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10,000+ teams use Hiver to delight their customers!
Measuring Customer Satisfaction: The Essential Guide
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Let’s go back in time to 2017. Netflix, keen on measuring the customer satisfaction of users with the content they watched, thought of doing something new. That’s when Netflix removed its 1-5 rating scale with thumbs up/down buttons. There’s more—it also added match percentages based on the viewing history and what the individual viewer likes.
This led to a massive 2x increase in responses by the viewers. So what’s so great about this little move? It was about measuring customer satisfaction and using it to improve user engagement.
And this is just one example of many. Customer satisfaction isn’t just a feel-good metric; it directly impacts the bottom line. Satisfied customers are more likely to return, spend more, increase revenue, and become advocates for your brand.
In this article, we will understand how businesses can effectively measure customer satisfaction, but first, let’s understand exactly why you should measure customer satisfaction.
Why should you measure customer satisfaction?
Measuring customer satisfaction is pivotal for businesses to not only survive but also thrive in the modern marketplace. Let’s take another quick example we all know about.
Apple is renowned for its high customer satisfaction rates and staunch followers who swear by its products. Even though many Android users believe that iPhones are not up to speed with technology and cost a pretty penny.
But Apple has understood its own customer base perfectly and often leads in tech industry surveys. This focus on customer satisfaction has been a significant driver of their success, fostering brand loyalty and an enviable market position.
Here are some reasons why you should consider measuring customer satisfaction to stand out:
1. Identifying Areas for Improvement: Understanding customer satisfaction helps businesses pinpoint weaknesses. Think of a bank experiencing long queues consistently, leading to frustration in customer. It could measure customer satisfaction to identify inefficiencies in their service process, leading to improved service speed and customer experience.
2. Enhancing Customer Retention: High satisfaction increases the likelihood of customers staying loyal. Say, a mobile operator facing customer turnover might use satisfaction surveys to understand the causes of dissatisfaction, such as network issues or customer service, and work on these areas to retain more customers.
3. Facilitating Word-of-Mouth Marketing: Satisfied customers are more likely to recommend a business to others, and stay loyal to your brand. A local bakery that consistently measures and improves upon customer satisfaction through can benefit from increased word-of-mouth referrals, thereby attracting new customers without significant advertising expenses.
4. Creating a Competitive Advantage: In industries with similar products, customer satisfaction can differentiate a business. For example, an online clothing retailer on Instagram could focus on customer satisfaction to offer superior customer service, thus distinguishing itself in a competitive market.
5. Aligning Products with Customer Expectations: Customer feedback is crucial for tailoring products to meet actual needs. Example: A software development company could use customer satisfaction data to fine-tune its products, ensuring they meet user requirements and thereby increasing adoption rates.
6. Informing Strategic Decisions: Customer satisfaction data can guide overall business strategies. Imagine an e-commerce platform that measures and wants to improve customer satisfaction. It could use this data to prioritize new features that address customer pain points, improving overall user experience and potentially boosting sales.
Key customer satisfaction metrics to monitor
Before you even reach out to your customers to understand how satisfied they are with your product, there are metrics that can tell you the overall performance. Here are some key customer satisfaction metrics to track for this:
1. Churn Rate
Calculate the churn rate by dividing the number of customers lost during a specific period by the total number of customers at the start of that period, then multiply by 100.
Churn rate is vital for understanding customer retention. A high churn rate may indicate dissatisfaction with your product or service, while a low churn rate suggests customer loyalty.
An increasing churn rate points towards growing customer dissatisfaction or competitive pressures. Conversely, a decreasing churn rate suggests improved customer satisfaction or loyalty.
2. Net Revenue Retention (NRR)
NRR is calculated by multiplying the percentage of retained customers by the average revenue per customer from the previous period, then subtracting the percentage of churned revenue.
NRR provides insight into how much revenue your existing customer base is generating over time, taking into account upsells, downgrades, and churn. It’s an indicator of both customer satisfaction and business health.
