Hosted Contact Center Featured Article

Customer Lifetime Value Starts with Improved Customer Satisfaction

October 16, 2013

By Tracey E. Schelmetic,
TMCnet Contributor

Customer satisfaction is one of those goals that every company seems to have, yet few seem to specifically strive to obtain. It’s kind of a nebulous concept to some companies: does it mean simply preventing customers from getting angry? Keeping them from picking up the phone and calling the contact center? Or is it simply a critical driver of an even more important goal: a high customer lifetime value?

As smart companies focus on broader goals in the contact center than just maximizing each sale, they begin to turn to a critical metric called “customer lifetime value,” or CLV. CLV is about optimizing each interaction and conversation in order to create an engaged customer relationship which drives customer retention, repeat purchases, customer referrals, reduced support costs, and possibly even price premiums. It’s a measurable goal: it’s the customer’s revenue minus support costs multiplied by the average length of the relationship.

Customer satisfaction, of course, is an element of driving up customer revenue. It’s also an element of reducing support costs: the better a customer is serviced during each point of contact, the less often he or she needs to call back to try and solve the same problems or issues over again. In fact, it’s fair to say that customer satisfaction is the most critical driver of customer lifetime value, since it’s the single most important element driving customer retention.

“Better retention rates give organizations an efficiency advantage,” writes Robin Foster, Practice Leader for ROI Analysis at Avaya (News - Alert) in a recent blog post. “Consider the example of two businesses with identical annual revenue of $20 million. If the market were growing by 4 percent per year, each of these businesses could expect to gain about $800,000 per year in sales. However, each firm wants to grow at three times the market rate, which means each firm has a growth target of 12 percent in revenue, or $2.4 million in incremental revenue. Next year, each firm wants to report annual revenue of $22.4 million.”

The big difference between these firms is customer retention, says Foster.

“Company A has an annual customer retention rate of 80 percent, while Company B has an annual customer retention rate of 82 percent,” she writes. “Company A should expect 20 percent of its customers to disappear, taking their revenue with them. Company B should expect loss as well, but only anticipates that 18 percent of their customers will disappear. Company B needs to generate 7 percent fewer dollars in new sales revenue ($5.2 million instead of $5.6 million) to reach the same target of $22.4 million in annual revenue. The company with higher retention loses fewer customers—and so it needs to find fewer new customers to meet its revenue target for the next year.”

For this reason, the most successful companies are examining how customer satisfaction relates to retention, and putting practices into place to boost both. Some of the biggest barriers to customer satisfaction include having to repeat information or be transferred to other departments, which necessitates a well-integrated multichannel strategy – the kind that can be built with a hosted contact center solution. Customers today expect the same quality of service regardless of which channel they choose to contact a company with. They even expect to be able to start a transaction in one channel and continue it in another. With a siloed in-house solution that is not properly integrated with critical functionality such as CRM, this is a near impossibility.

A good place to start building customer lifetime value, therefore, is with first-call resolution. And a good place to start that is with a feature-rich hosted contact center solution. 

Edited by Blaise McNamee