Credit: Getty Images by Fang Xia Nuo
The science of customer attraction these days goes beyond offering a helpful, useful and accurate product that fulfills a need; it’s also about ensuring the customer is satisfied throughout their journey with your brand. Being top-of-mind for customers has become more difficult, with around 53 percent of global consumers having higher customer service expectations than they did a year ago.
But how do you know if you’re meeting these customer expectations? The way to track this and to a successful digital transformation for startups is through data analysis. And yet, for all the different marketing channels and profit-centered metrics, many businesses fail to put customer loyalty and satisfaction at the heart of their data efforts. Without them, teams would blindly follow numbers instead of encouraging critical thinking and the implementation of value-based, customer-centric metrics.
With so many different marketing channels and profit-centered metrics to keep track of, retailers often overlook crucial key performance indicators (KPIs) that focus on the relationship between a customer and the brand and how this ties into building solid customer loyalty and a customer-focused product. Building a data-driven organization around customer-centric KPIs helps startups guarantee sustainable strategies to keep them competitive and lead in their respective industries. Small-to-midsized businesses (SMBs) especially must seize this opportunity and reap the benefits of a startup or SMB culture willing to act fast on meaningful data.
Crucial customer KPIs are paramount to help measure and effectively monitor retail processes and performance. But what exactly are these KPIs that retailers must be aware of, and what do they mean for their business? Let’s take a look.
Measuring Customer Retention
You already know the drill: Acquiring a new customer can be five to 25 times more expensive than retaining an existing one. And studies show that improving customer retention enhances the value of a company. This is especially true for startups with a smaller customer pool than larger businesses.
It’s clear that optimizing your customer retention strategy is fundamental to your business’s performance. Minimize those financial resources allocated to attract new customers and instead invest in retention strategies that will give your company more room to grow.
Customer retention allows businesses to calculate how many customers are likely to return for recurring purchases. Calculate this by taking the number of existing customers at the end of a period and subtract the new customers, divided by the number of customers at the start of said period, and then multiply that by 100.
Customer retention = (existing customers – new customers) x 100
But what does this number mean in terms of success?
The only way to assess if you have a successful customer retention strategy is to compare these numbers based on historical performances. This trendline is a clear indicator of whether your company successfully keeps customers around or not. So, how can retailers focus on retaining customers?
Building real and meaningful relationships through personalization strategies is key. This way, the customer feels in direct communication with the brand instead of a system. Implementing personalization strategies, either through historical purchases or analyzing customers’ preferences and profiles, can lead to an average retention rate of 84 percent.
Another main takeaway is to make sure your product or service delivers real value. Constantly communicate with your customers, track feedback, and turn the results into action-driven tasks. The more clear and measurable your product or service’s value, the more likely your customers will be to replicate purchases and build on loyalty.
If You Can’t Track It, You Can’t Improve It
Without a clear metric of how your company is performing, there’s no way you can possibly improve performance. “You can’t manage what you can’t measure.” Here are other important customer-centric results to track:
Net Dollar Retention
Leveraging customer success drives true revenue growth and clearly reflects your company’s health and viability. Net dollar retention measures how much your annual or monthly recurring revenue has grown over time by factoring in customer expansion, negative churn and, where applicable, downgrades. It assesses year-over-year performance, comparing the amount of revenue your company brings in a set year from the previous year’s existing customer base.
Net Promoter Score (NPS)
Understanding and measuring the health of your customer base can easily dictate potential revenue growth. It’s through calculating the net promoter score (NPS) that you can know exactly what your customers think of your business and how you can potentially tweak your strategies to prompt repeat business.
Collect this information by surveying your current customers with the question, “On a scale of one to 10, how likely are you to recommend our company to your friends, family or business associates?”
Any customer that rates you with a six or below is called a “Detractor,” which basically helps you identify which customers you need to give special attention to for them to become promoters. Those who give a score of seven or eight are called “Passives,” and those who rate you with a nine or 10 are called “Promoters” and are the ones you should aim to grow.
To calculate your overall NPS, you must aggregate the individual results and measure the percentage of customers in each group. Then, subtract the percentage of Detractors from the percentage of Promoters, and it’s that simple.
Customer Lifetime Value (CLTV)
Keeping track of your customer’s lifetime value (CLTV) allows you to understand the average amount of net profit that each customer is predicted to contribute to your business over the entire length of the relationship. Although its nature is not exact, it’s a critical metric to help decide future goals and actionable steps to help increase revenue through customer retention.
Customer Satisfaction as the Lifeline for Startups
Tracking the overall customer experience can give insights into how likely customers are to remain with you and recommend your business. This is paramount for a business’s success since it dictates its usability and viability within the market.
Metrics such as customer satisfaction can make up for and heavily influence retention rates that easily represent greater profitability. It’s through identifying and understanding key customer-centric metrics that businesses can thoroughly assess and plan their success to remain relevant and competitive in the ever-changing and growing market.
Whether it’s improving your net dollar retention or increasing CLTV, you can start working towards a more sustainable and resilient future to meet today’s customer service expectations.
Greg Chen is the CEO and co-founder at Mobiz, a SMS marketing platform that connects brands with their customers through mobile marketing.
Total Retail is the go-to source for executives looking for the latest news and analysis on the retail industry. Be sure to bookmark this helpful and relevant site: https://www.mytotalretail.com/
If you are not yet a BRA Retail Member, you can easily opt in to either Regular (no cost) or Distinguished ($100/yr.) Membership via this super simple join form