Role of KPIs’ in customer lifecycle management and CRM

By Riya Jain and Priya Chetty on May 7, 2021

Traditional customer relationship management (CRM) is rapidly changing with the evolution of technology. Globalization is also playing an important role by making the customers more informed. In order to analyze the customer lifecycle in a business, it is important to measure key performance indicators (KPIs). Instead of focusing on net sales or social media likes, businesses should focus on measuring whether they are capable of meeting a customer’s ever-changing demand and customer feedback. This article examines the important KPIs’ along the customer lifecycle to improve performance and derive better customer satisfaction.

Customer lifecycle is an essential component of customer relationship management (CRM)

Customer lifecycle refers to the different phases that a customer goes through right from the very first interaction to a transaction (Gore, 2013). It begins right from the moment a business catches its potential customer’s attention.

For example, a website visitor lands on a website to provide personal information like name, phone number, and email id to create an account. After the initial data collection and a few more steps like social media follow and product enquiry, the visitor is considered as a marketing qualified lead. After analyzing certain parameters, the sales team tries to convert this potential lead into a sales qualifies the lead. In a similar fashion, after a few more interactions, the business looks for an opportunity to make sales and close the deal in such a way that the customer is satisfied enough for repeat sales. This process is called the customer lifecycle.

The figure below shows this procedure.

Customer lifecycle (Forte Consultancy Group, 2010)
Figure 1: Customer lifecycle (Forte Consultancy Group, 2010)

Conversion models for customer lifecycle

Conversion is the stage where a business convinces the customer to make a purchase making decision. By this time, the target customer is already receiving promotional interactions and is considering making a purchase. Here, the role of the business would be to guide the customer to make the transaction. Charlton (2013) wrote that 83% of online customer needs support during this phase. Ideally, a business should allocate a support team to guide customers going through this phase. This is shown in the below figure.

Customer conversion process
Figure 2: Customer conversion process

Importance of key performance indicators (KPIs’) in customer lifecycle

Businesses use KPIs‘ to analyze customer lifecycle and understand what to improve and how to improve. Carter (1989) wrote that since there are innumerable performance indicators, it is difficult to generalize the best ones that would suit a business. He prescribes to selection performance indicators based on the business objectives. Sorovou (et al., 2001; Parmenter 2011) listed accountability, quantifiable, timeliness, relevance and consistency as the main characteristics of a good KPI and mentioned that KPIs‘ should not be a financial measure that can be expressed in terms of currency. Based on these, some of the important KPIs‘ in the customer lifecycle are (Tepperman, 2017):

  1. number of new customers,
  2. number of returning customers,
  3. upsells,
  4. cross-sells,
  5. adoption,
  6. usage frequency,
  7. cancellation,
  8. growth and,
  9. advocacy.

For instance, Amazon understands that doing a business is more than just attracting customers to be one-time buyers. Therefore, it tries to build a mutually beneficial relationship with customers which in turn brings a higher customer life cycle value.

Sickler (2020) pointed out that Amazon doubled its efforts to retain existing Prime customers and add new Prime subscribers. This is because the average customer lifetime value of Prime subscribers is around $2283 per year whereas non-Prime customers are around $916.  A customer lifetime value is a net profit to an organization from a future relationship with a customer (The Economic Times, 2020). In order to get this increasing customer lifetime value, it is essential to analyze the customer lifecycle and take strategic decisions from time to time.

Understanding customer effort score and churn rate

This score measures how much effort a customer has to put in to start a conversation with the organization. The lower the wait time, the better the score. Many potential buyers do not purchase anything even after filling their online shopping cart. If the website lacks detailed information about the goods and services it is selling or customers were unnecessarily made to fill surveys, customers might be unwilling to make a purchase. In order to achieve a loyal customer base, businesses should not only focus on the changing demand of customers but also on eliminating potential communication obstacles (Clark and Bryan, 2013).

Customer churn rate is the number of customers that don’t become returning customers or cancel their purchase midway (Frankenfield, 2021). A high churn rate indicates, the business is not doing much to convince first-time customers to be returning customers.

New lead generation

Businesses should not only choose to satisfy the demands of their existing customers but should also gain new customers. Generating new leads is very important in today’s highly competitive business environment (Schrage and Kiron, 2018). Businesses should try to find out whether customers are interested in a product directly or they are comparing it with some other product from another brand. Similarly, the business should also analyze the usage frequency of its products (Burez and Van den Poel, 2007). The time taken by a business to resolve a customer enquiry is known as new lead generation time. The more time a business will take in resolving customer issues, the less satisfied the customers will be (Gunasekaran, Patel and Tirtiroglu, 2001).

Implication of conversion model for customer lifecycle

Analyzing customer lifecycle and taking strategic decisions based on the results of the analysis can help a business from stopping its customers to reach the end of its journey. The business should have a goal to convert these one-time customers into returning customers. It is to be noted that the customer lifecycle of each business is unique.

For example, the customer lifecycle of a company like KFC and an automobile company is completely different. A company like KFC has a shorter customer lifecycle as the customers would return soon after. While the automobile company have longer customer cycles. Therefore, different businesses should consider their conversion model and performance indicators based on their unique business objectives.

Irrespective of the segment, businesses should never consider that customer’s value ends with successful sales. By this, the real value of the customer lifecycle is underestimated.

For example, when a buyer can make a purchase of Rs 2500 and returns twice a year, he will be adding a value of Rs 5000 yearly. Similarly, when the customer recommends the business will be creating more value from the same customer.

Technology-driven business analytics is the future of CRM. More and more businesses are looking to get these insights in real-time. It can be said that business analytics, business intelligence will sculpt the future of customer relationship management.

References

  • Burez, J. and Van den Poel, D. (2007) ‘CRM at a pay-TV company: Using analytical models to reduce customer attrition by targeted marketing for subscription services’, Expert Systems with Applications, 32(2).
  • Carter, N. (1989) ‘Performance indicators: “Backseat driving” or ’hands off’control?.’, Policy & Politics, 17(2).
  • Forte Consultancy Group (2010) Beyond the Customer Lifecycle – Catering to Customers When They’ll Most Appreciate It.
  • Frankenfield, J. (2021) Churn rate, Investopedia.
  • Gore, M. (2013) ‘Customer Life Cycle Management- Time and Beyond…- Expertise recognized by clients, Analysts like.’, IOSR Journal of Business and Management, 12(6), pp. 78–82.
  • Gunasekaran, A., Patel, C. and Tirtiroglu, E. (2001) ‘Performance measures and metrics in a supply chain environment’, International Journal of Operations & Production Management.
  • Parmenter, D. (2011) Key Performance Indicators Developing, Implementing,and Using Winning KPIs. New Jersey: WIley.
  • Schrage, M. and Kiron, D. (2018) Leading With Next-Generation Key Performance Indicators. Boston.
  • Sorovou, D. et al. (2001) ‘D3-KPI Manual Part I-General Methodology’, Informatiion Societies Technology (IST) programme.
  • Tepperman, L. (2017) Understanding Valuable KPIs within a Customer Lifecycle, Medium.
  • The Economic Times (2020) ‘Definition of ’Customer Lifetime Value’, The Economic Times.

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