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How To Measure Customer Satisfaction And Relationship Value

Widely accepted facts about customer satisfaction prove it's in your best interest to keep customers happy, however, very few of these studies tell you how to measure this satisfaction.  In this column, you'll learn how to measure customer satisfaction and relationship value in a way that increases business profits.

It's not enough to satisfy all your customers, you must satisfy them in such a way they attract other profitable customers. 

Should you seek to satisfy all customers?  The answer is "Yes and no."  You want to make all customers happy, but unprofitable ones happy somewhere else.  You will learn how to tell the difference later.

• A 5-percent increase in loyalty can increase business profits by 25%-85%.  Loyalty is both a factor of retention and repurchase.
• A very satisfied customer is six times more likely to be loyal and to repurchase and/or recommend your product than a customer who is just satisfied.  Make customers exuberant about what you offer.
• Only 4 percent of unhappy customers will complain.  And, since most customers don't tell the truth on surveys, even those who respond could be unhappy.
• The average customer with a problem tells nine other people.  These nine people often look to your customers for advice and guidance.
• Satisfied customers tell five others about their good treatment.  However, this isn't a guarantee they will then send these referrals to buy from you.

Just doing everything right in satisfying your customers will only create regular returns.  And if you want extraordinary results, then turn satisfaction into sales.  Measurements provide clues to which efforts create which results.

1. Number of referrals sent.  On average how many new referrals come from existing customer, you can track this by accounts closed or referrals in general.  This endorsed business is perhaps the best kind to receive, cultivate, and monitor these numbers.
2. Value of referral closed.  What an individual referral is work in their first transaction or over the lifetime of the customer.  This factor is useful when determining which referral campaigns to invest.
3. Customer lifetime value.  This is the total dollar value of customer worth over the average period of being a customer.  You can break this measure down further into profit and gross value.
4. Time between purchases.  Frequency of purchase influences the likelihood of future purchases.  Most often loyalty is improved by increasing purchase frequency early in the relationship.
5. Individual profit per sale.  An amount representing your net return on each transaction, often used to determine premium value of repeat customers against initial first time purchases.  "Existing customers buy $X more than new customers."
6. Customer segment profit per sale.  The net result of the average sale in a certain demographic, buying behavior, or segment of your market.  "Customer types A, B, and C, generate $X dollars in profit each transaction."
7. Segment cost per lead.  How much it costs to attract a customer in a certain market segment often compared with various sources or channels.  Useful in targeting a specific type of customer and a comparison for referral value.
8. Second tier sales value.  The gross sales volume of all referred accounts gained without direct interaction with your marketing averaged across all accounts.  "Each customer refers $X in new business."
9. Value of source or referrer.  A single customer may not be profitable, but their experience with your solution invites profitable customers to buy from you.  Measure the individual customer plus the value of all referred.

Generate these measures from analytics software, or even quickly jotted out on a yellow pad from simple accounting reports.  It doesn't matter how you derive these numbers, just calculate them regularly because they reveal the level and value of customer satisfaction.

Don't just rely just on a customer satisfaction survey or two.  Degrees of satisfaction represent only the opinion of an individual, and are not an indicator of purchase behavior.  Customers will tell you what they think you want to hear, or not even complete them in the first place.  These measures of satisfaction connect with purchase behavior.

There are times you want customers to be happy somewhere else too, these profit measures will show you which buyers have little value to your corporate mission.  It's the only real way to know the difference between profitable and unprofitable customers is to measure.  What do your numbers say?

/ customer-relations | cultivate-topten /

By Justin Hitt at December 27, 2003 12:09 PM  Subscribe in a reader