Why Is Understanding Customer Satisfaction Crucial for Business?
The ability to track customer happiness with a company’s product and services using a single number is the holy grail of leadership and investor teams. Understanding how happy a customer is with a company’s product and services should provide a good grasp on how poised the company is for future growth.
Numerous studies have been conducted to research the correlation between customer satisfaction scores and business value drivers such as customer loyalty, customer retention, shareholder value, etc. These correlations are stronger at the extremes. An over-the-top happy customer is more likely to make a repeat purchase or refer a friend. At the other extreme, an extremely dissatisfied customer has a higher likelihood to churn and punish the brand by blasting their bad experience on social media.
The Importance of Customer Satisfaction Score
Consulting firms such as Bain & Co. and the Corporate Executive Board came up with variations of this CSAT metric–NPS and CES, respectively–stipulating a better predictive power of customer retention and loyalty for their own metric.
These scores are various attempts at modeling a company’s ability to fulfill its customer’s needs. But, as the saying goes, “all models are wrong and some are useful.” What’s most attractive about customer metrics such as NPS, CES, and CSAT is their predictive power. While financial metrics are past indicators of a company’s performance, customer satisfaction metrics are leading indicators. After all, if your customers are not happy with what you have to offer today, one can predict it will reflect in the financial statements later in the form of churn, decreasing share of wallet, etc.
Knowing and monitoring your company CSAT score is one reason to implement a CSAT program. The score can be segmented, benchmarked, and tracked over time. More importantly, setting up a CSAT program is an opportunity for a systematic solicitation and collection of actual customer feedback that can be used across the organization for continuous improvement. Product teams can use it to plan their product roadmap. Account executives who become aware of problems with one client can remedy, or conversely, fully realize the value another customer is getting from the product, price accordingly or cross-sell; engineering teams can design better products, and fix problem if they have access to that feedback, and service teams can improve on the service they provide.
In brief, CSAT is an easy to understand metric, versatile enough that it can be used in many scenarios and touchpoints–and low CSAT can predict churn.
CX Metrics Cheat Sheet
Want the 4-1-1 on the three most popular metrics in customer experience (CX)? Check out this CX Metrics Cheat Sheet with everything you need to know about Net Promoter Score (NPS), Customer Satisfaction Score (CSAT), and Customer Effort Score (CES)!
How to Measure Customer Satisfaction?
Measuring Customer Satisfaction is done through surveys. It sounds simple and straightforward enough, however getting to an accurate number involves some statistical science.
The main question asked in the customer satisfaction survey is how satisfied are they with the business or product, along with a rating scale.
The scale used for the survey question typically ranges from 1 to 5, with 1 being very unsatisfied and 5 being most satisfied.
The most common customer survey questions all have different rating scales which can become easily confusing: the CSAT is a simple 1 to 5, the Customer Effort Score (CES) question is from 1 to 7, and the NPS question is from 1 to 10. In the end, the scale does not quite matter as much and some organizations create their own custom metrics. However, having a standard helps professionals have a consistent frame of reference when measuring customer satisfaction against CSAT, NPS, and CES.
How to Calculate CSAT Score?
Calculating the CSAT score involves interpreting the responses gathered from a standardized CSAT survey. Below are the steps to determine the CSAT score:
1. Choose a Scale:
CSAT surveys typically use a scale, commonly ranging from 1 to 5 or 1 to 10, with higher values indicating greater satisfaction. Ensure that the scale used in your survey is clearly communicated to respondents.
2. Collect Survey Responses:
Gather responses from your CSAT survey. Each respondent will provide a numerical rating based on their satisfaction level.
3. Count Positive Responses:
Identify the number of positive responses, typically represented by the highest rating on your scale. For example, if you are using a 1 to 5 scale, responses of 4 and 5 are considered positive.
4. Total Number of Responses:
Determine the total number of survey responses received. This is the sum of positive and non-positive (neutral or negative) responses.
5. Calculate CSAT Score:
Use the formula below to calculate the CSAT score as a percentage:
CSAT Score = (Number of Positive Responses/Total Number of Responses)×100
For example, if you had 20 responses and out of the 20 there were only 8 that rated your business or product a 4 or a 5. Then you would take 8 divided by 20 and multiply that by 100, your CSAT score would be 40%.
What is a Good CSAT Score?
Customer Satisfaction (CSAT) scores play a pivotal role in understanding how well a business meets its customers’ expectations. Determining what constitutes a “good” CSAT score is not a one-size-fits-all endeavor; it involves considering various factors specific to the industry, company goals, and customer base.
1. Benchmarking for Context:
CSAT scores gain significance when viewed in the context of industry benchmarks. Industry standards and best practices can serve as a yardstick for what is considered a good CSAT score. These benchmarks provide a reference point for businesses to gauge their performance relative to competitors or similar service providers. A good CSAT score should not only meet industry standards but ideally surpass them.
For example, the American Customer Satisfaction Index reported that full-service restaurants had an average score of 81 in 2023. Finding the average score in your industry will be an important metric on which to compare your organization’s customer satisfaction performance. As a general rule, here are the overall statistics regarding CSAT scores:
- A CSAT score of 80% and above is generally considered excellent.
- Scores between 70% and 79% are considered good.
- Scores between 50% and 69% may indicate room for improvement.
- Scores below 50% may signal significant issues requiring urgent attention.
