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  Esteban Kolsky 05:29:00 am on February 25, 2009 | 4 | # |
  Tags: CRM, customer acquisition, customer acquisition costs, customer loyalty, efm, enterprise feedback management, loyalty, net promoter score, NPS, Voice of the Customer

  Actions Speak Louder Than Words in Customer Loyalty

  Let me ask you a question: would you recommend me to your friends and family?  Yes, that question… the “L” question.  If you say YES, then you are loyal.  If you say NO, then you are not.  That is an abusive oversimplification of a very, very complex topic – but one that we are able to make mostly because we don’t really understand Loyalty and we do think that everything in this world should be measured.  That question (and its twin sister, “would you use the service or product again?”) supposedly measure loyalty.  Why, there is an entire methodology (NPS or Net Promoter Score) devoted to the study of the answer of those questions.

  Alas, if you have my previous entry on loyalty you know that I think that Loyalty is so badly used in organizations that it is useless.  Thus, asking those questions will not yield any insight into the loyalty of your customers, rather yield some insight into your customers’ ability to answer questions one way – and act a different one.  I have not yet seen any proven correlation between answering those questions and being loyal (sorry Fred).

  Now, let me turn the concept a little bit on its side.  Let’s say for the sake of argument you could measure loyalty.  Let’s say that you want to make sure that your customers would indeed recommend you to their friends and family, or even use the product or service again.  Would you really take their word at face value? or would you rather have some proof, some evidence that they will act as they say they will?  Yeah, thought so.

  Here is the simple way to save yourself the money and not buy into the NPS hype and methodology.  Don’t believe your customers’ words, believe their actions.  Implement frequent shopper or user programs, adopt a referral program – and then see the value of your customers’ actions replace the empty words.  Reward your customers for using you frequently (remember, it costs ten times or more to get a new customer as it does to retain an existing one – use those savings for good).  Pay them, and their friends, for referring new people into your service or organizations.  Make it worth their time to be loyal – and they will.

  What do you think? Take their words or their actions? Have you done this? Want to talk more about it? Leave me some comments or email me.

   

• Esteban Kolsky 08:12:24 pm on November 20, 2008 | 0 | # |
  Tags: CEM, CRM, customer acquisition, customer acquisition costs, customer experience management, customer service, Experience, experience management, financials, roi

  ROI for CEM? NWJ (No Way Jose)!

  First things first: I don’t have a set formula for calculating a ROI on CEM.  Are you still with me?  Good… because what I do have is better than a formula – I have a method.  A method we used several times before, and it has proven to be successful.  So, if you are interested in knowing what you can get out of adopting CEM, read on.

  First, want to make sure you did your homework.  In my previous post on experience management I told you to read the three notes I wrote on Customer Acquisition and Maintenance costs (just in case, #1, #2, and #3 here for your enjoyment).  I am going to assume that you did read them going forward.

  The reason I am referring to those posts is that the formula you created for your customer acquisition and customer maintenance are going to be critical for your ROI calculation for CEM.  Two caveats: first, it is not possible to quantify quality – which means if you improve your experience you cannot put a number to it (as in saying “I am going to improve my experience by 10%”, or “I will improve my interactions with customers by 20%”).  Second, your mileage will vary – what works for one of you may not work for someone else.  That is why I have a method, not a formula for this.

  Now, let’s focus on the ROI of from adopting a CEM strategy for your organization (you do remember this is an enterprise-wide implementation of a strategy – right?).  By creating better experiences you stand to get three benefits: reduced number of interactions (happy customers that have what they need don’t use customer service), shorter interactions (if they put off calling because they don’t like the experience, they may have 3-4 complex problems instead of a simple one), and reduced costs for training (the same systems that have better information for your customers will be used by your agents – greatly enhancing their powers with less training).

  How do you decide which ones of these benefits apply to you?  Well, this is part where it depends.  If you are going to improve your customers’ experiences by offering more channels and more automation, you will have a reduced number of interactions (you may have some in other channels, but they would probably be cheaper).  If you are shortening the processing time, you are more likely to get easier and shorter interactions as well as fewer of them (customers won’t call just to “check” status).  If you are implementing more automation, better knowledge management or better access to back-office systems, then your training costs and interaction times should be greatly reduced.  You have to determine what makes sense for the actions you’d be taking.

  Then, there is also the issue of increased revenues.  Depending on how you improve you experience, part of it may be offer management for specific situations, or the ability to increase revenue recognition, or even the ability to create new services and revenue sources.  All those should also be considered – and you are probably tired of me saying this – but they cannot be identified until you design your new experiences.

