Many businesses find to their chagrin that customer satisfaction doesn’t drive loyalty.
Customer satisfaction isn’t that meaningful in itself, because these customers don’t necessarily stick around.
That’s not to say we should abandon customer satisfaction entirely. We need to combine CSAT score with another metric to produce a more meaningful picture of customer retention.
Loyalty is what we must measure to reduce churn. But measuring customer loyalty can be an elusive art.
Why measuring customer loyalty is better than measuring customer satisfaction
“60-80% of customers who churn said they were satisfied or very satisfied in their last CSAT survey” [source: Bain & Co]
To find those customers most at risk of churn, you can add one other metric to your CSAT score. We’ll go into this in a bit.
For SaaS businesses in particular, customer loyalty is one of those murky areas that is important but often not well understood. When you stray into the realm of measuring customer loyalty, you can identify those customers who have forged an emotional connection with your brand and are likely to stay.
And instead of cursing your lost customers once it’s too late, you can take practical steps to build loyalty among your current customer base.
Reducing customer churn
You need to go beyond simple feel-good metrics like CSAT and build a picture of your customers that can truly impact your business: find out your levels of customer loyalty.
Customer loyalty can be broken down into a set of desired actions that your customer is likely to perform that ultimately benefit your business:
- How likely it is your customer will remain your customer
- How likely it is your customer will buy more products from you
- How likely it is your customer will recommend your products to their network
The idea is to go take relatively inactive customers and make them into active customers who love your brand.
These will be customers who will keep their subscriptions, buy more of your products when you want to upsell or cross-sell, and also who promote your products to their friends and families.
How to start measuring customer loyalty
It’s easy to panic when we can’t read the minds of our customers. We worry that they’ll churn and there’s nothing we can do about it.
But help is here! You can find out loyalty versus churn if you measure and combine:
- Net Promoter Score (NPS)
- Customer Satisfaction Score (CSAT)
NPS and CSAT are two reliable customer service metrics that we at Kayako add together to reliably measure customer loyalty. Combining these two scores tells you which of your customers is likely to stay.
But it’s not all sunshine and roses. You’ll also find out which of your customers is most at risk of churn, and identify those who you can probably persuade to stay.
Let’s go into what these scores mean and how to obtain this data from your customers.
What is Net Promoter Score?
Net Promoter Score is a well-known metric in SaaS and ecommerce, but is also used by many companies across all industries.
Net Promoter Score measures customer loyalty and provides you with feedback about how well your products are received. This metric tells you how likely it is your customers will recommend your product or service to their friends and family.
Crucially, NPS plays a significant role in determining a company’s future growth, especially in industries where there is a lot of competition. When customers have real choice, a company’s promoters are the deciding factor in whether more decide to buy from you.
Your NPS can also indicate how likely your existing customers are to buy from you again.
How to measure your NPS
You measure your NPS by sending your customers a short survey. In this survey, you ask your customers how likely they are to recommend your company on a scale of 1-10.
Depending on their score, your customer will either be a Detractor, Neutral or a Promoter. Your aim is to have as many customers as possible to score as Promoters to gain a high NPS.
- Scores of 0-6 are DETRACTORS
- Scores of 7-8 are NEUTRAL
- Scores of 9-10 are PROMOTERS
Get an idea of your industry’s NPS average to help you figure out where you are on the spectrum. You might think you have a low score, but are actually performing very well for your industry.
Dividing the percentage of your customers who are Promoters by the percentage who are Detractors gives you your overall NPS score. It will be between -100 and 100.
What is Customer Satisfaction score?
Customer Satisfaction Score (CSAT) measures how satisfied your customers are with your company’s current product or service.
This data is collected during a natural pause in your customer’s relationship with your business, such as when they’ve contacted your support team.
How to measure your CSAT score
Measuring customer satisfaction isn’t as hard as you think.
You measure CSAT by sending your customers a quick one-line survey after an interaction with your support team, asking them to rate their interaction Good or Bad.
To calculate your final CSAT score, you divide the number of Good responses by the total number of responses you receive, then multiply that figure by 100.
Don’t forget to benchmark yourself against others in your industry to find out how well you’re performing.
And now we’ll combine CSAT and NPS together to create a meaningful picture of customer loyalty.
Combining NPS and CSAT
At Kayako, we combine our NPS and CSAT data to identify our most loyal brand advocates, as well as our customers most at risk of churn.
Using free, easy-to-use software Plot.ly, we are able to plot a graph that shows our NPS and CSAT data along two axes.
From this graph, we divided our customers into four categories based on the clusters of scores.
1. Wasteland of lost customers
Unfortunately, these customers are at the highest risk of churn. They’re neither satisfied nor loyal, and it isn’t worth investing much of your efforts to retain them. Let these customers go.
Wildcards are an interesting quadrant. They are satisfied but disloyal customers who will be easily wooed away by your competitors.
These are your customers who are quite likely to churn. They may be impressed by the quality of your support, but not at the product bugs that led them there in the first place.
You can engage these customers by adding value to your product and educating them on product features to increase their loyalty.
3. Promoters with bad service experiences
These are your customers who love your brand but have suffered a bad experience with your company. Maybe they love your product but their interactions with your customer support haven’t been up-to-scratch.
These are customers worth investing more time in to bring them up to the level of Advocates.
You’ve struck gold with your customer Advocates. Advocates are loyal, impressed with your product support, and very likely to recommend your company to their networks.
You can use these customers for referrals, testimonials and case studies.
Don’t stumble around in the dark trying to reduce churn. Use our tried and tested methods of combining NPS and CSAT score to group your customers.
Instead of relying on feel-good metrics alone to improve your customer retention, start measuring customer loyalty. Follow up with those customers who are at risk of churn but can still be saved. Gracefully let go of your most dissatisfied customers.
Make the most of the feedback available to you from your existing customer base. Spend time collecting enough data to provide a reasonably reliable picture of your customer loyalty.
Keep measuring customer loyalty over time to measure the progress you’ve made.