Are Your KPIs Leading You to a Disaster?

Posted on June 5th 2014

Are Your KPIs Leading You to a Disaster?

A few years ago, when I would mention “customer experience” to business people, I often received the same response. Smiling, nodding, then changing the subject or brushing me off completely. It just wasn’t important enough to them at the time.

KPIs and customer experience

Back when the economy was booming, sales were undoubtedly the name of the game. But most key performance indicators (KPI’s) still look something like this:

  1. Sales Per Day
  2. Sales Per Week
  3. Sales Per Month
  4. Annual Sales
  5. Net Revenues
  6. Leads Per Sale

While slowly but surely companies are beginning to realize there is value in not just ACQUIRING the customers, but RETAINING them, we still have a long way to go. If all of your KPI’s are focused on getting new customers, you can bet your organization does not have a customer-centric culture.

I once worked with a company that was so very proud of their KPI culture. They had fancy real-time dashboards prominently promoted throughout their headquarters via carefully placed flatscreen monitors. A daily report was delivered to every manager. I kid you not, these guys could answer to a tenth of a percentage point about the various sales-focused data they were tracking.

One thing stood out to me, however.

The reports, dashboards or conversations did not mention the word customers anywhere. Success was measured by customer acquisition and, of course, dollars and cents. What about the customers who defect to competitors? Well, that was more difficult to track.

KPI's

I believe this is still the case in most organizations. I believe most executives depend on KPI’s that focus solely on hard data such as profits, loss and sales. And while I do believe this data should be included, If you don’t mention customers, or track significant metrics around them, then you are blinding yourself to impending disaster.

KPI's

If your organization doesn’t have customer-centric KPI’s, here is a short list of where to start:

1. (CLV) Customer Lifetime Value

I’d like to refer you to this well-done infographic by KISSMetrics detailing the various ways to calculate this metric: How To Calculate Customer Lifetime Value. If determining your CLV is too daunting, you can at least get an idea of your customer churn rate.

2. Customer Satisfaction and Loyalty

I am wholeheartedly partial to tracking loyalty, which is based on actual customer behavior, versus mere satisfaction, which is based on what customers say. If you start with satisfaction, it’s something. But keep in mind, customers rarely tell you what they really think.

3. Customer Sentiment

This one can be less scientific, but it’s important to start tracking what customers are saying about your brand via social media and other channels. They tell their networks about their dissatisfaction, distrust, and plans to defect long before they tell you. Construct your social customer watchtower and listen in! You will see the disaster coming before it hits home.

4. Customer Engagement

It can be difficult to create metrics around this, too, but you can tie this back to actual customer behavior. When customers visit your web site, what are they doing? Do their page views lead to conversions? It’s all there to review in your analytics.

There are many other ways to track customer metrics, and the right ones can vary from company to company. But the important thing is to always put your customer front and center, no matter what. You can’t do that if you never mention customers in your KPI’s.

Image credits: mahalie stackpolePaul DowneyWonderlane (adapted) via CreativeCommons license

JeannieWalters

Jeannie Walters

CEO, 360Connext

Jeannie Walters is the Chief Customer Experience Investigator™ and founder of 360Connext, a Chicago-based consulting firm specializing in the cornerstones of customer experience: customer engagement, employee engagement and connections like social media. 360Connext serves mid-market companies and larger by helping them evaluate their true customer experience. The evaluations always lead to improvements which then lead to results like increased online conversions or loyalty. Jeannie is also known for her inspiring and often entertaining speaking engagements and workshops like her presentation at SOBCon 2013 and her Tedx talk

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Comments

Jason Conrad
Posted on June 7th 2014 at 4:35PM

I agree with much of what you say, but I disagree about favoring a behavioral based metric of loyalty over a metric like CSAT.  The challenge is that depending on which type of loyalty you have, you still may be driving towards catastrophe and not even know it If you are relying solely on behavioral data.  Consider this:  

Convenience based loyalty - this is where one is loyal because it's convenient.  The problem is if something comes along tomorrow that is more convenient, or equally as convenient but providing a better experience, these customers will move on to the next best thing.  The best you can do here with behavioral based loyalty data is react to the problem when you see it in your rear view mirror.

Purchased loyalty - this is offering incentives so customers stay with you instead of going to your competitors.  Just as it sounds, you are paying customers to remain loyal.  Here, the challenge is that customers can be lured away by a competitor with a better loyalty programm.  This type of loyalty has proven to work for airlines and hotels for their frequent travelers.  

Restricted Loyalty - If your utility company is the only game in town, you have restricted loyalty.  If you charge a penalty to let customers out of their contract, you have restricted loyalty.  They are loyal as long as circumstances prevent them from pursuing a better option.  But if a better option presents itself, watch out if you aren't measuring and managing CSAT.

Earned Loyalty - this is the best kind of loyalty.  It comes from providing a superior customer experience.  It's made up of a combination of what the customer expects, and what they actually get, which is also a simple definition for satisfaction.  Regardless of the type of loyalty strategy that a company employs, satisfying the customer should be at the heart of all efforts in order to ensure true long term success.

While it may be easy to dismiss CSAT because of a belief that customers won't tell you the truth (I completely disagree with this by the way), when measured correctly, CSAT has been proven in published academic research to be predictive of loyalty, retention, shareholder value, cash flow, and cash flow volatility.  It shouldn't replace all that behavioral data, but it is very complementary.  

Full disclosure, I work at ForeSee.