How to Define and Measure Customer Value

If you ask any CSM what the primary responsibility of their job is, you will invariably hear, “I am responsible for ensuring my customers get value.” This is a great answer since value drives customer stickiness, renewals, and growth! This all makes sense, but when you go a level deeper and ask, “well, how do you define and measure this value?” you will frequently not get an answer. This is because it can be incredibly hard to determine, which is why many companies struggle and never do this!

Now there are two components of value, and a CSM needs to handle both of them:

1. Logical: you are helping the company generate money, you are helping the company save money, or your product is an insurance policy.
2. Emotional: you have a good relationship with the customer, and your product is viewed favorably from an emotional perspective.

This blog will be discussing just the logical component of value. The emotional side could be a series of books in it’s own right!

So What is Customer Value?

Now, when talking about customer value, you should measure it within 2 (maybe three) ways:

• Generating Revenue: marketing automation software help to generate leads that convert into new business. You show the number of new business revenue generated through your solution.
• Reducing Cost: A customer support knowledge base is deflecting support tickets. Measuring the number of tickets solved via knowledge base translates into fewer support headcount needed, thereby saving the company money.
• Insurance Policy: Almost everyone with a Windows computer has anti-virus software. It doesn’t directly generate revenue or reduce cost, but if you do have a virus, your data could be compromised which is a potentially catastrophic issue and well worth the investment in anti-virus software!

Understanding Use Cases

Now that we know how we want to measure value, we need to figure out how to map the product features to value statements. Most products enable multiple use cases, or workflows, to be deployed on top of them. This is an important, and often overlooked, step to defining and reporting on value. Many people try to map to value based on product features, which fails as a feature can be used in different ways, and many times it requires multiple features to be used in combination to implement the actual use case, which actually provides value.

Using support software as an example, you can have multiple use cases (notice I have a value prop in each description):

• Knowledge Base: Drives self service on frequently asked questions thereby reducing support costs by removing direct support ticket submission, while also improving the customer experience.
• Online Support Forum: Enables customers to ask questions in a public forum, and to get answers from other users, thereby reducing support costs by removing direct support ticket submission, while also improving the customer experience.
• Direct Support Channels: Enables support agents to switch across different communication mediums (email, chat, phone) and manage multiple tickets in an optimized manner, enabling them to handle a higher volume, and to resolve tickets faster. This reduces support costs by improving support agent throughput, while also improving the customer experience.

The above are just a few examples of the use cases that a support team will launch when deploying support software. If a customer only deploys one of these use cases, then their value will be lower, and they will be more likely to churn.

Additionally, when looking at the value prop, I mention both reduction of costs and improving the customer experience. If budgets are tight, your CFO will only approve the reduction of cost investment, and not the customer experience improvement, as they will see customer experience as a nice-to-have vs. saving money as a must-have investment.

It can even get more complex. If you look at Marketing Automation Platforms, a big component is sending out email. That’s a product feature. But how do you know whether that email is for customer marketing, lead nurturing, or something else? Being able to understand the purpose in which a feature is being used, especially when the feature is applied to multiple use cases is critical.

As such, it’s important to understand what are the more common use cases your customers are running on your product, and which ones provide the most value.

Wide vs Deep Use Cases

One note under use cases, is that for some solutions it may be important to understand whether a use case will drive wide adoption, or deep value. As an example, for CRM software, which is typically licensed on a per user basis, you can have two use cases:

• Sales teams manage their deals. They track all activity and status, and record the results. This lets them manage their follow up action items, and provides clear reporting, visibility, and predictability to management. This is a deep use case as it provides deep value for the sales team.
• Product, Customer Success, Support, and other departments leverage the CRM to see the sales history and what products were sold to a customer. This will drive a lot of additional seats but the value is significantly lower than just the sales team.

The wide use case ultimately generates more revenue through the per-user seat licensing model, but the more significant value and stickiness is through the sales team use case! In an ideal situation, you are implementing a combination of both wide and deep use cases with your customers to maximize both adoption and value.

Use Case to Value Measurement Framework

Once you have documented your use cases it’s time to map back to value. This is frequently the hardest part. How is a use case generating the company money, or saving the company money? What metrics can you use to track this? Regretfully, this work will be use case specific.

A couple examples:

• Support knowledge base use case: I implemented a solution that followed customers through the web page workflow using Google Analytics, and for those that went to a KB article and never navigated to the, “create a support ticket” pages, we would count that as a deflected case. This was not easy to measure! Another company had a pop-up before people left the KB article asking if this article solved their issue. A very conservative measurement approach, but this worked as well. From there, you can quickly map this out to the average cost per support ticket the company handles today to get a sense of the money the KB is saving the company!
• Online Support Forum: We had a large company requesting a down-sell because they thought they were overpaying for their support forum software. We asked them what their average cost per ticket was in support, which was $20. We then ran a report showing that end users had answered over 100,000 questions, thereby saving them 2 million dollars! This quickly turned the tables and highlighted what a great value they were getting and ultimately resulted in an upsell. In hindsight we should have been providing this metric from the beginning, and this is one of a few stories that made me realize how important it is to map to financial value early!
  

Once you have developed a way to map to value, I recommend running it by customers to ensure they understand and believe in your metric. Getting customer sign off to believe a number, especially when it’s measured through inference, is critically important. From there, start sharing the value results back out to your customers in their QBRs!

Competitive Differentiation

Great, you’ve successfully mapped your use cases, and have deployed a measurement framework for value based on these use cases. You are even the first in your space to do this, giving you a significant competitive advantage.

Sadly, you have a lot of competitors and it will only take them a quarter or two before they copy your work (the dirty thieves)! As such, you need a set of unique differentiators to differentiate yourself from your competition. Some common examples of differentiators include innovation, quality of the product, performance/speed of page load times, reporting, the user experience, simplicity to adopt your solution, and/or your post-sales experience. It’s important to have this clearly understood as your contacts are being inundated with emails and calls from your competitors constantly!

You need to do this as if you cannot prove clear value, AND you are not proving true competitive differentiation, then you will likely end up competing for price. No one wants to hear the words, “I like you. Your value is clear. Your competitor is promising a similar result for half the the price. I have to give them a shot.”

Summary

Ensuring you give your customers value is essential, and being able to show a specific, believable, dollar amount, is critical to justify your customers’ ongoing investment. The work I’ve outlined above can be incredibly difficult to achieve, and requires executive sponsorship and deep partnership with the Product, Marketing, and Sales teams in particular. The last thing you want is to complete all this great work for it not to be deeply understood and re-used within these other departments!

Additionally, I recommend starting out with just one use case to value mapping to get started and to expand from there. Trying to do all of this work at once will frequently result in failure as it will take too long to complete. It’s amazing how frequently I’ve hit the ideal solution, only to find out via customer feedback that I have a few more iterations to go to truly get it dialed in for customers!