Counting the Costs of Customer Satisfaction
By Rob Bailey – VP Alliances @ Improved Apps
Pro-active Measurement of Customer Satisfaction
Many companies today are investing heavily in customer success and satisfaction. Some approach this by using measurements such as ‘net promoter score’ and then monitoring how it changes over time. In the interim they try to tackle any perceived issues that arise. Some companies react to statistics relating to non-renewal of contracts. Other companies employ ‘Customer Success Managers’ to support the customer and drive adoption/extended use of their products. Increasingly though, organisations are positioning customer success/satisfaction as a key component of next generation SaaS. This is because it potentially helps to address issues of solution adoption. This begs the question then as to whether ‘satisfaction’ is more a measure of customer adoption or a solution to it.
What is Customer Satisfaction?
Objective or subjective?
Does it really have any impact on the business?
Does it carry any cost or benefit?
Is it best ignored and reacted to only when it is an issue?
Are there any methods of being pro-active and driving satisfaction through measurement, rather than reacting when it becomes an issue?
How Do You Measure Satisfaction?
“If you cannot measure it you cannot improve it.“ Lord Kelvin
For now, assuming that many companies have got it right and customer satisfaction is an issue, then how is it currently measured?
Net Promoter Score – Satisfaction questionnaire covering various aspects of the system, responsiveness and operation
Customer Complaint – Issues, performance, bugs, support. When a customer complains this measurement is pretty raw and very reactive. There is a problem-‘fix it’
Regular Client Reviews – a good use of that Customer Success Manager (CSM). A much better way of taking the mood of the customer and better responding to it
Surveys – Survey the customer to get feedback, but who? End-user, IT, management, sales, accounts. Is the same survey pertinent to all?
Renewal/Churn – When a customer does not renew and ‘walks’ you can guarantee something is/was wrong.
None of these measurements lend themselves to an ability to compare potential SaaS solution suppliers. The annual renewal percentage (churn) may seem a good measure but the problem is there are so many different ways of measuring renewal percentage (on monthly recurring revenue, on user numbers, on bookings) that it tends to be useful only as a comparison intra-company, year to year, rather than for inter-company measurement/comparison. Providers tend to carefully manipulate the figures they provide to give the most flattering picture to the SaaS community, making it useless as an aid to supplier selection.
The IT department of one large manufacturing organisation complained the new release had not improved performance, however the end-user was heard to remark how much quicker the system was – a reminder that everyone’s perception can be different.
Costs of Customer Satisfaction?
“Annual income twenty pounds, annual expenditure nineteen pounds and six pence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six pence, result misery.” Charles Dickens
There are many statistics available to prove that a lack of satisfaction carries a real cost to providers, rather than just loss of revenue through non-renewal. The following figures are from research by David Spitz of Pacific Crest:
For every $1 of revenue the costs associated with each customer type are as follows:
New Customer: $0.93
Uplift Customer: $0.28
Renewal Customer: $0.16
No prizes for working out that the best way to improve margin/profit is to retain customers. Add to this that on average 20% of new ACV (depending on customer size) comes from existing customers. So keeping the customer happy must be the Holy Grail.
Consider, however the other costs involved with an unhappy customer:
Increased cost and load on customer support
Cost of re-work of ‘failed systems’
Cost to the organisation’s reputation in the market
Impact on organisational morale
Impact on management time resolving the issues
How to Keep a Customer Satisfied
David Shok, CFO of Netsuite, states that there are three things to do in order to increase profitable revenue:
Acquire new customers
Retain existing customers
The methods employed to achieve this are simple:
Reduce churn rate
Keep satisfaction high
A Better Way?
I asked earlier if customer satisfaction was a measure of customer adoption or a solution to it. In fact the answer is that it is both:
Customer satisfaction has to be managed and reviewed differently. It needs to be a part of the DNA of an organisation: Inherent in the culture, the channels, the ecosystem, the deliverables and the development.
Customer satisfaction has to be measured proactively. It must be reviewed hourly. Strategies must be in place to react and change. These strategies also need regular review for effectiveness.
Satisfaction measurement must be an inherent part of the solution and any changes or trends part of the KPIs or company dashboard.
Improved Apps stands out both by having customer satisfaction as the cornerstone of how it relates to customers or partners and also by developing the means to measure satisfaction in its solutions. This gives us, our partners and customers the ability to identify issues at the very point in a solution and at the exact time that remedial measures may be required.
Rob Bailey – VP Alliances @ Improved Apps
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