  One final point on return on investment: if you make customer experience management part of your branding, as it should be, you will see that your customer acquisition costs (again, your calculation as detailed in my previous post) are going to be lower.  No, I am serious.  If your brand of excellent experiences becomes part of your overall brand, then customers will need less convincing to sign up, which will aid converting customers, thus reducing the cots of acquiring them.  And, if you think that I am saying that you cannot calculate your ROI until after you implement your experiences — no, I am not.  I am saying, your ROI will be based on assumptions and expectations of what that CEM implementation will be.

  So, what do you think?  Does this method makes sense?  Let me know what you think..

   

• Esteban Kolsky 07:28:51 am on November 3, 2008 | 1 | # |
  Tags: CRM, Customer, customer acquisition, customer acquisition costs, customer costs, customer maintenance costs, customer service

  The Evil Lies in Properly Calculated Customer Maintenance Costs

  (Part 3 of 3)

  Part 1 – Is it Really More Expensive to Get New Customers?

  Part 2- Segmented Customer Acquisition Costs Saves the Day

  OK, on the final part of this three part series – how to calculate your customer maintenance costs.  Yes, this is the longest one as far as the number of metrics to track, but if you have been following the series you know where this is going.  Check out the previous two entries before you continue on this one, trust me – it makes more sense that way.

  As you know, I advocate an individual approach to calculating customer acquisition costs, and customer maintenance costs.  You already read that I believe that true business decisions cannot be made in a bundle.  You cannot decide to cut costs for customer maintenance across the board, hurting those customers that need service but cannot get it since someone else abused it.  You cannot decide to implement a specific channel or program only for a segment of your customers just because you may think that, for example, business users will benefit more.  You have to make decisions based on the true costs of getting each customer, retaining and servicing them.

  When it comes to customer maintenance costs, most companies just take the total they spend on customer service (by their definition) each year and divide it by the total number of customers.  Simple, and ineffective.  You can harbor expensive customers (constantly demanding service) as well as not properly reward inexpensive ones (they never, or rarely, require service).  You can ignore budding problems, such as the excessive cost of a specific segment, tool, or channel, by not properly focusing.  What is the solution? There are two things you have to consider for properly measuring customer maintenance costs.

  First, the overhead costs you have for maintaining a customer service operation.  This is where you can see real savings when outsourcing, for example, or by decreasing specific sunk maintenance costs (such as what happens when you optimize your KM initiative).  This is the base cost per customer — not per interaction — for infrastructure deployment.

  Second, I am assuming you already know your transaction costs per channel, broken down into different type of transactions (if not, as they say on TV – get them!).  Monitor interactions and add those costs to each personalized customer maintenance cost as they happen – yes, that also means web self-service or similar automated transaction tools (e.g. IVR) which tend to be ignored by most organizations since they are either cheaper than regular channels, or there is no prescribed way to track users through those channels (you may even have to ask users to log-in to get service).

  OK, so this gives you a basic cost per customer for maintenance.  Now, the final step is to compare each personalized costs against the average per segment, channel, or transaction – and assign bonus points (or deduct from the total cost of maintenance) to those that are below the average.  This will reward those customers that don’t abuse the system with increased access to different tools, technologies, or even a higher status with the organization – depending on your business decision on who gets access to what.  Of course, you need to constantly (once a month would be fine, no longer) update the scores, the averages, the bonus points, and the status of each customer to ensure they receive all their benefits.

  Chances are that you will have to make some small to medium changes in the way you measure and monitor your data and interactions; you will be surprised at how much certain segments or channels will cost you to maintain, and change your opinion on who is your best customer.  A simple per-customer benefit calculation (revenue minus cost) will allow you to create literally segments-on-the-fly as needed, based on all new different metrics, benchmarks, and results.

  Are you ready to try a new approach to rewarding good customers and bechmarking your true costs?  Who knows, maybe you get to debunk the original entry for this series “a new customer is X times more expensive to acquire than to retain a current one”.

  Ready to prove the myth wrong? Let me know how this goes for you…

   

• Esteban Kolsky 05:24:19 am on October 30, 2008 | 1 | # |
  Tags: CRM, Customer, customer acquisition, customer relationship management, customer segments, LinkedIn, segmentation

  Segmented Customer Acquisition Costs Save the Day

  (Part 2 of 3)

  Part 1 – Is It Really More Expensive to Get New Customers?

  Well, I hope you have read the previous entry in the series, if you have not – follow the link above and read it.  Yes, it is necessary to set the proper background for this one.

  Let’s dig a little bit deeper into customer acquisition costs.  In my previous entry I talked about a model where each customer carried its own acquisition cost.  You kept detailed records for each customer and how they become your customer.  You use these numbers to make customer-related decisions – satisfaction, loyalty, segments, etc.