An upward trend in NRR indicates good customer health and successful upselling strategies, while a downward trend can signal increasing dissatisfaction or failure to expand revenue from existing customers.
3. Customer Lifetime Value (LTV)
LTV is calculated by multiplying the average purchase value by the purchase frequency rate, then multiplying this figure by the average customer lifespan. Lifetime value of a customer helps businesses understand the total value a customer brings over their relationship with the company. It’s crucial for making informed decisions on customer acquisition and retention strategies.
Rising LTV suggests customers find value in your offerings and stay longer, indicating satisfaction. Declining LTV could imply customer dissatisfaction or a failure to engage customers over the long term.
4. Expansion Revenue
Track the increase in revenue from existing customers over a period, focusing on revenue from upsells, cross-sells, and upgraded plans. This metric indicates your success in growing revenue from your current customer base. It’s a sign of customer satisfaction when existing customers are willing to spend more.
An increase in expansion revenue suggests customers are satisfied and see value in your offerings, leading them to purchase more. A decrease can indicate waning customer satisfaction or a lack of compelling upgrade options.
5. Volume of Support Tickets
Track the total number of customer support requests received in a given time frame. This metric helps assess the efficiency of your support team and identify common customer issues. It can reveal product flaws or areas needing improvement.
Hiver can help you with this, with a clear overview of how many support tickets each agent is handling, along with the status of each ticket:
An increasing number of support tickets might indicate growing customer issues or dissatisfaction, while a decrease could suggest improvements in product quality or customer experience.
6. Average Revenue per User (ARPU)
Calculate ARPU by dividing your total revenue by the number of active users during the period. ARPU helps in understanding the value gained from each user, aiding in pricing strategies and product development. It identifies high-value customer segments for focused retention efforts.
An upward ARPU trend indicates that customers find increasing value in your products, implying satisfaction. A downward trend might suggest a decline in perceived value or customer satisfaction.
7. Conversion Rate
Conversion rate is calculated by dividing the number of conversions (such as purchases, signups, downloads) by the total number of visitors, then multiplying by 100. Tools like Google Analytics can be used to accurately track this metric.
The conversion rate is a key indicator of how effectively your website or marketing campaigns are turning visitors into customers. It reflects the success of your product offerings, website design, and user experience.
An increasing conversion rate suggests that customers are finding what they need and are satisfied with their experience, leading to more completed actions. A decreasing conversion rate might point to issues with user experience, website functionality, or product-market fit, potentially indicating customer dissatisfaction.
Methods for measuring customer satisfaction
There are three major methods which can help us understand how satisfied customers are with the product:
1. Net Promoter Score (NPS)
If we put it in the simplest of words, Net Promoter Score is the result you achieve when you survey your customers with the ‘would you recommend’ question. It has become the most ubiquitous metric for measuring customer satisfaction in SaaS. It is also the most reliable as it instantly captures the customers’ sentiment about your product.
The one reason this survey is the most popular is its simplicity. It asks one very simple question to every customer:
“Would you recommend the product to your friends or colleagues?”
People who rate you 0 through 6 are known as “Detractors”, those who rate you 7 or 8 are known as “Passives”, and those who give you a 9 or 10 are known as “Promoters”, as illustrated here:
NPS Surveys slot customers into three categories – promoters, passives and detractors
Let’s take an example. Say there are 100 respondents.
10 responses were in the range 0 to 6 (Detractors)
40 responses were in the range 7 to 8 (Passives)
50 responses were in the range 9 to 10 (Promoters)
NPS: [(50/100)*100] minus [(10/100)*100] = 40
The worst score you can get is -100 and the best score you can get is +100.
Apple uses NPS surveys to find detractors and improve their retail store experience. Whether a customer made a purchase or scheduled an appointment to try on an Apple Watch, they e-mail a survey to rate the in-store experience.