2. Interpreting the Scale:
The scale used to measure CSAT scores varies across businesses, commonly ranging from 1 to 5, 1 to 10, or 1 to 100. Understanding the nuances of the scale is crucial; what might be considered a good score on a 1 to 5 scale may differ from what’s considered good on a 1 to 10 scale.
3. Aligning with Customer Expectations:
The essence of customer satisfaction lies in meeting or exceeding customer expectations. A good CSAT score reflects a positive alignment with the expectations of your specific customer base. Knowing your customers and their needs is necessary for interpreting the significance of your CSAT scores.
4. Consistency Over Time:
It is essential to monitor the trend of CSAT scores over time. A consistent upward trend suggests improving customer satisfaction, while a decline may signal the need for closer attention to customer concerns.
5. Qualitative Feedback Analysis:
Numbers only tell part of the story. Beyond the numerical score, businesses should delve into the qualitative feedback provided by customers. Understanding the reasons behind the scores provides valuable insights into areas that require improvement.
Why Sample Size Is Important When Measuring Customer Satisfaction
Another consideration in measuring customer satisfaction is how many surveys need to be sent out, and how many responses need to be received to obtain a reliable score? If you’ve ever taken a statistics class, you might remember that the survey sample size n to reach is:
n = (z*𝜎/𝜀)^2
Where 𝜀 is the margin of error, z is the z-score for a given confidence level and 𝜎 the standard deviation.
Interestingly, the number of survey responses you’d have to reach does not depend on how many customers you have in the first place. More customers do not mean you have to poll more of them. How many customers you need to poll has more to do with how much variance (standard deviation 𝜎 is the square root of the variance) there is in between their answers to the CSAT question. It somewhat intuitively makes sense. If the first responses that come in are all 4’s and 5’s, you’ll expect future responses to be in the same ballpark. If you sometimes get 1s, sometimes 4’s, you’ll want to continue polling to narrow in on a score. In summary, when measuring customer satisfaction, variability requires larger samples.
The second factor that impacts sample size is the margin of error. For a CSAT scale of 1 to 5, let’s say you’d be comfortable with +/- 0.5 points from the mean, a 10% margin of error.
Taking a common 95% confidence interval, z = 1.96, and let’s say a previous survey showed a 1.4 point standard deviation, then the sample size would be n = (1.96*(1.4/0.5))^2 = 30 responses. Now, if a margin of error of +/- 0.25 points was required, it would drive up the sample size to 120.
The Type of Survey Matters When You Measure Customer Satisfaction
The old-fashioned way for a company to measure customer satisfaction would be to mass email, and/or direct mail a subset of customers twice a year. They’d use a formula like this one to calculate the sample size needed to reach statistical significance.
However, by the time the survey is conducted and results compiled, the company’s products, services, and processes will have evolved a bit, and the CSAT score would already be obsolete. And closing the loop on any negative feedback would be less than timely and not as effective in reducing customer churn.
Finally, email or direct mail could be two useful types of surveys if that is the best way to engage with your customers, but often requires higher samples given the low response rates of those channels.
Measuring Customer Satisfaction in a Timely Way
The demand for more accurate and timely customer insights has created a niche for software vendors to develop tools that can handle the surveying, the sampling, computation, and measuring of standard customer experience metrics such as CSAT, CES, and NPS. As more and more companies have moved their products and services online, some of these vendors offer the ability to survey customers directly during the customer’s web or mobile experience. Measuring customer satisfaction about their experience right as they’re engaging with the brand at key journey points generates more contextual feedback and a chance to remediate.
Measuring customer satisfaction twice a year is not enough to manage a business proactively. Tools are now available to get a real-time CSAT for anyone in the company to see and rally around.
When to Measure CSAT? Customer Satisfaction Use Cases.
By far, the most common use case of CSAT is as a departmental metric in Call Centers, with Customer Service and Support teams. A CSAT survey is triggered after an interaction with a support or service representative or agent. Modern CSAT tools will have an integration with common helpdesk and CRM software so that the survey can get triggered upon a case closure or issue resolution. These departments might track other metrics: the volume low CSAT ratings (3 or lower) (if the survey is triggered at after each interaction), or the time it took to respond to the opening of an issue, and the percentage of issues successfully resolved.
Product teams also use CSAT to understand what makes the customer tick, or where the product might fall short. They might have heard anecdotes and qualitative feedback from front-line employees, but CSAT surveys are a great way for product teams to get access to first-hand feedback right at their fingertips.
How to Improve Customer Satisfaction
- Start measuring. Invest in a survey tool that can quickly and simply get that CSAT metric right into your hands in real time, and provides the ability to track the metric over time.
- Measure CSAT at various touchpoints along the buyer journey.
- Tag issues as they come in. Some tools will have auto-tagging, and even natural language processing to interpret and classify the feedback.
- Build a process to close the loop with customers in real time.
- Take action. Route the issues, customer insights, and feedback themes to the appropriate teams for resolution.
- Monitor CSAT trends, in aggregate, at various touchpoints, product lines, or any segments relevant to the business, and build a plan for making systemic change.
Improve Your Customer Satisfaction with InMoment
At InMoment, we specialize in survey software for customer experience. We have helped across multiple industries take the necessary steps to improve their customer satisfaction. Whether you’ve got 10 locations, or 1000 locations, we can help you too. Schedule a demo today to see our platform in action!