What is customer satisfaction and why is it important
Customer satisfaction, in its simplest terms, is a measure of how well your products and services meet your customers expectations. It measures how happy your customers are with your company and is crucial to the success of your business. Providing a positive customer experience, one that meets your customers expectations, is one of the most important factors in creating a loyal customer base which, ultimately, will lead to improved customer retention and drive revenue growth. In fact, the Zendesk Customer Experience Report indicates that half of customers will move to a competitor after just a single bad experience. With that number increasing to 80% after more than one bad experience.
Acquiring customers, and keeping them happy, is the flywheel for growth in any successful business. New customers are costly to acquire and are more susceptible to churn. Loyal, and satisfied, customers are less likely to churn, they make repeat purchases and are more likely to become advocates of your product or service. Simply, loyal and satisfied customers are the fuel for business growth with a Harvard Business School study reporting that increasing your customer retention rates by 5% will increase your profits by 25% to 95%.
How to measure customer satisfaction
With customer satisfaction being such a crucial indicator of the overall health of your business, and a significant driver of growth, it is important to ensure you are implementing methods to get direct feedback on how satisfied your customers are with your business. This will help you measure and track performance over time and identify areas for improvement in your overall customer experience.
The most common metrics companies use to measure customer satisfaction, and to gain valuable insights into their overall customer experience, are: Customer Satisfaction Score (CSAT) vs Net Promoter Score (NPS) vs Customer Effort Score (CES). Understanding these metrics, and what they measure, can help you decide which is the most appropriate to measure for your business.
Customer Satisfaction Score (CSAT)
Your customer satisfaction score (CSAT) is a feedback survey that directly measures customer satisfaction levels and helps you understand how satisfied your customers are with your products or services. It is typically used when trying to get insight into how your customers feel about specific interactions with your company or identify how satisfied they are with particular areas of your product or service.
A CSAT survey will usually feature a simple, close-ended, question with a binary response (e.g. by asking the customer to rate their overall experience on a 5-point scale, with one being “not very satisfied” and five being “very satisfied”). Examples of CSAT survey questions include:
- How would you rate your most recent support interaction?
- How happy are you with [Company or Product]?
- How satisfied are you with the resolution of your issue?
And while these close-ended questions are able to be customized to make them more relevant to the insight you are trying to gain, they are also not limited to a single question. You can expand the survey to include one or more open-ended questions asking your customers to provide additional information on their levels of satisfaction and why they selected a specific rating. This is a useful way to gain additional insight from your customers and to help identify the specific areas you need to improve.
How to calculate CSAT
Your CSAT score is calculated based on the average of your survey results and generally expressed as a percentage - from 0% to 100%.
CSAT score = (The number of satisfied customers / Number of survey responses) x 100
So, for example, if you survey 100 people and 85 of them indicate they are satisfied (i.e. those customers who selected “satisfied” or “very satisfied” from your survey), then your CSAT score will be 85%. CSAT scores generally tend to be very high (in the high-90% range).
Advantages and disadvantages of CSAT
CSAT works best when you have isolated specific parts of the customer journey where you are trying to get a better understanding of your customer satisfaction. It provides you with the flexibility to customize your survey questions to gain meaningful insight into those parts of the customer experience you are trying to measure.
However, by design, your CSAT only measures an individual interaction and only reflects short-term customer sentiment. It does not provide an overall view of your customer satisfaction. Additionally, your CSAT score does not provide insight into your customer loyalty and therefore doesn’t provide information on the likelihood of repeat business or whether your customers are likely to promote your company.
Net Promoter Score (NPS)
Your Net Promoter Score (NPS) is another customer satisfaction metric which measures how loyal your customers are and whether they are likely to promote your products or services to other people. NPS surveys are simple and easy to implement, and feature a single question that asks customers how likely they are to recommend your product or service to other people.
How likely are you to recommend [Company] to a friend or colleague?
A NPS survey typically asks your customers to respond on a scale of 0 to 10, with 10 indicating they are “very likely” to promote your product to others while 0 would indicate they are “very unlikely” to recommend your product. The respondents are then sorted into three groups: promoters, passives and detractors.
- Promoters: are the customers who responded with 9 or 10 and are classified as customers who care bout your product and will actively promote it to others
- Passives: are the respondents from your survey who selected 7 or 8, and are classified as customers who like the products and services you provide but are unlikely to recommend your product to others.
- Detractors: are those customers who responded with scores between 0 to 6, which indicated they had a negative experience with your company and are at risk of churning. Or, even worse, speaking negatively about your products or services.
In addition to the single NPS survey question, and as with other customer satisfaction metrics, you can expand your NPS survey to include open-ended questions to gain additional insight from your customers on their satisfaction levels and overall experience with your product or service.
How to calculate NPS
Calculating your NPS is a little trickier than CSAT given you are required to sort your respondents into the groups described above. It is calculated by subtracting the number of Detractors in your survey results from the total number of Promoters, and dividing that by your total number of respondents. Your NPS is generally expressed as a range from -100 to 100.
NPS = [(Number of Promoters – Number of Detractors) / (Total number of respondents)] x 100
So, for example, if you survey 100 people with 10 of those respondents classified as Detractors, 60 Passives and 30 as Promotes, then your NPS will be 20.
If your NPS is below 0 this is usually considered a negative sign and your customers are a high risk of churning. While the scores between 0 and 30 are considered to be good scores, between 30 and 70 a great score and above 70 an excellent NPS score.