Remember: Any score above zero is good, anything above +50 is excellent, and over +70 is considered world-class.
The greatest advantage of NPS surveys is its simplicity and ease of use. It can be set up in minutes and is easily understood by everyone in the organization. It also makes it very easy to compare yourself with the industry standards.
Additionally, NPS is very closely associated with a company’s propensity to grow. Companies with highest NPS in their industry tend to grow 2X faster than their competitors. Delighted is a great tool to measure NPS.
2. Customer satisfaction score (CSAT)
A question intended for measuring customer satisfaction is usually asked at the end of a customer satisfaction survey. A typical question would look something like this:
“How would you rate your overall experience with the product?”
Respondents would be asked to rate their satisfaction on a scale of 1 to 5 as follows:
1 Very unsatisfied
5 Very satisfied
You obtain the result by averaging all the scores received, it is called the composite Customer Satisfaction Score.
CSAT scores are expressed on a scale of 0 to 100 percent. A score of 100 means all your customers are completely satisfied with your product.
% of satisfied customers = # of satisfied customers / # of satisfaction survey responses
It is important to note that only the scores 4 and 5 are considered satisfied, which are then plugged into the formula. If you consider 3 as satisfied, you are failing at giving an opportunity for your business to go beyond mediocre!
Along with measuring customer satisfaction, CSAT scores are a good way to handle customer complaints too. Experts say that a score of 3 or less is a strong indication that you should follow up with the customer and keep in touch with them regularly to see if things improve.
With Hiver, you can plug in quick CSAT surveys right into your emails and get real-time insights on customer satisfaction.
A great resource: The American Customer Satisfaction Index benchmarks customer satisfaction for various industries, sectors, and brands. It can be used to compare your organization’s score with the best in the business.
3. Customer effort score (CES)
The customer effect score takes a slightly different approach to measuring customer satisfaction. The general question asked to customers here is:
“How much effort did you have to put forth to handle your request?”
Let’s uncover the logic behind it. This metric gained worldwide popularity after HBR published a very popular article that discourages companies from trying to delight users, and suggests them to focus on solving customer problems quickly. It goes on to say that exceeding customer expectations has a negligible impact on customer loyalty. The only way to make your customer happy (and loyal eventually) is to reduce the efforts they have to make.
The customer effort scale for measuring customer satisfaction goes from 1 (I had to put very little effort to get the problem solved) to 5 or 7 (I had to go through hell trying to get my problem solved).
Nicereply implements it neatly:
To measure the CES, you just have to calculate the average of all the scores. Be sure not to make these scores anonymous. In order to track every effort transactionally, match up every score with the transaction it is referring to.
At the end of the reporting period, you will be able to identify the high-effort events. Look at each transaction that received a low score and put them into different buckets (based on the reason for the score). Create a graph that looks something like this:
In this graph, the most common high-effort issue is ‘too many replies’, which essentially means – a lot of information exchanges before the final resolution. I’d want to narrow down to the agents who were receiving these scores and work on their training.
Once the customer selects their response, a good practice is to follow up with an open-ended question such as ‘How can we improve in the future’?
Be sure to leave this question completely open as it would allow your customers to express without restrictions. It makes them feel that the company wants to genuinely understand their problem.
How can you measure customer satisfaction?
In conclusion, measuring customer satisfaction is an indispensable aspect of business strategy in today’s competitive landscape. By employing various methods of direct feedback, such as NPS, CSAT, and CES surveys, businesses can gather crucial insights into customer experiences, preferences, and expectations. This feedback not only helps in identifying trends and areas for improvement but also plays a significant role in enhancing customer experience and building stronger, more loyal relationships.
Effectively utilizing these feedback methods enables organizations to make informed decisions, adapt to changing customer needs, and continuously improve their products and services.
Remember, the key to successful customer satisfaction measurement lies not just in collecting feedback but in acting on it to foster a culture of customer-centricity and drive business growth.