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The Customer Metrics Every Manager Should Know
Featured Best Practice on Critical Success Factors
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The most important thing a business needs is customers. Just as importantly, you need to understand the needs of your customers and what it is that makes them come to you for help. If you know this, you’ll be able to persuade more people to come to you for the same help. Because the second most important thing a business needs is more customers!
These metrics are designed to help you get a solid overview of who your customers are, why they come to you, and where you will find others like them.
1. Net promoter score (NPS)
Put simply, this is a measure of how likely a customer is to recommend your business to their friends. A business needs loyal, returning customers to grow – they are your most effective and cost-efficient form of advertising.
Evidence shows that customers who talk about your company will return more frequently and often bring their friends with them. This leads to higher rates of business growth for companies with a high NPS. A simple customer survey can show you how many of your customers fit into the three key groups–promoters, passives and detractors–and where you should be focusing your efforts on improving customer satisfaction.
2. Customer profitability score
Attracting a customer, persuading him that you can fill their needs, and getting them to hand over their hard-earned cash all takes money. By subtracting the cost of attracting that customer, from the amount of money they hand over, you have their customer profitability score.
Business analysis has shown that this can often mean a business is losing money on a sale–when the cost of attracting that customer exceeded the amount that they end up spending! Understanding which of your customers are profitable means you can tailor your service to meet their needs–leading to greater overall business efficiency.
3. Customer retention rate
Once you’ve spent the money and put in the hard work to attract a customer, it’s self-evident that it is more profitable to sell to them more than once. Keeping the customers you have happy is a cheaper way of maintaining healthy turnover of business, than constantly needing to draw in new ones.
Once you have established a relationship with a customer and they trust that you will provide them with what they need in a reliable and honest fashion, they are more likely to come directly to you when they need something similar again, rather than spend more time shopping around.
Understanding which of your customers are the most loyal means you can target marketing and customer support efforts where they matter.
4. Conversion rate
Most businesses spend a lot of money on attracting and converting customers, so it makes sense that these operations run as efficiently as possible.
To understand how effective your business’s marketing efforts are, you need to know how your enquiries, web page visits, and sales calls translate into attracting paying customers.
Dividing the number of conversions by the number of total visitors (or calls, or email enquiries, or whatever you are measuring the conversion rate of) will show you where your efforts are achieving results and where you should be focusing on improvements.
5. Relative market share
In simple terms, this is how big your slice of the pie is compared to your biggest competitors. If your objective is to become the biggest player in your game, you need to know where you stand in relation to the competition.
Studies suggest that the biggest players in a particular market tend to be the most profitable (although this is not always the case!) and tracking this metric allows you to monitor your growth and predict where opportunities will arise in the future.
To find your relative market share against a competitor, divide your market share by theirs. The figure might seem of little value alone, but tracking it over time and comparing it with your relative market share versus other competitors will help you focus on opportunities for growth.
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Performance Management (also known as Strategic Performance Management, Performance Measurement, Business Performance Management, Enterprise Performance Management, or Corporate Performance Management) is a strategic management approach for monitoring how a business is performing. It describes the methodologies, metrics, processes, systems, and software that are used for monitoring and managing the business performance of an organization.
As Peter Drucker famously said, "If you can't measure it, you can't improve it."
Having a structured and robust Strategic Performance Management system (e.g. the Balanced Scorecard) is critical to the sustainable success of any organization; and affects all areas of our organization.
Learn about our Performance Management Best Practice Frameworks here.
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About Bernard MarrAcknowledged by the CEO Journal as one of today's leading business brains. Bernard Marr is a best-selling business author, keynote speaker, and consultant in strategic performance, analytics, KPIs, and big data. You can connect with him on LinkedIn here.
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