NOTE: The following is a guest post by Veronica Figgarella. If you want to submit your own guest post, click here for more information.
In a recent post entitled Open Question: Product Management Challenges at a Startup, Saeed asked for community input to three questions posed by a startup founder. Looking to scale his company, the founder asked for input on the following three questions.
- What metrics should be instrumented into the product to see if implemented features are effective in solving customer/user problems?
- What are the right collateral pieces for the sales people? What is/are the right pricing models?
- How to have marketing work with Product Management to create compelling stories to identify and target new customer segments?
I want to address question #1 and share a few thoughts about developing the right metrics for measuring product success. I hope to address the topic in a broader sense, and not limit my answer to the B2B software industry.
Measurement is necessary to monitor progress in all areas of the business. We measure sales to track progress towards quota; measure bug counts and bugs fixed as a quality indicator. Product Management needs measurements to identify value creation and product improvement. And especially in a startup company, Product Managers are most worried about measuring how much cash flow their product generates thus working hard to solve customers’ problems.
If you want to learn how your products are helping your customers solve their problems, your first metric should be how much cash flow your product is generating? If your product is not producing the expected earnings it is most likely not generating value for the customer either.
Proper metrics need to be:
- precise and sensitive to change,
- and cost/effective to implement.
The amount of cash flow your product generates depends on multiple factors (i.e. channel supply, vendor supply, sales effectiveness, etc) which can be tracked through market performance metrics. Although metrics vary from one industry to the other, market performance needs to be linked to cash flow especially for a startup where initial revenue is vital for company survival.
Some of the most relevant market performance metrics are:
- Sales effectiveness (acquisition):
- # of trials vs. purchase,
- # of referrals vs. actual adoption
- Wallet share: How much of the customer spend is in my product?
- Price Premium: Are my customers willing to pay a premium for my product?
As money comes in, you can start thinking about your second biggest worry:
How do you generate future cash flow?
Your metrics need to be linked to your strategy, mission and vision statements so you can monitor how your products contribute to your corporate strategy. They will also help you deliver continuous value to both customers and shareholders.
Some helpful long-term value delivery metrics are:
- Return on product and marketing investment: a simple way of calculating it is (return – investment)/(return), the tricky part is defining what return means for your product. Return can be total revenue or, gross profit or net profit.
- Customer satisfaction: it is a measure of the value your product gives to customers, so define satisfaction in a way that is simple yet relevant to them.
- Market share in targeted segments and
- Loyalty (are my customers willing to buy from me again?) Satisfied customers are more likely to repeat a purchase therefore loyalty impacts long term business profitability. Identifying which components of your product/services drive loyalty and monitoring them, is key in generating future cash flows.
Several academic studies show that future cash flow is related to customer satisfaction. This is because a satisfied customer is more likely to repeat a purchase and a loyal customer is cheaper to maintain than acquiring a new one. Let’s dive a litter deeper into measuring Customer Satisfaction. After all, if your products are solving customer problems, it is very likely they are satisfied customers.
So… How to measure customer satisfaction?
There is no right or wrong metric to measure customer satisfaction, but the following considerations are pretty much what many experts and best practice reports agree on:
1. Identify what service/product dimensions are relevant to your customers
For example, If you are in B2B arena and each sale is different, then you need to be able to identify a common driver for purchase among your customers: i.e. how fast your RFI was answered, or the inclusion of a clause that allows discounts when the product fails, or if a specific option is included with no additional charge. It works pretty much the same for B2C; you still have to investigate what does your customer value from your product/service? Identifying these relevant dimensions will help you define the important metrics to monitor.
According to Leonard Berry in his book Competing Through Quality, there are 5 areas customers’ weigh as important in order to achieve satisfaction (and this is mostly for services):
- Assurance (related to how the company and its employees convey trust and confidence),
- Empathy (to customers’ problems)
- Tangibles elements of the service are primordial in providing satisfaction because they are the evidence of the service, for example: appearance of physical facilities, of service personnel, tools or equipment used, etc.
