You want to increase your profit by getting more referrals and retaining more customers. But you’re unsure how your customers truly feel about your product and how to act on their feedback to drive customer loyalty and satisfaction.It's impractical to have individual conversations with customers to understand their thoughts and experiences. Instead, you need a reliable method to gauge customer satisfaction and identify areas for improvement.Surveys and questionnaires provide a valuable tool to gather customer insights. They allow you to ask customers to score their satisfaction with your product, brand, features, or services. These surveys can be sent via email, web forms, in-app notifications, automated phone calls, or live chat.This post will explore three crucial customer experience metrics: Net Promoter Score (NPS), Customer Satisfaction (CSAT), and Customer Effort Score (CES). More importantly, we’ll address common mistakes businesses make when using these metrics and provide strategies to optimize your approach.
Key takeaways
- Benchmarking: Avoid benchmarking NPS, CSAT, and CES scores across different companies, as it is not meaningful. Instead, focus on internal trends and improvements.
- Cohorts: Use cohorts to analyze NPS, CSAT, and CES scores within specific groups of customers. This allows for better identification of trends and patterns.
- Non-linearity of churn: Understand that churn often follows a non-linear pattern, with significant churn occurring during the onboarding/activation phase and systemic churn occurring throughout the customer journey. Address these phases differently to reduce attrition and increase customer satisfaction.
- Trend calculations: Treat NPS, CSAT, and CES scores as trend calculations rather than absolutes. Track changes over time and prioritize continuous improvement based on these metrics.
A quick refresher on CSAT, CES, and NPS
When measuring customer experience and satisfaction, there are three popular metrics: CSAT, NPS, and CES. Each metric provides valuable insights into how customers perceive your company, products, and services.
CSAT - Customer Satisfaction
CSAT measures how satisfied or unsatisfied customers are with your product, service, or customer success programs. It is typically ranked on a scale such as 1-3, 1-5, 1-7, or 1-10, depending on the complexity and touchpoints of your business. The CSAT score is calculated by adding all the scores and dividing it by the number of respondents. For example, if you received scores of 4, 5, 6, and 7 from four respondents, the CSAT score would be (4 + 5 + 6 + 7) / 4 = 5.5. CSAT provides a general indication of whether customers are satisfied or unsatisfied with your SaaS offering and can serve as a temperature check.Example: "How satisfied are you with the ease of use of our product?"
[Caption: CSAT survey example - Source: MonkeyLearn]
CES - Customer Effort Score
CES measures the effort customers have to put into using your product. High-effort user experiences can lead to frustration and churn while providing a low-effort experience increases satisfaction and loyalty. Instead of numerical values, CES uses graded terms to assess the level of effort, such as "very difficult" to "very simple." The CES score is calculated by totaling the number of CES scores and dividing it by the number of respondents.Example: "To what extent do you agree or disagree with the following statement? The company made it easy for me to find the feature I needed."
[Caption: CES survey example - Source: Zonka]
NPS - Net Promoter Score
NPS measures the likelihood of customers recommending your SaaS company to a friend or colleague. It’s a strong indicator of upsell and cross-sell opportunities. NPS categorizes respondents into three groups: detractors, passives, and promoters. The NPS score is calculated by subtracting the percentage of detractors from the percentage of promoters. For instance, if you have 10% detractors, 30% passives, and 60% promoters, the NPS score would be 60 - 10 = 50.Example: "How likely are you to recommend our company to a friend or colleague?"
[Caption: NPS survey example - Source: SurveySparrow]
Mistake #1: Benchmarking customer experience metrics across companies
Competitive analysis is a guilty obsession. It’s understandable. You want to know your industry’s standard performance metrics to see how well you’re doing. But benchmarking NPS, CSAT, and CES from one company to another is meaningless. In other words, don’t google “What is a good NPS score for SaaS?” You might find the odd comprehensive multi-industry research report. But unless your company is included in the study, they’re pretty much worthless in providing you with a benchmark you can compare against your internal score.Look at the NPS graph below.
[Caption: NPS score by industry - Source: Trustmary]Average scores for industries range between 4 and 33. If your industry isn’t on the list, you’ll fail to get a viable benchmark.Even if your sector is captured in the report, NPS scores vary by country. The image below charts the same industry in different countries — showing that culture influences scores.
[Caption: NSP data by country - Source: Genroe]So, if your primary target region isn’t included in the report, it’s useless to you.Imagine you have a fantastic report containing NPS data for your industry and country. However, there are still variations in the way the survey was conducted.A study by Dr. Frederick C. Van Bennekom and Samuel Klaidman discusses the impact of survey mode on NPS calculations. Specifically, the research compares telephone surveys to web-form surveys and highlights significant differences in response rates between the two methods. They discovered that simply changing the survey mode from phone to email resulted in a 40-point (58 to 18) difference in the outcome for the same group of customers.These findings have enormous implications. If you don't conduct your survey in the same manner as the benchmark, the comparison becomes almost meaningless.
What to do instead
Your most important benchmark is your score from the previous month, quarter, and year. Ask yourself, “Did we improve year-on-year?” It’s a better question.This approach develops a culture of transformation and continuous improvement.With this context, does it matter what other companies are doing?If you're ahead of them, will you stop striving for progress? Nope.If you're behind them, will you give up on driving change? Absolutely not.The position of your competitors is of little significance. Instead, focus on improving your change management processes, as that’s where most of the value lies.
Mistake #2: Failing to use cohorts
Cohorts are customers with similar characteristics or experiences within a specific time frame. By analyzing customers' responses within these cohorts, you can identify trends and patterns that may not be apparent when looking at the overall scores alone.
