This article accompanied the October 2009 feature story, "Mistaken Metrics." For the rest of the October 2009 issue of CRM magazine please click here.
Times are changing — and so should your metrics. Talks with industry analysts, consultants, and vendors suggest the following still-commonly-(mis)used metrics:
- Response rate: “Response rate is a horrible metric,” says David Raab, principal at consultancy Raab Associates. You have to look beyond responses. If the consumer responded, did it lead to a purchase? Was she a profitable customer? Is she a lifetime customer? Raab says that the deeper you go, the longer it takes to get an accurate read. However, just measuring the volume of responses on marketing efforts will get you nowhere. “It definitely takes more sophistication to get things right, but better something that’s approximately correct than precisely wrong,” he says. “Response rate is precisely the wrong measure to use.”
- Clickthrough rate: As with response rates, you should measure engagement, not volume. Clicks alone are hard to connect to return on investment. For example, an email-newsletter recipient might click links until she’s blue in the face, but then trash the mail with no intention of purchasing. However, another recipient might click only once — or perhaps not click at all. That recipient, however, posted the offer link to his social network of choice, giving the material hundreds of sets of fresh eyes and potential buyers. That’s what you want to be measuring.
- Churn: Don’t be fooled — measuring a customer’s propensity to churn is still important. However, the notion that you want zero churn is terrible conventional wisdom. Stuart Roesel, the director of customer insights, analytics, and strategy at high-speed Internet company EarthLink, says it’s imperative to measure churn so that you are going after profitable customers only. “A lot of science goes behind it,” Roesel says. EarthLink has created a “normalized churn curve” metric that adjusts churn for customer aging. Why? You guessed it — because customers evolve in their relationships with businesses.
- Brand recognition: It’s OK to want to gauge the impact your company’s having on customers. It’s another thing to assume that memory is positive. Lior Arussy, founder and president of customer experience consultancy Strativity Group, cites a major credit-card company that his firm did customer experience diagnostics for, discovering that one of the company’s credit-card brands was responsible for a particular advertising campaign that customers found highly offensive — so much so that spending was lower for that particular card. “I said, ‘You have got to stop this ad campaign — you are losing customers,’” Arussy recalls now. Yet, the credit-card company pushed back, insisting that the division was “making its numbers” in the area of brand recall. “People were remembering the brand,” he exclaims, “but for the negative reasons!”
- Short-term profitability: “The biggest mistake is to measure in the short term and not the long term,” Raab says. It’s more difficult to measure long-term effects, he admits, but it’s crucial to determining the health of the business. People often think that short-term numbers will lead to long-term value. “It’s totally not true,” Raab says. And given our bumpy economic conditions, who’s willing to take that risk?
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