Customer Analytics For Dummies (2015)
The Part of Tens
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In this part …
· Avoid common analytic mistakes.
· Find customers’ unmet needs.
· Improve the customer experience.
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Ten Customer Metrics You Should Collect
In This Chapter
Identifying the most useful metrics
Improving revenues by improving your knowledge about your customers
You can quantify the value of your customers throughout the customer journey in myriad ways. While the “best” metrics depend on your goals and specific context, most organizations should collect these ten.
These metrics are a mix of the four types of customer analytics to collect: descriptive, behavioral, interaction, and attitudinal (as described in Chapter 2).
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.
The Pareto Principle says that usually a minority of customers is responsible for the majority of your revenue.
See Chapter 4 for more details on using the Pareto Principle.
Revenue doesn’t last if customers aren’t happy. Fortunately, you can measure customer satisfaction in many ways. 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 that 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 third-party reports) and different points in time to understand how your product or service is perceived. Chapter 9 provides more information on measuring customer attitudes and Chapter 11 digs into customer satisfaction.
Companies don’t stay in business (at least not for long) by selling for $5 products that cost $10 to make. 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. Identify these particularly valuable customers and, in most cases, treat them differently by offering customized incentives, perks (first-class upgrade, anyone?), product features, or other means of gaining and retaining their loyalty.
See Chapter 4 for guidance on segmenting your customers.
Customer Lifetime Value
Have you ever wondered why cable companies offer really low prices for the first few months then increase the rates? The total revenue over the lifetime as a customer (usually years) offsets the losses the providers 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 life span of a person, but rather the days, months, or years a customer spends using your products or services. Acquiring a customer often comes with large initial costs, but these are (hopefully) offset by higher revenue over time.
The steps you need to compute the lifetime value of your customers (and segments) can be found in Chapter 6.
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.
Methods for measuring brand awareness can be found in Chapter 8.
Every product, website, or software application has multiple functions, but customers are usually interested in only a handful of them. Identify these tasks and be sure users can effectively complete them and are satisfied with the experience. A top-task analysis helps to separate the many trivial tasks from the critical few that matter to your customers.
Think about all the tasks Microsoft Word can do: mail-merging, macros, desktop publishing. Yet, most users only want to accomplish a few core tasks, such as 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 my company conducted a top-task analysis with customers, it 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.
Read Chapter 13 for information about identifying customers’ top tasks.
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 (NPS) is one way to measure customers’ likelihood to say positive or negative things about their experiences with products or services. The likelihood to recommend is often a good indicator of future company growth. To measure loyalty, you should track both
· Intentions (are you likely to repurchase or recommend?)
· Actions (did customers actually repurchase or recommend?)
See Chapter 12 for a detailed discussion on measuring customer loyalty.
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 who 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.
See Chapter 10 for tracking conversion rates and customer purchases.
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.
Completion rates are applicable to activities like finding products, searching for 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.
Chapter 15 provides more information on measuring completion rates as part of usability evaluations.
It isn’t just about getting customers; it’s also about keeping them. 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 because the cost of acquiring customers is generally higher than the cost of keeping them. Valuable pieces of information include the percentage of customers who abandon at time intervals (for example, after one or two years) or stages (for example, renewal time or 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.
Chapter 12 shows the effects of churn and customer retention rates.