sales reps) and strategic (relevance of your value proposition).

The con’s

A robust controlling is needed if you want to capture every lead your organization generates. This metric isn’t always relevant for business models with long sales cycles, such as B2B companies with high-value products or services.

#9 Customer Retention rate

The question

Are you creating sustainable business growth by keeping your customers?

The metric

[(E-N)/S]x100

  • E = # of customers at the end of period
  • N = # of customers gained during the period
  • S =# of customers at the start of the period

The pro’s

The customer retention rate directly affects customer lifetime value.

Better retention means more reliability on repeat purchases, and thus increased consistency in revenue streams.

The con’s

This metric (CRR) may be influenced by factors outside the business’s control (eg. market conditions, competitive forces).

Relying on customer retention rate only, might overlook the importance of acquiring new customers.

#10 Customer churn rate

The question

Are you removing the right pain points through process review and optimisation (e.g. complaint management,…) ?

The metric

Customer churn rate = number of lost customers over the total number of customers (at the beginning of the period).

The pro’s

Customer churn rate is a quantitative metric that helps budgeting and forecasting.

Tracking this metric motivates an organisation to understand and address crucial customer pain points.

The con’s

It is a post-mortem metric: you capture insight after the fact. Therefor, it is more useful if followed-up over a period of time: reacting to the trend is more important than capturing its spot value.

The full series of Boardroom metrics to monitor your customer strategy

#1 Customer Lifetime Value

#2 Customer Effort Score

#3 Monthly Recurring Revenue

#4 Customer Satisfaction Score

#5 Net Promoter Score

#6 Average Order Value

#7 Revenue from returning customers

#8 Closing rate

#9 Customer Retention rate

#10 Customer Churn rate

Écrit par Debra Dirickx Customer Strategy Expert @ Onestone

Too many rules: what the Corona crisis teaches us about Customer Experience

wat we over Customer Experience leren uit de Corona-crisis

The police are asking for clear rules. But the population is slowly becoming tired of rules. The COVID-19 epidemic teaches us something about human behaviour. And from that we can also learn lessons for Customer Experience Management.

The principle is clear: don’t come near each other, so that we don’t infect each other. And if that’s not an option: stay in small groups with always the same people – with your housemates, for example. In a compartmentalized population, the virus spreads less quickly.

But principles give little hold. People want rules. Exactly how much distance should we keep? May I visit my lover? And how far may my walk lead me from my home?

Perverse effects

This demand for rules seems justified at first sight, but it leads to unintended effects.

It started with the announcement that events with more than a thousand participants would be postponed. Suddenly organizers announced that their event would take place anyway – with 999 participants. Interviews on this subject in the newsreel stunned many. And when the government announced that pubs would close at midnight, they were suddenly full for lockdown parties – until 11:59 pm.

Gradually, more rules came and existing rules became more precise. We’re not allowed to make unnecessary trips, but of course we’re allowed to take a breath of fresh air: walking, running and cycling are allowed. But can we also roller skate? That is not entirely clear. Can a couple that doesn’t live together have contact with each other? And is an adolescent allowed to visit his sweetheart? Even if she still lives with her parents? And so you can ask a question about each individual situation that has to be answered with a new rule.

The police in particular are asking for clear rules. Because then it’s crystal clear who they have to discipline – or fine.

More rules – less effect

In the last few days the accusation sounds that the rules have already been changed eight times. That is due to advancing insight: our virologists learned along the way that the virus survives quite long on some surfaces – like benches in the park. But the rules change mainly because we need a rule for every situation. In that sense, the accusation is quite unjustified. First we ask for clarification of the rules, only to blame the regulators for making too many of them.

As more rules come, we become tired of rules. Certainly if we get the feeling that reason is being lost. Like when Belgian Minister of the Interior De Crem announced that cycling trips of fifty kilometres were no longer allowed. Does a cyclist who rides 51 kilometres cause so much more damage than someone who rides 49 kilometres? And why is it forbidden to play basketball on a square alone? Or sitting on the grass twenty metres away from other people? How many people do you infect with that?

If the rules seem arbitrary, resistance will arise. Since De Crem’s statement, the question has appeared in the newspapers as to whether the rules are legally valid and enforceable. And that makes it harder for us to comply with them.

The speed makes it visible

That’s also what happens in our companies. Only much slower. And it has a detrimental effect on the Customer Experience.

It starts with simple principles. But you have to interpret them. People ask for clear rules, then there is no discussion. That’s why a manager spends his entire budget every year. That is not always necessary, but he has it. Doesn’t he use it? Then he’ll get less next year. And what if he wanted to use the money the next year for a project that significantly improves the Customer Experience? Then he can’t because that’s not how it works.

When there is a directive for each specific part of the service, the customer should call back for his next question. Because the customer service agent only has six minutes for each customer. And these are used up for his first question.

