Businesses have various metrics to track success: growth, top line, NPM, sales, productivity, market share – the list goes on.
One of the most important metric for businesses to measure success, from a customer’s point of view, should be customer satisfaction. The easiest way is to ask customers two simple questions:
- Were you happy with your experience with <your brand name>?
- Would you transact with us the next time you need this product?
This is the absolute measure of customer satisfaction. If the customer doesn’t respond in the affirmative to either, you have an unsatisfied customer and you need to dig deeper. If the response to the first is a no and the second yes, then you’re just plain lucky or a monopoly.
How CSAT affects your business model and P&L
The role of marketing is to acquire new customers at an acceptable cost and the role of product is to ensure customer satisfaction resulting in repeat purchases and, ultimately, advocacy of your product.
Most e-commerce business models depend on the repeat purchase model and therefore, it’s critical to have CSAT as a key metric for senior management to track. Not only does it tell you how relevant and loved your product is but also has a serious impact on your P&L.
Let’s assume your cost of acquisition is Rs. 100 and your earning from a transaction is also Rs. 100. Unless this customer keeps coming back and transacting with you, this customer turns out to be non-profitable. Here we haven’t even considered the cost of servicing the customer. The only other way to make this a profitable business model would be to ensure that the cost of acquisition is kept below Rs. 50 assuming that the cost of servicing the customer is not more than Rs. 30 (including other variable costs and fixed costs of manpower, rent etc) so that you can make an acceptable profit margin.
Look at this from the angle of marketing cost. Let’s imagine you had 10,000 customers transacting with you in a month. Of them, 5,000 respond to your feedback form. Of these 500 say they won’t return to transact with you. You have a dissatisfaction rate of 10%. If the cost of acquiring a new customer for you is Rs. 100, you are already looking at a marketing cost of Rs. 50,000 going down the drain. Assuming that the other 5000 who didn’t respond to your feedback form would have a similar ratio of dissatisfied customers, you have already burnt Rs. 100,000 that you aren’t going to recover.
Few companies go through this exercise even though it’s the easiest thing to do. All it costs is an e-mail and I suppose most customers appreciate it. It tells them you care about what they think of you.
If you could track your CSAT over a period of time you’ll be forced to investigate the reasons for dissatisfaction and in turn be able to streamline processes that are causing it. It will lead to a higher CSAT, less frustration on the part of your customer and a healthier P&L. The more your old customers keep returning the lesser the pressure on marketing to acquire customers at an unsustainable cost. In fact, marketing may even take the liberty to increase their cost of acquisition and in turn be able to attract a larger audience if the rate of repeat purchase increases because of a higher CSAT.
No matter which angle you look at it from, CSAT is a lethal yet downplayed metric that a start-up can’t afford to not measure and work towards increasing over a period of time.
Some questions open for a discussion, because these are debatable:
- What would be a good CSAT%? Should you be happy with 90%?
- Is there any way to know what CSAT rate your competitor enjoys?
What do you think?
Recommended Read: The Missing Piece Among Indian Ecommerce Players : C.R.M.
[Guest article contributed by Mayank Bidwatka, Marketing head at redBus. Mayank has been a regular contributor on Pluggd.in and his articles bring a strong focus on product marketing.]