Improve customer loyalty. Understanding CX metrics like NPS and CSAT helps you track satisfaction and build long-term loyalty through exceptional experiences.
Increase retention rates. Monitoring customer retention rate reveals how effectively your business keeps customers engaged.
Drive higher revenue. Using CX metrics such as ARPU can highlight opportunities to upsell, cross-sell and maximize customer lifetime value for sustained profitability.
As you grow your business, you want your customers to grow with you. Customer satisfaction is one of the key CX metrics used to enhance your customer experience. When customers feel good about visiting your site or your store, viewing your ads, connecting with staff and using your products, they’re more likely to shop with your brand and make repeat purchases over time. Satisfying experiences encourage loyalty, engagement and higher retention rates, which leads to positive word-of-mouth and new and repeat business.
Over time, generating favorable customer experiences should correlate to greater overall revenue per client. Every exchange affects customer lifetime value (CLV), a metric that represents the total revenue a business can bring in from a single customer during the time they spend with your company.
Understanding Key CX Metrics
If you want to assess, track and improve your customers’ experiences, using the right CX metrics is a good place to start. Quantifying how your customers feel can help you measure their satisfaction and loyalty, and seeing where your service falls short can help you improve your offerings, messaging and sales strategies.
Common CX Metrics
Net Promoter Score (NPS)
A customer’s Net Promoter Score (NPS) tells you how likely they are to recommend your brand and offerings to others. To measure NPS, ask this question: “On a scale of 0-10, how likely are you to recommend our product/service/organization to a friend or colleague?” Once you have a sufficient number of responses, you can use the scores you collect to categorize your customers as “promoters,” “passives” or “detractors.”
Promoters will rate their likelihood to recommend with a 9 or 10. Passives are less enthusiastic customers who will respond with a 7 or 8, and detractors will provide a score between 0 and 6. Generally, you need a sample size of at least 300 customers to generate a reliable NPS, but you can still gain insights from smaller surveys.
Once you collect your results and find out how many promoters, passives and detractors you have, you can convert those numbers into percentages. The difference between the percentage of detractors and the percentage of promoters equals the NPS.
Example:
NPS = (Promoters – Detractors)
If 35% of your customers are promoters, 50% are passives and 15% are detractors, your NPS equals 20.
NPS = (35% – 15%) = 20
The more promoters you have, the higher your NPS is likely to be. A high NPS is likely to correlate to a high rate of positive customer experience, which should have a favorable impact on customer lifetime value.
Customer Satisfaction Score (CSAT)
The CSAT, or customer satisfaction score, measures customer feedback on a scale of fulfillment and then expresses the overall result as a percentage. To determine CSAT, you can ask, “On a scale of 1 to 5, how satisfied are you with the goods or services you received, with 5 being ‘very satisfied?’” Generally, a rating of 4 or 5 indicates satisfaction. Once you gather and index the replies from a representative sample of customers, divide the number of “satisfied” replies by the total number of replies. Multiply the result by 100 to get the CSAT percentage.
Example:
CSAT = (Number of Satisfactory Scores/Total Number of Scores) x 100
If, out of 500 replies, 467 customers expressed satisfaction with your offerings, your CSAT would be 93%.
CSAT = (467/500) x 100 = 93%
Customers who have a great experience with your company are likely to be satisfied with your offerings. If your customers feel satisfied after every purchase, they are likely to return to make additional purchases and increase their lifetime value. When you’re growing your business, retaining customers is less risky and costly than finding new ones. If you continuously satisfy people, they are likely to spend more with your business.
Customer Retention Rate Metric (CRR)
The customer retention rate (CRR) measures how many customers will return or continuously pay to use your offerings over a given period of time. The percentage of customers you start with who stay with you equals your customer retention rate. Since it’s normal to gain and lose customers, you have to account for the customers you start with, the customers you lose (or “churn”) and the new customers you acquire within your designated time frame. Losing customers means losing out on business. You must maximize and sustain your growth to avoid problems down the road.
To calculate the customer retention rate, you need to determine the time frame you want to assess, which could be a quarter, a year, or a time period of your choosing. You also need to find the number of customers you start with, the total number of customers you end with and the number of customers you gain.
Example:
CRR = [(E-N)/S] x 100
If you’re measuring customer retention for the calendar year, “S” is the number of customers you have on Jan. 1. “E” is the total number of customers you have on Dec. 31. “N” is the number of new customers you added within the time period.
Subtract N from E and divide the result by S. Multiply the quotient by 100 to get your CRR.
If your company had 1000 customers (S) on January 1, ended the year with 893 customers (E), and added 97 customers over the period (N), your CRR would be about 80%.
CRR = [(893-97)/1000] x 100 = ~80%
Tracking CRR helps you understand how many customers are likely enjoying their experience with your company as they increase their CLV. Rather than expending a large amount of resources on attracting new customers, you may want to focus your efforts on maintaining and improving quality while providing excellent customer service. Over time, customers are likely to buy more from a business they like and trust.
Average Revenue Per User (ARPU)
Average revenue per user (ARPU) shows how profitable an offering is by measuring the average amount of money a company makes from each of its customers in a given time period.
To calculate ARPU, divide the total revenue you earn by the total number of users during that designated time frame.
Example:
ARPU = Total Revenue/Number of Users
If you made $100,000 by selling 1-pound bags of coffee to 10,000 users, your ARPU would be $10.
ARPU = $100,000/10,000 = $10
Calculating your ARPU can help you understand how much value each customer generates on average. Higher ARPUs correlate to higher CLVs, and increasing these scores should correlate to higher levels of profitability. If you discover that your ARPU is too low, you can try to increase the amount of revenue each customer generates. Depending on your business’s strengths and weaknesses, you can try new strategies, like upselling or improving customer engagement, to increase ARPU.
Related Article: Customer Experience Metrics: 3 Steps That Drive Growth
Better Customer Experience, Bigger Business Growth
Being mindful of your CX metrics like NPS, CSAT, CRR and ARPU can help you verify that you are consistently providing your customers with a good experience. Improving your CX metrics should help you increase your CLV and provide a strong foundation for future growth and profitability.
Learn how you can join our contributor community.