Customers will be satisfied if they believe the received what they expected in these areas.
2. Encourage complaints to understand dissatisfaction
Sometimes customers are not clear about what satisfies them before they try a product, but when they return it or call to complain they are pretty clear about what’s not working for them. In Berry’s book, he explains some of the gaps where managers need to look to find sources of dissatisfaction:
- Misunderstanding of customer requirements
- Poor specification of standards;
- management may not have instructed staff properly on how to implement desired standards
- Capability gaps
- staff might not be properly trained
- Creating over-expectations
- advertising and sales people can promise too much leading customers to have inflated expectations
The importance of these dimensions needs to be clear especially to sales representatives, front line staff and marketing people as they promote your products/services and interact directly with the customer.
3. Not all communication channels are equal
Be careful about the channels you use to encourage complaints and be true about embracing customer dissatisfaction. According to a recent study by Maritz Research most customers expect the company to read their Twitter complaints but only a third received a response. Jay Baer comments on this topic on his blog Convince and Convert.
Social media doesn’t create negativity, it puts a magnifying glass to it.
So companies need to be aware of this and respond. Secondly he points out the following:
…social media doesn’t close at 5pm, and in fact many customers use social media during the night and on weekends, when it may be inconvenient for you to monitor and reply. But your corporate convenience is not the prism through which you should be gazing upon social business.
So in short, not only is responding to these public complaints important, but the responses should be done in a timeframe that is convenient for the customer.
social media will put a magnifying glass on dissatisfaction and you will need to expand your “complaining hours” after 5 pm.
4. Customer satisfaction needs to be linked to financial reports to be taken seriously
Unfortunately, financial reports and product line incomes often dominate the thinking of a business that lacks of customer orientation. However market-based assets such as: size of customer base, quality of supplier relationships and customer satisfaction needs to be tracked and linked to earnings in order to make it everybody’s business (finance, customer support, engineering, etc).
5. Keep customer feedback mechanisms simple
When collecting information from customers, make the questions simple to answer. This has additional benefits as short surveys tend to reduce user fatigue and return more reliable information.
Here is an example of a good satisfaction survey Amazon sent me recently. I was really happy with how they handled my problem; especially because it was my fault that the item I bought had not arrived on time (I entered a wrong address ooops!)
_____________________________________________________________________ Thank you for your recent inquiry. Did I solve your problem? If yes, please click here: http://www.amazon.com/gp/help/survey?p=A1CSAT0DV4C6JL&k=hy If no, please click here: http://www.amazon.com/gp/help/survey?p=A1CSAT0DV4C6JL&k=hn
When I pressed the YES link I was directed to here:
It was really simple, all I had to do was rate each questions with stars, it did not take a minute and the answer was very true to my feelings.
If you want to read more about the links between market orientation, customer satisfaction and profitability I recommend reading: Chapter 1 (it’s a free pdf) from the book Market-Based Management byRobert J Best.
6. Understand how to manage your data.
If data collected is not managed properly and acted upon timely, measuring customer satisfaction will be a wasted effort. This links back to defining the quality of what is being measured and stabilising a relevant score card to assure company’s commitment to customer satisfaction.
So next time you decide to measure satisfaction, think backward and establish what data will help you make decisions so you can create the questions that will accurately yield the information needed.
Why Customer Satisfaction Matters – article on cvent.com
Marketing Management by Gregory Whitwell
Tweet this: A value-based approach to Customer Satisfaction and Product Metrics http://wp.me/pXBON-35B #prodmgmt
- (How) do you measure customer satisfaction?
- Improve Product, Marketing & Sales Execution With a Different Approach to Product Strategy
- Product Management Metrics (part 2a)
- Go-to-Market and Organizational Metrics for Product Success
- Guest Post: 3 Steps to a More Effective Voice of the Customer Program