Let me guess, you've heard the term "KPI" thrown around in business meetings and wondered, “What on earth is a KPI?” Don’t worry, you’re not alone. KPIs, or Key Performance Indicators, are kind of like having your business hooked up to an EKG. They help businesses understand how well they're doing... or not. Think of them as the fitness trackers for your business—keeping tabs on your company’s health and performance.
Today, we're taking a look at a specific type of KPI, the "Customer KPI". We will walk you through a few types as well as describe why they are crucial for your small business' success.
The Basics: What Are Customer KPIs?
Just like how your Apple Watch checks how much standing, activity, and exercise you do, KPIs are there to keep your business on track. Customer KPIs are simply one of those categories. These KPIs focus on measuring and analyzing: customer satisfaction, loyalty, and retention. These are the data points that essentially describe what type of experience your customers are having with your business.
If your Customer KPIs start "declining" (put in quotes because some KPIs might be deteriorating by a rising number) that's a quick and easy way to understand that your customers are not having the best experience with your company. And it doesn't take a Rocket Scientist to understand that that's going to lead to a decline in revenues.
However, since you will be so incredibly inspired to start tracking these after reading this, you will be one step ahead of your competition. By tracking these indicators, you can spot what's working, tweak what’s not, and keep your customers coming back for more.
What Are Some Customer KPI Examples?
Let’s jump into some key customer KPIs you should keep an eye on. Keep in mind most of these are the basic KPIs. Which means you should be tracking most of these as a default first, and then adding on KPIs specific to your business or industry.
1. Net Promoter Score (NPS)
There is almost a 100% chance you have bumped into this one at some point. Almost every major B2C company out there rocks some variation of the Net Promoter Score. NPS measures customer loyalty by asking customers how likely they are to recommend your business to others on a scale of 0-10.
Side Note: This one happens to be my favorite tool for customer satisfaction. The recommend question is a bit odd, but where this really shines is its brevity and its prevalence in the business world. If you don't have a survey process and are not tracking NPS, you need to start NOW!
Why It Matters:
This idea behind NPS, and I believe they are being a bit ridiculous here, is that a high NPS means your customers are out there singing your praises, hence the "recommend" portion of the question. My personal take is that they are being a bit too naive in that line of thinking. The question is effective in providing a scoring base and identifying the customer temperature, but it would be silly to think people are out there literally recommending you. (It happens for sure, but not to the level NPS tries to sell it.)
The other strength of NPS is that most major companies use it. This means that as a small business, you can easily check the average for your industry. Maybe you're the David to the Goliath? By using this, you can see how you stack up in terms of customer satisfaction!
How to Measure:
This gist is this: The customer will submit a score from 1-10. The 9's and 10's are considered "promoters" and those 6 and below are considered "detractors". To find your score, you essentially take the percentage of detractors and subtract that from the percentage of promoters. Simple and Easy!
2. Customer Satisfaction Score (CSAT)
CSAT is very similar to NPS, but it can also be deployed in other ways. Put simply, it measures how happy customers are with your products or services on a scale of 1-5 or 1-10. Whereas NPS is the overall satisfaction of the customer to your company, CSAT can track happiness across many facets of your small business.
Think along these lines: Disney might send a survey to track NPS for your overall experience, but they might also seek your CSAT for specific rides or resorts.
Why It Matters:
While it operates under the same principles of NPS, using CSATs will empower you to really refine down to what customer like or dislike about your product or services.
As an example, you might get an okay NPS result of 70, but upon analyzing your CSAT you discover that it is one specific product that is tanking your overall customer experience. For service based businesses, this might indicate which of your technicians or employees are dragging down the quality of your services.
How to Measure:
This one is way easier since you just deploy your surveys and ask the customer to submit a score. (We strongly recommend sticking to 1-10. Having only 1-5 severely limits input choices). Then you average all your scores. That's it!