[Caption: An example of a cohort analysis chart - Source: Baremetrics]From left to right, here's what you're looking at in the above chart:
- April 2019: This represents the "cohort" of customers who signed up for our product in April 2019.
- 24: This indicates the number of customers in this cohort. In other words, 24 customers signed up for our product in April 2019.
- 92%: This represents the percentage of customers who remained within the first month of signing up. So, out of the 24 customers, 8% canceled during April 2019.
Each subsequent column shows the percentage of customers remaining from that cohort after each month. For example, under the "2" column, we can see that 79% of the original 24 customers are still using the product after their first two months, and so on.Now, let's assume you run a company that provides project management software. You use cohort analysis to gain insights into customer satisfaction and loyalty.You divide your customers into two cohorts: new customers who have used the software for less than three months and long-term customers who have used it for over 12 months.When comparing the NPS scores of these two cohorts, you discover that new customers tend to have lower NPS scores than long-term customers. This insight suggests there may be onboarding issues or areas for improvement in the early stages of the customer journey.By analyzing CSAT and CES scores within the cohorts, you find that new customers often struggle with the learning curve of the software, resulting in lower CSAT and higher CES scores. Armed with this information, you implement targeted strategies to improve the onboarding experience, such as providing interactive tutorials and personalized onboarding support.As a result of your cohort analysis, you observe an increase in NPS, CSAT, and CES scores for new customers over time.
Mistake #3: Ignoring the non-linearity of churn
Churn, or customer attrition, is a critical metric for SaaS companies. Yet, many businesses make the mistake of assuming that churn is a linear process and treat it as such. In reality, churn often follows a non-linear pattern, and understanding this concept is crucial for effectively using NPS, CSAT, and CES metrics.
Incorrect assumptions when calculating churn
The churn calculation assumes that customers have a constant probability of leaving at any time, regardless of the duration of their subscription. However, this assumption is often false. The churn probability can vary over time, leading to different customer lifetimes.
[Caption: churn rate curve over time - Source: CatchJS]If the churn rate remains constant, the customer lifetime can be modeled using a geometric distribution. For example, suppose the churn rate is denoted as "c" per month. In that case, the probability that a customer will remain a subscriber for "n" months is given by (1-c)^n, which follows the geometric distribution. In continuous time, the exponential distribution is used as the constant analog.The probability of a newly acquired customer canceling their subscription is unlikely to be the same as that of a customer who has been with the company for three years. If all customers had the same cancellation probability, their lifetimes would be very short.The traditional method of calculating attrition rates ignores this fact and assumes a constant probability over time, which can lead to significant errors.
The different churn phases
Churn can be divided into two phases: onboarding/activation and systemic churn.
- Onboarding/activation churn: This phase refers to the initial stage of the customer journey, which includes the onboarding process, product adoption, and activation. During this phase, customers may face challenges in understanding and using the product, leading to frustration and potentially churn. About 50% of churn occurs during this phase.
- Systemic churn: Systemic churn encompasses the ongoing customer experience and factors contributing to long-term retention. This phase includes customer satisfaction, ongoing support, product updates, and overall customer success. The other 50% of churn is attributed to systemic factors.
Addressing churn differently
Given the different nature of onboarding/activation churn and systemic churn, it’s essential to address them differently. The strategies and approaches used to reduce churn in the onboarding phase may not be as effective for systemic churn.For onboarding/activation churn, focus on improving the initial customer experience, providing comprehensive onboarding resources, and addressing usability issues. This phase requires close monitoring of onboarding completion rates, time to first value, and product adoption metrics.Systemic churn requires ongoing efforts to ensure customer satisfaction and success throughout their journey with the product. This includes monitoring customer satisfaction metrics like NPS, CSAT, and CES and proactively addressing customer issues or concerns. Regular communication, product updates, and personalized support can contribute to reducing systemic churn.
Mistake #4: Treating NPS, CSAT, and CES as absolutes
These metrics should not be seen as fixed scores but rather as customer satisfaction and loyalty indicators that can change over time.By tracking trends and analyzing changes in NPS, CSAT, and CES scores, you can find areas for improvement and take proactive measures to enhance the customer experience.Assume you’re a software company that measures NPS. Initially, you scored 50, a good benchmark (based on previous performance, not competitors!). Instead of relying on this score, you continue to monitor NPS over time and notice a gradual decline in scores. This decline prompts you to investigate further and identify specific pain points and areas for improvement. By implementing changes based on customer feedback and addressing these issues, you improve your NPS score to 60, resulting in a 20% increase in customer satisfaction and loyalty.Similarly, with CSAT and CES metrics, it's essential to focus on continuous improvement rather than achieving a specific number. Customer satisfaction and effort levels can vary based on product updates, changes in customer service, or evolving customer needs. Let’s say after analyzing the CSAT scores, you discover that your average rating is 6.5. Instead of accepting this as a satisfactory score, you use it as a starting point for improvement. By implementing customer feedback programs, enhancing product features, and providing personalized support, you increase your CSAT score to 8. This improvement of 1.5 points represents a significant boost in customer satisfaction and loyalty.
Moving forward: improving customer experience and retention
Understanding and effectively using customer experience metrics like NPS, CSAT, and CES are crucial for increasing customer satisfaction, loyalty, and profitability. Avoid the common mistakes of benchmarking this data across different companies, failing to use cohorts for analysis, ignoring the non-linearity of churn, and treating these scores as absolutes.To take your customer experience program to the next level, consider the following steps:
- Start collecting valuable data and insights with reviewflowz's NPS survey campaigns.
- Expand your knowledge of the impact of churn rates by reading CatchJS's article.
Following these strategies can make a real impact and grow your SaaS business.
