There are a number of ways to quantify the value of your customers throughout the customer journey.
While the “best” metrics depend on your goals and specific context, here is a list of 10 that most organizations should collect.
They include a mix of the four types of customer analytics to collect: descriptive, behavioral, interaction and attitudinal.
- Customer Revenue: Understanding where, when and how much top-line revenue is being generated is probably already being done. However, it’s often not being effectively tracked on a customer-by-customer basis. Tracking how much revenue is generated by each customer allows you to understand both which customers and which customer segments are responsible for the majority of your revenue. Remember the Pareto Principle: in almost all cases, a minority of customers is responsible for the majority of your revenue.
- Customer Satisfaction: Revenue doesn’t last if customers aren’t happy. Fortunately, there are a number of ways of measuring customer satisfaction. You should ask customers how satisfied they are with your product or service on a numbered scale. The American Customer Satisfaction Index (ACSI) database, maintained by the University of Michigan, is a popular tool which consists of multiple questions and provides a reference database. Don’t worry too much about the phrasing of customer satisfaction questions or the total number of response options. It’s more important to collect satisfaction data early and often. Use multiple sources of data (existing customers, former customers and 3rd party reports) and different points in time to understand how your product or service is perceived.
- Customer Profitability: Companies don’t stay in business by selling for $5 products that cost $10 to make (at least not for long). Knowing revenue by customer is the first step. The next step is to understand the cost associated with that revenue. Certain customer segments will be more profitable, due to factors such as low price sensitivity or less use of customer support. You need to identify these particularly valuable customers and, in most cases, treat them differently by offering customized incentives, perks (1st class upgrade anyone?), product features or other means of gaining and retaining their loyalty.
- Customer Lifetime Value: Have you ever wondered why cable companies offer really low prices for the first few months then increase the prices? The total revenue over the lifetime as a customer (usually years) offsets the losses they absorb in the initial period to gain a customer. A long-term projection into the future profitability of a customer is called the customer lifetime value. A customer lifetime isn’t usually the lifespan of a person, but rather the days, months or years a customer spends using your products or services. There are often large initial costs in acquiring a customer but these are (hopefully) offset by higher revenue over time.
- Brand Awareness: How many customers even know a product or company exists? You can measure brand awareness using unaided or aided recall. With unaided recall you ask participants to name the brands or products that come to mind when considering a certain category, for example toothpaste or luxury watches. You can also have customers or prospects rate how familiar they are with certain brands using simple scales from not at all familiar to familiar.
- Top Tasks: Every product, website or software application has multiple functions, but customers are usually only interested in a handful of them. You should identify these tasks and be sure users can effectively complete them and be satisfied with the experience. A top task analysis help to separate the many trivial tasks from the critical few that matter to your customers.
Think about all the things Microsoft Word can do: mail-merging, macros, desktop publishing,… Yet, most users only want to accomplish a few core tasks like writing and formatting documents. The same observation applies to health-insurance websites–they are full of places to click, information to read and features to use. Yet, when we conducted a top-task analysis with customers, we found that only two actions, finding a doctor and seeing if insurance would pay for a specific procedure, were top-tasks. Unfortunately, many insurance provider websites don’t make accomplishing these tasks easy. This affects both customer satisfaction and loyalty.
- Customer Loyalty: Customers who come back, repurchase or recommend a product to friends or colleagues are key drivers of a product’s long term viability. The popular Net Promoter Score is one way to measure customers’ likelihood to say positive or negative things about their experience with products or services. The likelihood to recommend is often a good indicator of the likelihood to repurchase as well. You should track both the intentions of customers (are you likely to repurchase or recommend?) and the actions (did customers actually repurchase or recommend?) to understand measure loyalty.
- Conversion Rate: For online campaigns, direct marketing, donations, or just sales copy, it is useful to determine the percentage of customers who are exposed and who ultimately purchase a product (or sign-up for a service). It enables you to understand how small changes in design, pricing, features or content can increase or decrease the percentage of prospective customers that are gained or kept. When I helped the Wikipedia team understand the differences in donation rates they saw on their website, we looked at the different images, copy, and the time of day that led to higher rates of browsers becoming donating customers.
- Completion Rate: Customers want to get things done. If they can’t complete tasks, especially their top tasks, with a product or website, not much else matters. I often call completion rates the gateway customer experience metric for that reason. Completion rates are applicable to activities like finding products, information on websites, solving tasks in architecture software, entering a journal entry in accounting software or getting a problem solved by a customer service representative. Poor task completion rates lead to lower satisfaction levels and a drop in the likelihood to recommend.
- Churn Rate: It’s not just about getting customers; it’s also about keeping them too. If customers never repurchase a product or service, or abandon as soon as they can, that has a long term negative effect on profitability. This so-called churn rate is especially true since the cost of acquiring customers is generally higher than the cost of keeping them. Valuable pieces of information include the percentage of customers that abandon at time intervals (e.g. after 1 or 2 years) or stages (e.g. renewal time, product upgrades) and the reason for abandonment. For example, while offering products like a cable subscription at a low price for a few months to lure customers may generate more total customers, if too many abandon when the prices increase, it may outweigh the new customer incentives and drive potential customers away.