3. Are Your Customer Loyal? Customer Retention Rate
Customer loyalty has a massive impact on your marketing spend. It shouldn't come as a surprise, but retaining customers is a hell of a lot cheaper than seducing new ones. The vast majority of your marketing budget is there to entice new customers to your business. If you're spending your hard earned cash trying to convince existing customers, then we need to have a chat... Seriously, see the booking sesh' button at the bottom.
This KPI measures the percentage of customers who stick around over a specific period. Typically that period is a year, but depending on your business you might adjust it accordingly. This number is a solid indicator of your ability to have sustainable growth.
Why It Matters:
As I mentioned above, a high retention rate indicates strong customer loyalty. This translates into revenue growth over time that is no longer discounted by the amount you spent to acquire them as a customer.
How to Measure:
Math might not be for everyone, so feel free to delegate this formula to your resident math nerd. The calculation itself is fairly simple. The hard part is having or utilizing your systems to produce the variables for the formula. (For those who hate math: you need to be able to find how many customers you have or how many you added).
((Number of customers at the end of the period - Number of new customers during the period) / Number of customers at the start of the period) x 100.
4. Counting Your Chickens - Customer Lifetime Value (CLV)
The value of a customer over the course of that customer's (business related) lifetime is a critical data point in your cash flows. CLV estimates the total revenue a business can expect from a single customer over their lifetime.
Which means that this ties directly into the previous KPI, CRR. If you are able to retain a customer longer and they make more purchases, then their CLV will also go up. However, in terms of this KPI, you are wanting to see the top-level business average.
Why It Matters:
Maximizing your CLV helps you invest in retaining your most valuable customers. It also helps you refine your products, especially your new product R&D, to expand the CLV over time.
More importantly, it will help you determine appropriate marketing budgets. It wouldn't make sense to have a new customer acquisition cost (another KPI by the way) that is higher than the CLV. Knowing CLV will empower you to design business strategies such as pricing and spend with less guesswork.
How to Measure:
First off, and not to beat a dead horse here, but each of the values in the formula are business KPIs themselves. You should be monitoring each of these for the health of your small business.
With that out of the way, the only item here of note is that should any of each of the individuals increase, this KPI will go up as well.
Average Purchase Value x Purchase Frequency x Customer Lifespan.
5. Dangerous Butter - Customer Churn Rate
Churning butter is a thing of the past, and you definitely want to make Customer Churn one too. Customer Churn Rate measures the percentage of customers who stop doing business with you over a given period. Some of it comes naturally from moves and death for example, but in tandem with the other KPIs, some of it is within your realm of control.
Why It Matters:
Again, while there will be churn for natural, organic reasons, a high churn rate signals dissatisfaction and the need for better retention strategies. Going back to that Customer Acquisition Cost, it's going to cost you WAY more to attract new customers than it does to keep existing ones. If you can monitor and keep this KPI under control, you will be safeguarding your bottom line in a serious way.
How to Measure:
As you can see in the formula, the higher the number of customers "lost" is the determining factor. The catch here is when do you consider them lost? We typically recommend that you monitor churn on a monthly basis in its calculation, but you should treat a customer as lost of the period of a year. This means that you're creating a rolling calculation over time, but this will be far more accurate. (Side note: a yearly lifecycle means that some of these KPIs will be exceptionally difficult for those business owners who are just starting out. If you're in that stage, reach out to us for guidance.)
(Number of customers lost during the period / Number of customers at the start of the period) x 100.
Tracking and optimizing customer KPIs is essential for small businesses aiming to improve customer satisfaction and retention. By focusing on these key metrics, you can make data-driven decisions that enhance customer experiences, foster loyalty, and drive business growth!
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This is such a helpful breakdown of customer KPIs! As a small business owner, I’ve found that tracking metrics like NPS, CSAT, and CLV has made a huge difference in understanding my customers and improving retention. It's great to see how each KPI ties into the overall growth and success of a business. Thanks for the detailed insights—I'll definitely be using these strategies to fine-tune my approach moving forward!
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