Advantages and disadvantages of NPS
Your NPS provides an overall view on your customer satisfaction, not just on a particular interaction or experience with your company. Your NPS surveys are applied across your entire customer base, not just on those customers with a recent interaction, and therefore gives a more honest view on your overall customer sentiment. Additionally, NPS is designed to provide insight on how likely your customers are to recommend your products or services to others and, as a result, provides you with meaningful insight into your customer loyalty.
Although your NPS survey is based on a single question, and easy to implement, the results from the single-question survey do not provide deep insights on your customers and follow-up questions are required to fully understand your customers' experience.
Customer Effort Score (CES)
Customer Effort Score (CES) takes a slightly different approach and measures customer satisfaction by focusing on the amount of effort your customers exert when interacting with your product, finding the information they need or to get a customer support issue resolved. It is a survey that assesses how easy or difficult it is for your customers to engage with your company or use your products and services. The easier your customers find it to interact with your company, the more positive the experience and the higher the customer satisfaction.
A CES survey includes a single survey question asking your customers how easy they found their experience. For example:
- How easy did [Company] make it for you to resolve your issue?; or
- How easy was it to interact with [Company]?
Your customers are typically asked to rate the ease of the interaction on a numbered 5-point scale or 7-point scale, or alternatively using scales like the Likert scale or a visual emoticon rating with face emojis displaying the range of experiences.
Again, as with both your CSAT and NPS, companies often include open-ended questions following the initial CES survey response to gain additional insight, and better understand, the reasoning behind a specific score.
How to calculate CES
There are several different ways you can calculate your CES depending on the type of survey you use. However, similar to the CSAT calculation, one of the more common ways to calculate CES is by summing the number of respondents who responded positively to your survey (i.e. on a 7-point scale they “somewhat agree”, “agree” or “strongly agree” with the ease of interaction with your company) and dividing that by the total number of respondents. It is generally expressed as a range from -100 to 100.
CES = (Sum of all positive survey results / Total number of respondents) x 100
So, for example, if you survey 100 people and 70 of them indicate they either “somewhat agree, “agree” or “strongly agree”, then your CES score will be 70. And the higher your CES the better. Unlike your CSAT or NPS, there is no clear industry-wide standard score to benchmark against as your CES score, and whether it is considered good or not, will depend on the question you ask and the calculation you use to measure it.
Advantages and disadvantages of CES
CES is a high-powered metric that not only allows you to better understand how easy or difficult your customers find your customer experience but studies have shown is also a reliable predictor of customer loyalty. Customer loyalty impacts almost all of the metrics that are important to running your business and, ultimately, leads to improved customer retention and drives revenue growth. Further, a Harvard Business Review study found customers preferred low-effort experiences rather than those experiences aimed to delight, and CES is a strong predictor of future purchase behavior.
Conversely, as with CSAT, your CES is measured on a specific interaction so does not provide information on your customers overall experience with your business. And similar to the other single-question surveys, it only measures whether customers found a specific interaction difficult and therefore does not provide information on what made the interaction difficult.
When to use CSAT, NPS and CES
As with almost all of your key business metrics, these customer satisfaction metrics do not provide the entire picture of your customer experience. Each has advantages and limitations that are important to understand when deciding which customer satisfaction metric to use.
When to use CSAT
It is recommended to use CSAT surveys when you are looking to gain deeper insight into your customer satisfaction in specific parts of your customer journey. It is best suited for more targeted feedback on your products or services. They are used from immediate feedback on the experience your customers have with a particular interaction and are time for recency.
When to use NPS
Where CSAT provides immediate feedback on customer satisfaction around specific interactions, it is recommended to use NPS when monitoring long-term customer loyalty. It provides you with important information on the overall health of your customer experiences and customer relationships, and is best used when you are looking to measure general customer loyalty and changes in your customer experience.
When to use CES
Similar to CSAT, using CES surveys are best suited when focusing on specific interactions with your business. They are often implemented immediately after your customer makes a purchase, after they sign up for a subscription or directly after they have an interaction with your customer support organization.
Why CES has been gaining popularity
CES has been gaining popularity over the past decade supplementing, and even at times used more predominantly than, its customer satisfaction cousins CSAT and NPS. The primary reason for companies moving more towards CES as their key measure of customer sentiment is research indicating it more reliably predicts customer loyalty, it helps predict the likelihood of future purchases and is a strong indicator of customer sentiment.
Customer effort more reliably predicts your customer loyalty
A Gartner study reports that customer effort predicts customer loyalty 40% more accurately than customer satisfaction. With Gartner also reporting that 96% of customers who have high-effort experiences are characterized as disloyal, while only 9% of those with low-effort experiences are characterized as disloyal.
CES helps predict the likelihood of future purchases
A Harvard Business Review study also found that CES provides a stronger indication of your customers purchasing behavior than NPS and CSAT. It reports that 94% of customers with low-effort interactions indicated they would repurchase with 88% of those same customers indicating they would also increase their spending.
Customer effort is a strong indicator of customer sentiment
Customer effort is also a strong indicator of customer sentiment and provides useful insight into how likely your customers are to refer you to others. Hubspot reported that 81% of customers with high-effort experiences indicated they would speak about the company negatively. If your company is easy to do business with, your customers are more likely to advocate you to others.