Even well-meaning rules miss their effect. For example, a customer receives an answer to his complaint within three working days. Because that’s how it should be according to the Customer Experience rules. And does that really help the customer? That seems to be of minor importance. Because the employee is accountable for the speed – and not for the quality of his response.

And in the end, there are so many rules that employees don’t see the point of, that they creatively bypass them. But without the boss noticing.

Why do we need the COVID crisis to realise that?  Because the speed with which these things happen makes the effect stand out. The rules are changing fast.

But the principles? They remain unchanged. Stay away from each other. Flatten he curve.

Maybe we should learn to deal with principles.

Do you have to do what your customers ask?

Do you want satisfied customers? Just ask them what they want. That is the advice of many self-proclaimed customer satisfaction guru.

But have you ever crunched the numbers to find out what it would mean for the financial health of your company? Doing what your customers ask, doesn’t come cheap.

Customer feedback is not the best source of information

Is what your customers ask for that unreasonable? Of course not. Only, customers don’t need to make any considerations when they tell you what they would like, they’ll just hand you their wishlist. But you can only spend every euro once. So spend it to those things that really matter.

Especially when you consider innovative interventions, customers are rarely a reliable source of information. You can not really blame them for not being able to imagine what you ‘re up to. You may be familiar with the witticism attributed to Henry Ford: “If I had asked what they wanted, my clients would have had said ‘a faster horse’.” It is far from certain that Ford has really made ​​that statement, but he could have and admit: it’s a good story. Conclusion? You can perfectly satisfy a need even when the customer does not even realize that he has the need.

Choose what you want to be the best at

It pays off to think about where and how you want to excel. Find out where the concrete needs of your customer match with your strategy. That is where you’ll find the most interesting candidate spearheads of your service concept: what you do and do not offer your customers. Are the other players in the market not yet addressing that need? Then you’re truely holding a master card in your hands.

Make clear to your customers why they should choose you

How to know if you’re on the right track? When your customers can articulate your strategy. Not because you told it to them, but because of the way you interact with them. That’s why it is important that customers know what they can expect from you. So, communicate explicitly why customers should choose you. That way, you will also communicate implicitly what expectations you will not (necessarily) meet.

A little pain increases the pleasure

The latter is very important. Although some experts are still discussing this, causing (a little) pain, would improve the pleasure of those things you want to excel at.[1] That is why the new iPhone makes you happier when you stood in line all night to get it and why club members are more loyal when it takes effort to get in. A handbag is more valuable because it costs more – and not vice versa.

Don’t turn grey

But there is also a more pragmatic reason to choose not to excel everywhere: the attention and resources that you spend on those elements of your services that are less distinctive, you cannot spend on your spearheads. Thus, you reduce the contrast with others and become an ‘average joe’.

If providing a quick service is not your priority, don’t invest in becoming quick. Just make sure your speed is acceptable. If fast service is your spearhead, be the fastest and make that promise true every time – without compromise. Colruyt is the cheapest. Always. If you like strolling through a cozy shop, there are much better options.

Read more about why we just don’t ask our clients what they want

[1]Kahneman, D., Diener, E., & Schwartz, N. (1999). Well-being: the foundations of hedonic psychology. New York: Russell Sage Foundation.

Horst-Remes-Customer-Strategy-Expert
Écrit par Horst Remes Customer Strategy Expert @ Onestone

The perverse effects of KPIs

Anneleen-Vanlommel-Customer-Strategy-Expert

Anneleen Vanlommel, guest writer,
Employee Engagement Enthusiast with Herculian Alliance.

Anneleen is our former colleague and now she combines employee engagement with customer experience.

Not everything that can be counted counts, and not everything that counts can be counted. 

– William Bruce Cameron

I weigh 62 kilograms. Five kilograms too much to my liking. Time for action! To know if I’m actually getting results, I weigh myself every Monday morning, right after showering and completely naked, to make sure that I can work with comparable results. I’ve been doing that for seven weeks in a row. Without any result. What am I doing wrong? I explain that to you in this blog because we all make the same mistakes in defining our KPIs.

Measuring what doesn’t matter

You use Key Performance Indicators (KPIs) to analyse performance. Thanks to KPIs you want to induce change. And they are perfect for that, because a KPI impacts the behaviour of your employees. Someone measures it, so it’s important. You don’t even have to link an evaluation or remuneration to it. A KPI changes the behaviour of your employees. Point.

And that knife cuts both ways. Because when you define the wrong KPI, you get the wrong behaviour. And we still see that happening too often. Employees in a call centre know them well: the KPIs with perverse side effects. Managers in a call centre might evaluate their employees on the length of the phone calls they are doing. In an ideal world they would take less than 3 minutes, because then they can help more customers, keep the waiting time under control and have more satisfied customers. The annoying side effect? Employees who, after 2 minutes and 50 seconds, tell the customer they’ll call back in a minute. The KPIs are green. The customer turns red.

