Wednesday, February 15, 2006

Customer satisfaction pays

The software industry is full of awards for the fastest growing companies e.g. the "Inc 500" and numerous others, but it is perhaps revealing that the industry is almost silent on a critical measure: customer satisfaction. There seem to be two objective ways of measuring this: renewal rates i.e. do the customers actually pay maintenance, and surveys. The former has the advantage of being wholly objective i.e. they either pay up or they drop the software, with no wiggle room for spin, though of course it is a somewhat crude measure. A McKinsey report I saw recently reckoned that best practice in the software industry has renewal rates of 85%-95%, and indeed SAS Institute has made considerable (and justified) play over renewal rates of over 90% year after year (I am pleased to say that Kalido's renewal rate in 97%).

The other measure is surveys, which are a richer measure but of course are always subject to the perversion of framing the question e.g. "are you happy with our software?" is not the same question as "are you delighted with our software?". One company that has had a lot of fun at some companies' expense in Nucleus research, who sometimes call up the reference customers of software companies (as featured on their web sites) and ask them how happy they are. An amusing one a few years back was one they did on Siebel, where more than half of the Siebel reference customers they spoke to reported that their projects had cost more than the benefits. It was a similar story when they surveyed I2 reference customers, and an ERP report they produced showed that no ERP vendor could must even a 50% score in response to the question: "would you recommend this software to others", which is pretty shocking given that these are the reference customers of these vendors (highest scoring was Peoplesoft at a hardly dazzling 47%).

Given that endless studies have shown how more expensive it is to sell to new customers that to sell more to existing ones (four times more is one figure often quoted), I would have expected that software companies, with their high sales and marketing costs, would pay more attention to customer satisfaction. However, sad to say that my own experience as a customer for many years taught me that most software companies treat their customers with anything from indifference to outright hostility. Perhaps in the giddy days of the late 1990s software companies could get away with this, but these days the power is definitely back with the buyer, and so it is in the industry's interest to improve customer satisfaction, if only for purely selfish reasons. Yet how many software companies even survey their customers on a regular basis? Talking to sometimes unhappy customers may not always be a comfortable experience for software executives, but it can teach you a great deal, and showing that you care enough to listen is itself a way of raising customer satisfaction.


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