  Of course, I can already hear the first complaint – what about if we cannot do that.  I would not expect you to go beyond your normal course of business to find out, but I’d expect your systems to be setup in a way that will allow you to capture that information.  If you do carry out a promotion or campaign, you know whom it went out to, and you tend to have unique identifiers (name and address, name and email, etc.).  Same thing with  leads captured, you know where they all came from.  You also know the costs for each of those events.  Presto!  you have the information you need.

  First, create a unique identifier for your prospects, make sure you collect the necessary data, and retain for each prospect what the costs have been for you to reach out to them.  Then calculate a cost per customer for each customer you already have in your database (if you don’t want to go through the trouble, average them – not recommended but doable).

  Second, change your new account creation process so it accomplishes two things: one, captures the latest marketing campaign or event that convinced the new customer to sign up; two, look into past campaigns to determine whether another marketing effort was aimed at this customer in the past – to see if you have a prospect cost for them. This way when you create a new customer, you already have their personal customer acquisition cost.

  OK, now there is one more wrinkle.  Some organizations, not all of them, will require an additional “plus” to be added to each account.  If you have a very large organization, and you spend some money in branding or marketing, spreading your name and making sure you remain in people’s mind, then you need to account for that as well as part of acquisition cost.  This is another shifting number, but not really hard to pin down.  Take your marketing or branding budget from last year, divide it by the total number of new customers you had last year – you have your “plus” number.   Add that number to each customer’s acquisition cost number – for last year only.  Make sure you update it every year for prospects and new customers that you reach out to for that year – even if they were there the year before.  Now you have a complete cost for acquisition for each customer.

  Yeah, I know.  Not everyone will have access to all this data.  True.  But you may be able to get some.  You may also be able to capture the data you don’t have today and start storing it for future use.  Further, you may be creating an excellent customer acquisition cost for use next year, or the following and you want to add these calculations.  Whichever way, you can see how useful it will be to have this. Now you can make better decisions on retention, customer maintenance, and <gulp> firing them.  Yep, now it  becomes a real simple business equation.

  If you dare to dream, think about benchmarking this and comparing yourself to your industry, across industries, across geographies – anywhere.  Once you create and embrace a model that others use as well, comparisons are easy.

  What do you think? Some food for thought? Care to try any of these in your organization?

  PS – stay tuned for a discussion on how to calculate a better customer maintenance cost…

   

• Esteban Kolsky 07:00:49 am on October 27, 2008 | 13 | # |
  Tags: CRM, customer acquisition, Customer Experience, customer relationship management, customer retention, customer satisfaction, LinkedIn, loyalty

  Is it Really More Expensive to Get New Customers?

  I don’t have the answer to this question mostly because it changes from industry to industry and organization to organization.  However, the question is valid.  As long as I have been in business (including time in college) I’ve heard a statement that goes something like “it costs [insert favorite number here] more times to get a new customer as it does to retain one”.  I have repeated it, as well as probably every one else in the world, as an unchangeable mantra of business. There have been studies that have confirmed this for different organizations or industries.

  Yet, in all the work I have done in the last few years with plenty of organizations, no one has taken the time to make sure this did apply to their business model.  I can probably count in two hands the number of organizations that have used accurate customer acquisition costs and customer maintenance cost when making decisions on CRM, CEM, and Loyalty programs.  I prefer not to tell you how many of those calculations were updated periodically as business changed.

  Even though we prefer to say it is cheaper to retain customers, it may not be.  A few things to consider.

  Customer Acquisition Costs.  No matter how much you try, you won’t have a single acquisition cost model for your organization.  Each time you generate new business, you will have incurred different expenses. Where did the leads come from and how much did they cost? How did we reach out to prospects? What were the costs of the campaign? How much did we really spend internally – including training, systems alterations and customization – attempting to get new customers?  Each time you run a campaign the assumptions will change, and the calculations will change.  What if the prospects were already part of another campaign — are your going to add the costs for both campaigns??  It gets messy and complicated really fast, and without those calculations you don’t have a real cost of acquisition per customer.

  Customer Maintenance Costs.   I have never met anyone who did a good job of calculating customer maintenance costs.  There are so many variables for each customer – even for each segment – that most organizations take a more “democratic” approach: the total cost of customer service operations divided  by the total number of customers.  Calculations should be done at the individual level, and consider each interaction, request, inquiry and final disposition for each interaction in relation to each customer.  While it is true that some customers will be virtually maintenance free, there are many others that are not.  Each time a new channel or service program is added, each time a customer contacts the organization for service or support the calculation should change. You cannot assign an average cost for all customers or you will miss the diamonds in the rough.

  Finally, once you have your customer acquisition and maintenance cost for each customer you must use them to make your on service plans.  How?  We will talk about that in more detail in future blog entries… stay tuned!

  Let me ask you first… what do you think of individual customer calculations? Are they worth doing?

   

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