Measuring what matters and still overshooting the mark

Soon I found out that I’d rather weigh myself in the morning than in the evening, that I’d get a better result if I didn’t drink any water the night before, and that it was to my advantage to go to the toilet first. Once I saw the number 59 appear. And quickly disappear again. A typical phenomenon: measuring the intended result but not actually achieving what you want.

Your goal is customer satisfaction. So you show your employees on a weekly basis how often they make a customer happy. You measure what matters, and yet you create problems. A small selection of what we see happening: 

  • Employees who only send surveys to customers they expect to be extremely satisfied.
  • Assigning colour codes to the survey so that customers are well aware that a 7/10 or 8/10 answer is only ‘orange’.

  • An employee who asks your customer to give a high score, because he will be evaluated on it.
  • Or handing out gifts to customers, hoping for better scores.

Measure behaviour, not results

Most managers focus on results. Sales managers focus on sales, service managers focus on customer satisfaction, parents focus on report cards, people who diet focus on weight. But by measuring results, you won’t get there. In order to motivate your team and achieve success, it is better to do a behavioural measurement. Here is the difference:

A result measurement

  • tells you if you have achieved the goal
  • can’t be directly influenced by you
  • gives you information at a moment you can no longer change the result

A behavioural measurement

  • tells you how likely it is that you will achieve your goal
  • can be directly influenced by you
  • gives you information when you can still influence the result

Therefore, a behavioural measurement has a more motivating effect than a result measurement.

Is your goal customer satisfaction? Then your result measurement shows how many satisfied customers you have. Your behavioural measurement, on the other hand, measures what your team does to ensure that customers are satisfied.

Why is it that we so often use the wrong KPIs?

If it’s so simple, why do we always use result measurements? There is one simple reason for that: they are easy to implement. You don’t have to look for them, they are often delivered to you automatically.

Measuring behaviour is a lot more difficult. And there are two reasons for that:

The behaviour with a direct impact on the result is difficult to determine.

How do you determine which behaviour has an impact on your intended result? Many managers do this intuitively. They start from assumptions and select those elements that they think have a direct impact on the goal. Like answering customers quickly, for example. If we do that, customer satisfaction will increase. And so we measure the speed with which we solve customer questions. Employees adjust their behaviour and focus on the speed, not on what they should do to make the customer satisfied. A world of difference, because satisfaction is rarely about how fast you do something for a customer. Your customer just needs to know who is going to do what and when. No vague promises. Customers like it super concrete.

Behaviour is difficult to measure.

Have you figured out what your employees have to do to create satisfied customers? Then it’s a matter of measuring how often they behave in this way. How often did your employee give the customer insight into when his question will be answered? Quite a challenge, because this data is seldom available and collecting it takes some effort.

How do you determine a good KPI?

Find the desired behaviour

First, determine your goal. What should your customer say about your organisation? Then, experiment to find out what the behaviour is that your employees have to display in order to reach that goal. Are customers more satisfied when we call them, rather than emailing them? Do customers want a fast solution? Or do they prefer to be kept informed while we take some time? You only know the answer when you test it on a number of customers.

Most important criteria? Your employees must be able to have a direct impact on the desired behaviour. Whether they do it or not, depends solely on their own will to do so. 

Measure the desired behaviour

Is it clear which behaviour is needed to achieve the desired result? Then you have to measure it. And you have to make sure that your employees have an overview of the status. Not a monthly report with the results, but a direct view on how your employees behave.

Do I want to lose those kilos? Then I’d better stop measuring just the result. I have to measure my behaviour. And that’s why I first determine which behaviour has a direct effect on the kilos that appear on my scale. In order to lose weight, I can take two actions: eat healthy and exercise. 

And I can measure those two. How many calories do I eat every day and how many calories do I burn? Do I keep a good record of these two things? That way I focus on what really matters. Not an easy exercise, but better no KPI than a bad one. 

By now I weigh 57 kg. I practice what I preach.

Intrigued by this subject? Then be sure to read The 4 Disciplines of Execution van Chris McChesney, Sean Covey en Jim Huling

Responding to complaints? Avoid financial compensation

Financiele-compensatie-werkt-niet

Marijke Houtman, guest writer,
Strategic Business Advisor with Colruyt Group.

Marijke is our former colleague. Data analysis is what she loves!

An estimation error, client communication gone wrong, or a promise you didn’t fulfil? Despite your efforts to deliver exceptional services, products and effective contact, you’ll eventually find yourself responding to complaints. Exactly how do you tackle them? Rule one: You don’t handle complaints with financial compensation. Ever. I’ll explain why and how to bend complaints to your advantage.

