For us, our most important stakeholder is not our stockholders, it is our customers. We’re in business to serve the needs and desires of our core customer base. — John Mackey
Profit in business comes from repeat customers; customers that boast about your product and service, and that bring friends with them. — W. Edwards Deming
This is the fourth and last post in my series on Key Performance Indicators (or KPIs) that I believe your company should start measuring and using. My previous posts have covered KPIs for the following groups:
To round out the series, I’m recommending KPIs to start measuring for your Client Management and Support teams.
Your customers have a massive impact on the value of your company, for obvious (and not-so-obvious) reasons:
- Your ability to retain customers year over year is a huge driver of enterprise value (especially if you operate primarily on a recurring revenue model).
- Your customers are generally the most efficient path for you to drive revenue growth, too: by increasing their utilization, expanding the products/services they pay for, and increasing prices when you have delivered incremental value.
- Your customers represent a huge marketing “force multiplier” when you can convert them into evangelists to help you find new customers.
Clearly, a focus on your customers is essential. Here are some KPIs you can use to help ensure your company is doing the right things when it comes to your customers.
- Net Promoter Score® – Net Promoter Score (or NPS®) is one of the best ways to measure the overall engagement & happiness of one’s customer base, as it is aggressive in requiring very high marks from customers to achieve good scores, and reveals risk of attrition better than most metrics. It is also one of the foremost standards in measuring customer satisfaction, enabling your company to compare/contrast to others who publish their scores.
- Retention – Retention is a measurement of how well you keep your customers over time (in enterprise software, this is typically measured yearly; for consumer solutions it’s often monthly). Along with recurring revenue metrics, this is a key figure to valuation exercises. There are several different ways to measure retention, but the most basic one is “Of the customers I started with, how many are left?” If you have a lot of variance in customer pricing/revenue, you may want to calculate based on revenue, rather than number of customers. Target retention rates (that is, the answer to “What’s good?”) also vary by industry and company maturity.
- Cost to support – Cost to support is a measure of how much different sets of customers cost. The coarsest measure would be overall cost of support labor & resources divided by the number of customers; but this doesn’t help you optimize. What you want is cost BY customer type divided by number of customers of that type. This way, you can compare this KPI from customer type to customer type (a customer type might be “customers by product”, “customers by company size”, “customers by industry”, etc.). Doing this will not only help you optimize support cost by focusing on outliers, but it also may change your marketing/targeting strategy, so that you can focus on finding and selling to prospects who have a lower cost to support, and therefore higher profitability.
Customer-oriented KPIs may be the most critical of all, as they can represent the canary in the coal mine when it comes to an indicator of something wrong with the business: bad service, shifting market needs, sensitivities to price, competitive pressures. Happy, returning customers are a very good sign of a healthy business.