Updated: Feb 8, 2022
Knowing which metrics that matter in your customer service organization is the key to creating customer satisfaction and customer loyalty, while driving operational and financial performance. There are many metrics that you can track if your business has a call center, field service technicians, technical support, training, and applications consulting. Key Performance Indicators (KPI) are a subset of those metrics that you should track and act on. They are the dashboard of your customer service operation. Failing to focus on KPI can result in customer churn, lost revenue opportunities, competitors taking your market share and customer service morale problems. In this post I will review 7 KPI that will drive customer service performance, revenue and profit for your business.
1) Service agreement penetration rate
2) Service agreement renewal rate
3) Warranty conversion rate to a service agreement
4) Warranty expense
5) Customer lifetime value
6) Customer churn rate
7) Revenue per field service technician
Here is a brief explanation of each of these KPI.
1) Service Agreement Penetration Rate
The service agreement penetration rate percentage is calculated by dividing the amount of equipment in your install base that is under a service agreement by your entire, active install base, times 100. The goal is to have most of your equipment install base under a service agreement. The annuity revenue stream that is generated by service agreements goes a long way toward level loading your business, especially if your product sales are seasonal. Service agreements also demonstrate value to your customers, especially if they include service level agreements (SLA) for preferred response time to address issues. Preventative maintenance, training, and IoT productivity services are additional perks. With a service agreement the customer’s annual repair and preventative maintenance costs are fixed, making it easy to budget and ensure more productive time for their equipment. There are situations where having equipment under a service agreement is not profitable and you may opt not to put it under agreement. Two examples would be equipment that is so old parts are difficult and expensive to procure, or grossly unmaintained and/or damaged equipment.
2) Service Agreement Renewal Rate
The service agreement renewal rate measures the percentage of service agreements that are renewed when their term ends. The term of a service agreement is typically measured in years. Some service agreements are “evergreen” which means they automatically renew after a specified period. It will not renew if one of the parties involved sends a written notice before the end of the current term of the contract, choosing not to renew. It is important to track this information to ensure that there is no lapse in coverage. The longer a lapse in coverage goes on, the less likely it is that your customer will renew their service agreement.
3) Warranty Conversion Rate
Warranty conversion rate percentage measures the rate at which customers convert to a service agreement when their equipment warranty expires. It is calculated by dividing the number of equipment that comes off warranty and is put under a service contract, by the total number of equipment that comes off warranty, times 100. It is important to track this information to ensure that there is no lapse in coverage. The longer this lapse of service coverage goes on, the less likely it is that your customer will purchase a service agreement.
4) Warranty Expense
Warranty expense measures how much cost is incurred by delivering parts and services against the entitlements covered by your warranty. This KPI is valuable to track since it measures cost of poor quality (COPQ) and is predictive of what the cost of a follow-on service agreement could be if root cause and corrective action is not taken to address COPQ issues.
5) Customer Lifetime Value
Customer lifetime value (CLTV) is a measure of how much revenue a business should expect from a customer over the life of their relationship. Lifetime value is determined by how many purchases a customer makes over time. The longer a customer purchases from you, the greater the lifetime value. By taking the average purchase value and multiplying it by the average purchase frequency rate, you arrive at customer value. You then need to determine average customer lifespan. Once you have this, multiply it by the customer value to determine customer lifetime value. The customer service and customer success teams have a significant impact on CLTV by creating and delivering value added services and products that benefit the customer and extend the life of your business relationship.
6) Customer Churn Rate
Customer churn rate measures customer attrition, a percentage calculated by dividing the number of lost customers by the total number of customers (current customers + lost customers) times 100. This is a metric heavily influenced by the effectiveness of customer service and product performance. The greater your customer churn rate, the greater the negative impact on your revenue and profit stream. Remember, the associated costs of keeping customers is much less than finding new ones.
7) Revenue Per Field Service Technician
Revenue per field service technician measures how much revenue each of your field service technicians generate on a monthly, quarterly, and annual basis. It includes time spent on fulfilling service contract entitlements, time and materials work consisting primarily of repair and maintenance, paid training, installations, applications consulting or delivering other value-added services that customers have purchased. The field service technician is a primary resource for delivering services and driving service revenue. Benchmarking this KPI is key to determining whether this resource is being used effectively or is underutilized.
Measuring and acting on these 7 KPI and other metrics that matter will improve your service revenue and profit performance by focusing attention on how well your service products and resources are performing. When your customers are happy and satisfied with your company, customer service and products, they will become regular and loyal customers, recommending your company to a friend or colleague. There is no better way to increase your service revenue and profit than by creating satisfied and loyal customers!
If you are interested in learning more about how to grow your customer service revenue and profit, please contact Bass Harbor Group for a free consult by clicking on this link. https://www.bassharborgroup.com/
Patrick Sandefur is the Founder and Managing Director of Bass Harbor Group / Customer Experience Solutions. His 30+ year career in Customer Service, Sales, Marketing, Product Management and Business Development has given him a unique perspective of what customers want and expect when interacting with a brand.
Read more from Patrick Sandefur by clicking on recent posts below.