Highly effective organizations should think of customer retention as a key performance indicator (KPI).
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Consider the manufacturing manager working to improve inventory turns, the human resources manager striving to increase the average length of employment or the finance manager keeping track of capital assets. While inventory, employees and equipment are all vital assets that deserve management attention, customers are equally as important and demand to be accounted for. It is not enough to simply keep track of customers and their buying history. The ability to manage customer retention (churn) on a regular basis sets the framework for improving business effectiveness.
Customer retention as a KPI has three key elements: ownership, trustworthiness and visibility. For customer retention to be a true business driver, best-in-class organizations identify key individuals that feel their performance is measured by customer retention. Who owns the customer is often a heated debate among sales, marketing and service departments, often voicing a desire, perhaps demand, for control. Customer retention KPIs are hand in hand with customer "ownership," and owners are responsible for periodically measuring, reporting and managing customer retention initiatives. @8208
Effective customer retention KPIs are also trustworthy. In other words, standard and accepted measurement practices are observed. The process of measuring customer retention adheres to industry norms and is measured in a consistent fashion over time. Likewise, the process is "open" to review, just as financials are subject to audit.
To be an organization-wide KPI, customer retention metrics are reported and discussed at all levels of the organization, from the front line to the board room. For example, at a recent quarterly earnings meeting, Netflix shared current customer retention rates and future customer retention goals.
Leading organizations are measuring customer retention on a regular basis and using it not only as an internal business tool, but as a corporate metric for shareholders to evaluate corporate value. Companies are also using customer retention as a planning and execution tool, which helps in new product development, new sales and marketing programs, as well as improving most business processes.
Ownership, trustworthiness and visibility. Best-in-class organizations can confidently say that customer retention KPIs meet this standard as well or better than any other corporate KPI.
Consider the following questions:
- What priority does your organization place on customer retention?
- When was the last time your organization measured customer retention?
- Who in your organization is responsible for your customers?
- Do you tie incentives to customer retention data?
- Do you measure customer retention using industry-accepted methodologies?
- Does your organization communicate customer retention rates to all appropriate people?
RealMarket provides advisory services for organizations looking to increase profits through best practices in customer retention. RealMarket provides real-time and on-demand industry news, research, webcasts, case studies, white papers, and product information.
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