Evaluating business through its customers
Supporting a customer-centric approach with customer performance indicators
By now, most business leaders realize the value of data. It’s increasingly behind everything we do and every informed decision we make. What counts, is how you use that data and which KPIs you’re tracking.
For most business leaders and investors, this means tracking things like revenue and growth. In other words, it’s about measuring how customers are performing for the company. Instead of thinking about what the customer wants, the business is thinking about which products and services are the most profitable.
In the Age of the Consumer, loyalty based on product and pricing alone is no longer a given. That’s why the attention needs to shift to customer performance indicators (CPIs) instead.
What are customer performance indicators?
“Customers bring to every interaction a purpose, problem, need, intent, or question – a desired outcome – along with expectations for how quickly or easily that outcome will be realized.”
Gene Cornfield, Harvard Business Review, April 20, 2020
Traditionally, businesses would think purely in terms of what’s profitable and what isn’t. But in today’s loyalty economy, it’s not just product and pricing that drive purchase decisions. It’s the experience customers have when dealing with a company and that, in turn, drives longer-term success.
A customer-centric business measures performance in terms of things like service response times and customer satisfaction. Every interaction a potential or existing customer has with your business has a reason behind it. Using data to understand that reasoning helps you learn how your business performs for its customers while revealing opportunities for improvement.
For example, let’s consider a business that offers personal loans. A potential customer will submit an online form, their intention being to receive a quote. However, they’re far more likely to continue to the next stage of the customer journey if they receive a quote within seconds, rather than having to wait for a follow-up from an agent. In other words, they want a fast quote. Therefore, the most important CPI here is how long it takes for a potential customer to get the quote.
What does this mean for investors?
“Companies should take the lead, disclosing reliable and consistent information about the progress they are making growing customer value as part of their earnings releases.”
Rob Markey, Harvard Business Review, January-February 2020 issue
The more your business focuses on the outcomes which matter to its customers, the better its own KPIs will look. If you’re delivering value to your customers by putting their needs before your own, loyalty is almost guaranteed. A customer-centric business doesn’t evaluate its own worth through capital and revenue alone, but through the value, it offers its customers.
Naturally, capital value and revenue are among the first things investors think about. But in today’s fast-moving and increasingly customer-centric world, they also need to think about how a business is evaluating its performance from the perspective of customers. The value of a company’s customer base isn’t determined only by its existing customers, but also its anticipated future ones.
Forecasting future revenue depends on four main factors: acquisition, retention, frequency of purchases, and how much customers spend per purchase. But more importantly, all these things are determined by the experience customers to have when dealing with a company. For example, an acquisition may depend on visibility factors like social following or experience factors like how long it takes to get a quote.
Final words
When a business is able to meet and surpass the expectations of its customers and align its decisions with those desired outcomes, only then can it truly claim to be a customer-centric organization.
Sometimes, internal KPIs like growth and revenue might be disappointing from an investor’s point of view. But if a business offers impeccable customer experience and has the metrics to prove it, its long-term potential will be enormous. That’s why it’s never been more important to tap into that vast trove of customer data available and find out exactly what makes your customers tick.