But first: what exactly do we mean by financial compensation? It’s a sum of money with which you respond to the ‘psychological’ damage caused by an error. Are clients demanding this sort of compensation? Then they’re usually asking for more than the damage actually suffered.

What isn’t financial compensation? It is not damage compensation, because that actually does cover the exact amount of damage actually suffered. For example: your internet refuses to work for a day, so your provider takes one-thirtieth off the total of your invoice for the month.

Now, do you offer your clients financial compensation after a complaint? Because if you do, you’re encouraging a certain type of client relationship— a transactional. And risk falling into the commodity trap.

Build an emotional relationship with your client

We differentiate between two sorts of client relationships: transactional and emotional.

  • In a transactional relationship, the entire focus is on the transaction—the sale. In this context, discounts, financial allowances and compensations work perfectly. At least, until the competition comes along with an even better price … What then? Do you give an even better discount? Lower your prices even further? Before you know it, you’ve landed with both feet in the commodity trap. Because there can only ever be one that’s the cheapest …
  • Would you like to avoid this? Build an emotional relationship with your client. You do this by offering your client the total experience. And to understand what the total experience is, we suggest taking a look at Starbucks. They’re not exactly the cheapest place to go for your coffee. But we still go there in droves. Why? Starbucks works on offering their clients the complete experience. From the personal touches to the total atmosphere of the shop itself. You don’t just trade this experience in for a cheap cup of coffee.

Your client’s perception changes in the blink of an eye

Imagine your client has an emotional connection with your company. What happens when something goes wrong? Would compensation strengthen this relationship? Or would you run the risk of transforming the emotional relationship into a transactional one? How quickly would this happen?

Take a look at the following research into childcare centres. Children are often picked up late. It’s a fact that they used as the basis of an experiment in Israel:

  • The idea? Ask parents to pay a fine when they’re ten minutes late.
  • The goal? To make sure that fewer children are picked up late.
  • The result? More parents arrived late. A lot more in fact.  And worse yet: the fines were abandoned after three weeks but the parents continued to arrive late.[1]

What happened here? Two things:

  1. By executing a financial transaction, the client’s perception of the relationship changed. And that happened almost instantly. Parents saw the relationship as ‘transactional’.
  2. This perception remained even after the fine disappeared. The damage was done.

What do we want to show through this example? Perception can change very quickly from emotional to transactional. It’s then very difficult to turn the tide. There’s a great chance that you’ll head straight into the commodity trap.

How to escape the commodity trap

Once a transactional relationship with your clients, always a transactional relationship? Fortunately, that’s is not the case. No one is doomed to be or remain a commodity forever. At least, not if you differentiate yourself from the competition in a positive way.

When something goes wrong and results in a bevy of complaints, don’t play the compensation card. Because a complaint is an excellent opportunity to set yourself apart from the competition.

After the correct handling of a complaint, a client will be more satisfied than they were prior to the issue that resulted in the complaint. This may look like a contradiction—which is why this phenomenon is called the service recovery paradox. But everything has to do with the perception that remains in the memory.

Focus first on the person, then on the complaint

What does the ‘correct’ handling of complaints actually mean? Keep the steps of the following process in the back of your mind:

1. Take care of the person first …

Your client calls and is angry or disappointed … It’s our natural reflex to want to solve the problem immediately. We prefer to ignore the emotion involved. After all, what should we do with it? However, it’s in this lack of attention for emotion that the problem lies. Because it’s the emotion that determines how a client feels after the handling of the complaint.

Respond to the emotion first. Let your client know that you understand they’re frustrated. A simple “That sucks” can be enough. A client will only be ready to discuss possible solutions after they feel like they—and their emotions—have been acknowledged.

2. … and then solve the problem

Satisfaction depends more on the effort and creativity you show when solving the problem than it does on the problem itself.[2] This is in contradiction to what we often do: think of the ultimate solution and then propose it to the client. What happens if they’re not satisfied with that? We’re stuck there with nothing to say. And the client ends up feeling that we haven’t put in enough effort.

What are you better off doing? Brainstorming out loud. Think together about what possible options are. A client who appreciates your efforts to solve the problem is a happy client.

Don’t cross the bridge with money

Does financial compensation belong on this list of possible options? In the short term, it may appear to be a good way to calm the situation down. But in the long term, you’ll benefit by focusing on different ways of responding to complaints. Set yourself the goal of strengthening your emotional relationship the client. And keep following this time-honoured adage: money doesn’t make you happy.

Read more about how to deal with angry customers

[1]Gneezy, U., & Rustichini, A. (2000). A fine is a price. Journal of legal studies,vol. XXIX,                       http://rady.ucsd.edu/faculty/directory/gneezy/pub/docs/fine.pdf.

[2]Marinovan, D., Singh, S. & Singh, J. (2018), Frontline Problem-Solving Effectiveness: A dynamic analysis of verbal and nonverbal cues. Journal of marketing research.