• 01:48:28 am on August 13, 2008 | 0
    Tags: , , , , , , ,

    Mind The Gap, Would You?

    Continuing my one-man crusade to end the use of customer satisfaction as a metric in corporations, I want to bring attention today to one more problem: The Gap.

    What gap you ask?  Well, the gap that exists between customer satisfaction and customer churn – that gap.

    There are two  KPI (key performance indicators) for organizations dealing with customers.  One is customer satisfaction (are you satisfied, did we meet your expectations, etc.).  The other is customer churn – or the rate at which customers leave you and go to the competition.  Customer churn is trickier to measure (after all, a customer could have no need for your product or service, or they could be passive users and not interact for quite some time) but it is measured usually as a percentage of closed accounts.

    As the logic goes, an increase in customer satisfaction should mean a decrease in customer churn – and the other way around should be also true.  After all, a satisfied customer is not likely to leave – right?

    Well, this is the part where customer satisfaction (the metric) does not reflect reality. According to lots and lots of recent research – although customers say that customer service is their number one reason for changing providers, further analysis details that price is a more important driver than satisfaction.  Actually, satisfaction comes up between fifth and tenth in the different studies. I wrote a blog about this not too long ago, you can read it here.  If you insist in using customer satisfaction as a metric, fine – but please do it together with customer churn and… mind the gap.

    Let’s look at an example.  Let’s say your customer satisfaction is 80%, and your customer churn is 30% (that means you loose 30% of your customer base every year).  That leaves a ratio of 10 – 80% satisfaction, 70% of “satisfied” customers per the churn metric – deduct satisfaction from churn and you get the ratio.

    if you have a negative ratio it means your churn is greater than your dissatisfied customers and there are more people leaving you that telling you they are not happy.  Implement better feedback management tools, ensure that all complaints are handled effectively, and advertise (heavily) your commitment to customer care and to make customers happy.  Look at your prices, products, features and functions and make sure they are aligned with your competitors.  Advertise that as well. Find out, via surveys, why customers left recently and use that to improve your processes, offerings and services. If you are honest and good about it, you shall see more customers trusting you to solve their issues and wanting to stay – thus decreasing your churn and turning the ratio positive.

    If you have a positive ratio it means either you are doing things well, or you are not measuring properly.  The larger the ratio, the more likely one of your metrics is not accurate.  Ideally your churn and your dissatisfied number will be the same — but very unlikely.  You want them to be within one or two points to account for all errors in computing and measuring. So if you have a large positive ratio either your customer satisfaction metric is too high, or your customer churn too low.  You should revise the metrics, what they measure, how the data is captured and the methodology behind each.  You are more likely to find problems measuring customer churn than satisfaction – but both are possible.  Fix your measuring problems and then try again.

    What do you think?  Interesting enough to try? Let me know whaty you think… and please, mind the gap – would you.

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