Many businesses now measure customer success metrics as an important part of their business strategy. Businesses like to make sure that they are happy with the performance of their organization as well as provide a value proposition for customers. This article will cover what some of those metrics are and what they’re used for.
Net Promoter Score
The Net Promoter Score helps you determine your current customer satisfaction and loyalty by asking just one question: “How likely is it that you would recommend company X’s product or service to a friend or colleague?” Respondents answer on a scale from 0-10, with 0 meaning not at all likely and 10 meaning extremely likely. Based on the responses, you can gauge how likely you are to retain customers. By using this metric, you can initiate action based on customer feedback.
Customer Churn Rate
The Customer Churn rate is a measurement from the number of customers who have stopped doing business with a company. This measurement is tracked over time so businesses can identify various trends in the reasons for customer attrition. The Customer Churn rate can be calculated by taking the number of dropped customers in a given period and dividing it by the total number of customers at the beginning of that period.
Customer Lifetime Value
The Customer lifetime value is the calculated net present value of how much a customer will cost your organization in terms of lost revenue, average total cost of customer acquisitions, and average revenue per new customer. To calculate this metric, you have to calculate the average amount that a lost or acquired customer loses you per year or month, then multiply this by the number of customers retained through the period. This calculation works well for small businesses because they can afford to lose money on new customers. However, if your organization is large enough to have more than one million customers, the number is too high for this calculation.
Customer Retention Cost
The Customer Retention Cost is the ratio of average customer acquisition cost to the product value of one customer. It is calculated in two ways:
a) Average revenue per new customer x Average total cost per employee in acquiring one new customer. For example, say an organization spends $3.00 to acquire a new customer on average, but each new customer increases the organization’s average revenue by $80 per year. Therefore, their average revenue per new customer would be $80 – ($3.00 X 1) = $81.67, or 81 cents on the dollar. If the organization has 20 employees and they all work on new customer acquisition, they would spend $5,000 per month on acquiring customers, and $15X20 = $300 per employee per month.
b) Average revenue x Average total cost of one new customer. For example, if a company brought in $1,000 per month in average revenue and it cost them an average of $800 to acquire each new customer, then their monthly Customer Retention Cost would be ($1 X 800), or $800. This is the most accurate way to calculate this metric because it is specific to your company’s business model and can be compared across businesses if you provide similar services.
Customer Retention Rate
The customer retention rate is the ratio of customers who remain to those who acquired. This measurement is tracked over time so that companies can identify trends in customer retention. Like the other metrics, this measurement can be calculated two ways, by either taking the number of lost customers in a given period and dividing it by the total number of customers at the beginning of that period or by calculating the percentage of customers retained out of all new customers for a given period.
Monthly Recurring Revenue
This metric is tracked monthly so business owners can determine if their company has an increasing or decreasing Monthly Recurring Revenue (MRR). This measurement is important to track because businesses can charge customers more for their services by selling them on an MRR plan. MRR is the average amount of money generated per month by a business’s recurring customers. This measurement can be calculated by taking the average revenue generated each month over the course of the last year and dividing it by 12, or taking total revenue generated in any given month and dividing it by the number of months in an entire year. However you calculate this metric, businesses must also take into consideration monthly discounts they offer their clients.
The lifetime value is a measurement of the average total cost a customer will generate for a business over their lifetime. It is calculated by taking each period’s revenue minus the Daily Recurring Revenue and dividing it by the total number of customers who have been acquired. By calculating this metric, businesses can determine if they have lost too much money by acquiring customers.
First Contact Resolution Rate
This metric is highly beneficial to measure because it allows you to determine how successful your customer service team is at resolving issues with your clients. It is calculated by taking the number of problems your team resolved out of the total number of first contacts during a given period.