Do you remember the last time that you had such a frustrating customer experience that you wanted to immediately sign into Yelp and leave a scathing negative review? I do. It happened last week.
We’ve all experienced the impact of a poor or great customer experience, but how, exactly, can you quantify it? Here’s how to measure the financial impact of customer experience.
What Are We Measuring?
Let’s use the Net Promoter Score (NPS) as our primary customer metric for the sake of discussion, although the approach is similar for other customer satisfaction metrics. As we think about measuring the impact of NPS, there are two major things that we need to consider: the direct impact and the indirect impact. The direct impact is focused on the future value of that specific customer; the indirect impact is related to customers’ referral behavior (such as promoters actively spreading positive word of mouth and generating additional revenue indirectly through personal recommendations, like Yelp reviews).
Why Do We Measure It?
The first goal of understanding the impact of NPS is to evaluate how current customer perceptions influence future customer value. While we should already have a good understanding of each customer’s current value (and we may even know his predicted lifetime value), analysis of shifts in customer NPS scores can provide forward-looking value indicators. Once we start tracking customers over time, we can start to correlate customer behavior (such as spending and referrals) with customer experience and perceptions. Other key insights may include how much the financial impact varies by customer segment and how long the impact of a good or bad customer experience and referral can last.
Our second goal of NPS impact analysis is to understand what drives promotion and detraction so that we can take action to improve customer experiences. While there may be different internal perspectives on the most important customer issues, linking what customers say to their actual behavior will help distinguish the true causes of customer loyalty and advocacy.
How Do We Measure It?
The quickest way to conduct a financial impact study is to measure NPS with the same set of customers over an extended time period (today, six months ago, six months from now, etc.). By using this longitudinal methodology, we’re able to see shifts in a customer’s likelihood to recommend alongside corresponding shifts in customer activity (such as spend) to measure direct impact over time.
For indirect impact, we can use customer surveys to determine existing customer referral rates and then compare those referral rates with self-reported likelihood to recommend. Additionally, we can use surveys (or other means) to track how many new customers are joining due to positive word of mouth.
Now that we’ve determined the financial impact of good and bad customer experiences, here are a few thoughts that we’ll dive into in the next blog: how NPS is shifting over time and what opportunities we might uncover; what’s driving customer NPS shifts and how it differs by customer segment; and how we can prioritize customer issues to improve the customer experience.