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Linking Customer Satisfaction to Profitability

  |  November 23, 2008   |  Comments

Focus on the customer: They might say they do it, but few small Internet and technology companies actually DO do it. What's everyone looking at? Short-term profits. Mistake. Aaron's got some guidelines for bringing customer service into focus.

Despite all the rhetoric about the importance of being customer focused, most small Internet and technology companies are anything but. Short-term profit is the first goal, and creating customer loyalty a distant second.

Successful companies realize that the key to profitability is satisfied customers; everything else is academic.

The Customer Champion

The average company has dozens of profit champions. From the board of directors to the CEO to the CFO to the individual product managers, profit is always top of mind and a factor in all product decisions.

The first step in becoming customer-centric is to define within the organization a clear customer champion who is accountable for understanding and representing the needs of customers. To be effective, this champion must be able to influence all the strategic and tactical decisions about a product.

This is a natural role for product managers. It is their responsibility to define and execute the product strategy, and they are already intimately involved with their customers.

Some companies mistakenly place the onus of championing customers on the sales department. Although salespeople are a great source of information about customers, the nature of their job and compensation makes them poor customer advocates.

Quantifying Customer Satisfaction

To hold product managers accountable for customer satisfaction, you need to quantify customer satisfaction. Here are a few ways to turn the qualitative world of customer satisfaction into something a little more concrete.

  • Satisfaction surveys

    This is perhaps the most obvious method of quantifying customer satisfaction. Unfortunately, it is also one of the most expensive, typically costing at least $15,000 per survey.

    While this cost is easily justified by looking at the lifetime value of a customer, in a start-up environment, getting the initial cash outlay can be a struggle. Generally, the money isn't available, or the product cycle is so short that it is difficult to justify taking the time to stop and take a snapshot.

    One less expensive and time-consuming alternative is to do a simple online survey using a service such as Zoomerang or QuickTake. Potentially less scientific, these do-it-yourself online surveys are at least a step in the right direction.

    When surveying customers, use at least a few of the same questions in each survey. This will create a benchmark for measuring your success at increasing customer satisfaction over time.

  • Retention

    This metric directly ties customer satisfaction to revenue.

    • What percentage of your customers renews their contracts?
    • What percentage of your customers is up-sold additional goods and services?
    • How much time passes between purchases?

    Be careful, however, to understand customer motivations. You may find that the reason that many of your customers drop the service has nothing to do with the service. For example, you shouldn't beat yourself up if a customer drops your service because it goes out of business.

  • Customer service inquiries

    It is fair to correlate the number of customer inquiries about a product with the quality of a product. A well-designed product should require minimal support from your customer service department.

Building Accountability

Accountability is only meaningful if there are consequences for performance. Here are a few ideas for holding product managers accountable for the satisfaction of their customers.

  • Answering emails

    When I was first hired as a product manager, the head of our products group required me to answer all customer service emails about my product. It may not have been the most cost-effective way to handle these inquiries, but it made me painfully intimate with my customers.

    For my first three months, I spent a good 30 percent of my day answering emails. But after I did a 2.0 release of the product, I seldom spent more than an hour per day answering emails.

  • Budgeting

    If you don't want to spend valuable product management resources answering emails, there are other ways to make product managers feel the pain of poor service. One effective approach is to track the time that the customer service department spends on a product and deduct the labor cost from the product budget.

  • Compensation

    The most obvious and probably the most effective way to build accountability is to tie performance to product management compensation. Set goals for customer satisfaction, and base bonuses on meeting or exceeding those goals. This, again, requires clear and fair metrics for measuring satisfaction, but it will have the necessary impact.

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