Churn Fighting Focus: Effective methods for measuring customer loyalty
As Customer Success professionals, we obsess over what our customers think about us – about our product, our services, our relationship, our future. And as key renewals approach, we also become hyper-sensitive to what we believe a customer is feeling, as those feelings can play a critical role in their decision to stay or leave. We are vigilantly on the lookout for the dreaded flip-flopper; the happy, engaged customer who suddenly goes cold and silent. In other words, we spend a lot of time trying to accurately gauge if our customers are into us.
To make matters more complex, according to research by Nobel Economics Laureate, Daniel Kahneman, it turns out that your customers may have a dual personality when it comes to how they use and how they remember using your solution. Your customers have an Experiencing Self, which encompasses their experiences and feelings as they use your solution in real time. The benefit they get from your solution as they use it is called their Experienced Utility. But when a customer reflects back on their experience of using your solution, they become the Remembering Self. The benefit they remember getting from using your solution is called their Decision Utility.
What does this all mean? Kahneman’s research suggests that when you customers make their renewal decision, they will more heavily rely on the value they remember getting from your solution as opposed to the actual value they accrued over the total contract period. Even more interestingly, their Decision Utility is formed through what he calls the “Peak-End Rule,” which says that people will more heavily weigh two singular moments, the peak and the end, than any other moments. As Kahneman puts it, “This quirk of human psychology will mean a person forgets the majority of events, remembers only a few extreme incidents and gives a wholly disproportional weight to recent happenings.”
Now before you panic, here’s good news: there are things we as CS pros can do to sway this psychological process and positively impact the final outcome. First, we can work to ensure consistent, positive experiences throughout a customer’s contract. A smart Customer Success solution (cough, like ChurnZero, cough) can enable you to track how your customers use your product and key behavior trends. This empowers you identify issues before they even arise and proactively intervene.
But today we’re actually going to focus on the second thing you can do: regularly capture those potentially fickle customer feelings, also know as satisfaction or sentiment scoring. Surveying customers to assess their satisfaction and potential loyalty is a source of angst for many businesses; there are so many varying opinions about the “right” way to survey, which tool and/or format to use and how frequently to survey. But in this excellent post, Userlike explores six effective methods for measuring customer sentiment and loyalty. We recommend checking out the full list but here are two of the methods to get you started:
- The time-tested approach – Net Promoter Score (NPS): NPS indicates the likeliness of your customer referring your product/service to their friends or colleagues. Your customer answers this simple question with a value between 1 (not at all likely) and 10 (extremely likely). NPS divides your customers into three categories based on their answers: Detractors (0-6), Passives (7-8) and Promoters (9-10). Your final Net Promoter Score is then calculated by subtracting your Detractors percentage from your Promoters percentage. And Userlike explains this metric’s value really clearly: “NPS is powerful. Firstly because it’s simple, but also because of the fact that when you recommend a product, you put your own credibility on the line. And you only do that for companies you support 100%.” If you’re interested in learning more about NPS, we recommend checking out the Net Promoter Network.
- The new kid on the block approach – Customer Loyalty Index (CLI): This is a standardized tool to track customer loyalty over time and it incorporates the values of NPS, repurchasing and upselling (two other methods Userlike discusses in the post). It calculates all three values with an NPS-like questionnaire on a 6-point scale. 1 stands for “Definitely Yes,” 6 stands for “Definitely No”: 1) How likely are you to recommend us to your friends or contacts? 2) How likely are you to buy from us again in the future? 3)How likely are you to try out other of our products/services? Your total CLI is the average score of the 3 responses. But as Userlike astutely points out, there are both pros and cons to this newer approach: “The downside of this approach is that you ask directly for the customer’s intention, which is less reliable than measuring actual behavior. The advantage is that this score incorporates all of the loyalty values. Also, by consistently sending this questionnaire over time, it allows you to systematically track changes.”
Customer Success Around the Web
- Customer Success isn’t just a feel-good name for Account Management: Customer Success is still a relatively young discipline and as a result leadership teams are often unsure about where it fits into their organization. Companies that don’t want to miss out on the trend of branding themselves as “customer-centric” might consider repackaging an existing team, like Account Management, as Customer Success. This would be a short-sighted move since Customer Success and Account Management are distinguished by more than just a naming convention. Customer Success teams drive user adoption and engagement through onboarding, training, and a compelling user experience. Account Management teams build relationships and align the value their products can bring with the customer’s goals. This interesting read dives deep into the philosophical and practical distinctions between Customer Success and Account Management, looking at each phase of the customer lifecycle to highlight each team’s unique responsibilities. A must read for anyone who’s AM team is masquerading as CS.
- Can successful customers make you company crisis-proof? There are many things that can undermine business performance: poor management, the economy, bad public relations and more. But can customers, or more importantly, satisfied customers, make your company crisis-proof? This post explores this interesting question through a case study of T-Mobile Netherlands, who has come a long way since 2009, when an influential customer used social media to criticize how the company treated its customers, resulting in a PR crisis for the wireless carrier. A unique look at how a company can stabilize itself by focusing on delivering customer outcomes.
- Customer onboarding – the secret sauce to reducing churn: Acquiring customers is a challenge for some SaaS companies, that’s why it’s so important to convert new sign ups into active users. The goal is to educate customers about your product’s value and encourage them to continue their recurring service plans. If not, your business may be at risk; as little as a 1% difference in churn can have a 12% impact on company valuation in 5 years. As such, it’s essential that SaaS founders, marketers and customer success employees take measures to reduce churn for growth. To solve this issue, this excellent post suggests focusing on empowering your team to achieve customer success – and that it all starts with the onboarding process. A great read for anyone struggling to convert their free trials into paying customers.
Word to the Wise
This week’s wisdom comes from not one but NINE companies who have fought churn and won. This interesting post explores the stories of several well-known companies – including HubSpot, Buffer, Zendesk and Mention – and for each case study dives into the details of the problem the company faced, the execution of their battle plan and (most excitingly) actionable advice we can all take away from their experiences. We definitely recommend checking out the full read but we were particularly inspired by how Pierre Lechelle, SaaS B2B growth marketer and consultant, encouraged all businesses to discover the root of why they are losing customers:
“To effectively reduce your churn, you need to understand it and make sure you’ve all the information at hand to help your users. Gathering insights should be the first step to reduce Churn. Insights are everywhere: Analytics, Help-Desk software, Sales calls, Surveys, Interviews…”
Customer research is an effective tool for reducing your churn. It eliminates the guesswork and provides actual data. Develop a research system at your company. Collect data from multiple sources. And use your findings to impact customer retention. Do the research. Reduce the churn.
Fighting Churn is a newsletter of inspiration, ideas and news on customer success, churn, renewal and other stuff and is curated by ChurnZero.