CVMBoK

The primary function of the CVM role is to drive significant business impact through strategic customer engagement. This is measured using five primary KPIs categories:

1. 1. Customer base: Customer base size, churn rates, on boarding rates, etc.
   2. Revenue: The total revenue from customer base, average revenue per user, profitability, etc.
   3. Customer Experience: The customer experience KPIs such as Net Promoter Score (NPS), Customer Satisfaction Score (CSAT), etc.
   4. Costs: This group captures costs KPIs related to serving customer such as product usage related costs, debt collections, customer service calls, etc. (Optional)
   5. Internal Processes: Metrics related to how well the internal processes are developed, agility of internal processes, e.g. time to create new campaign, operational costs, etc. (Optional)

See Figure 3.1 for visual representation.

Figure 3.1. Five major categories of CVM KPIs

An important overarching KPI is Customer Lifetime Value (CLV), as it balances all 5 KPI categories. Many companies choose to use this metric as a primary metrics to track the impact of the CVM function.

Detailed KPIs Definition

When delving into the broadest possible set of CVM KPIs, organizations may choose to focus on only a few of these. The ultimate set of metrics can be derived from the Balanced Scorecard (BSC) framework [2], which provides a reliable foundation, suggesting five major KPI categories.

Diving Deeper into Each of These Categories:

REVENUE

This category includes various financial metrics such as:

• • • • Overall revenue from segment,
      • ARPU (Average Revenue Per User),
      • AMPU (Average Margin Per User), and
      • CLV (Customer Lifetime Value).

Industry benchmark for total revenue increase from CVM initiatives is 2-3%

Elchin Gulmammadov

Marketing Director @Bakcell

Additional financial metrics are defined under IFRS standards, including elements like subscription revenue, transaction revenue, consumption, and value-added services (VAS) revenue. For a deeper dive, refer to IFRS guidelines [3].

ARPU Definition and Calculation

Components of Customer Revenue:

• • • Outgoing revenue: This includes price plan revenue, on-demand consumption, roaming charges, revenue from Value Added Services (VAS), device purchase revenue, etc.
    • Incoming revenue: Revenue generated from incoming traffic.

Defining Active Customers:

• • • Prepaid services: Active customers are based on metrics such as:
      • Days without revenue-generating activity < X
      • Days without a recharge < X
      • Days without outgoing activity < X
      • Days without any activity < X
    • Postpaid services: Active customers usually refer to subscriptions with active contracts.

AMPU Definition and Calculation

Components of customer margin:

• • • Gross Margin: Revenue minus the direct costs of providing services.
    • Net Margin: Gross margin minus indirect costs (operational and administrative expenses).

While ARPU focuses on revenue, AMPU zeroes in on profitability per user. Accurate cost information and consistent cost allocation rules are essential for calculating AMPU.

CLV Definition and Calculation

Customer lifetime value (CLV) measures the amount of revenue a customer contributes to the business for as long as they are a paying customer. It starts with their first purchase and ends when they stop doing business with you.

If the CLV consistently decreases month over month and there’s no product issues, then check for a decline in CSAT scores. Consumers might switch to a company’s competitor after just one bad customer service experience.

Calculating CLV helps to understand why it makes sense to invest in keeping the customers. But, rather than looking at CLV purely from a revenue perspective, look at it from a value perspective – it’s about how much value company provides back to their customer during their lifetime.

Tracking Incremental Revenue from CVM Initiatives

Additional revenue generated due to CVM actions compared to taking no action.

Components:

• • • Revenue from onboarding activities
    • Revenue from up-sell, cross-sell, and revenue maintenance
    • Revenue from retention activities
    • Revenue from win-back activities

CUSTOMER BASE

Defining a “customer” in CVM presents its challenges. This includes various categories of customer such as acquired, active, and churned, often overlapping with other commercial definitions such as “contract” or “subscription”. The definition of a product and a customer might initially overlap but later diverge, necessitating clear distinctions and linkages between product user and customer classifications. With products like TV or broadband, one subscription can serve multiple users, adding complexity to the concept of “customer” term. Additionally, considering the concept of “device”, it’s notable that a single user might access through multiple devices.

Hierarchy of Definitions for the Customer Base:

• • • • Device:
        Equipment and platforms like televisions, broadband connections, mobile device, and other customer premises equipment that facilitate service access and serve as primary points of engagement for customers.
      • Subscription:
        A service plan or package that customers sign up for.
      • User:
        Individual who directly use the subscription, identified through means such as TV accounts, email accounts, website cookies, or mobile app IDs, mobile phone numbers, etc. These identifiers help track usage patterns and preferences.
      • Contract owner/ Commercial Customer:
        The person/legal entity who signs the contract for one or more subscriptions.
      • Household:
        A group of individuals living at the same address, often sharing telecom services like broadband, TV subscriptions, and mobile plans. Analyzing households helps in understanding usage patterns, preferences, and opportunities for upselling or cross-selling services. This understanding aids in crafting tailored packages, optimizing marketing strategies, and efficiently allocating network resources to meet diverse household needs.

Defining a “Customer” can be synonymous with a “Subscription” or any other level in the hierarchy. The essential factor is alignment across the organization on the chosen definition.

Recommended Customer Base category metrics include active customer, acquired customer, and churned customer, which form the basis for deriving financial metrics.

Churn rate

The definition of churn rate should be standardized within the organization to ensure consistent measurement and interpretation.

• • • For prepaid services:
      Churn is typically defined based on activity metrics, such as:

• Days without revenue-generating activity exceeding a set limit.
• Days without top-up when a certain limit is exceeded.
• Days without outgoing activity beyond a certain limit.
• Days without any activity exceeding a specified duration.

• • • For postpaid services:
      Churn usually refers to subscriptions with terminated contracts.

CUSTOMER EXPERIENCE

Customer experience measurement is another challenging area. Interactions occur across numerous touchpoints, many of which may not be sufficiently digitized for easy measurement. Additionally, the vast amount of data must be simplified into aggregate measures.

Common CX Measurements:

• • • NPS (Net Promoter Score):
      Measures customer loyalty with a straightforward question about their likelihood to recommend the company. Responses are categorized into Promoters (9-10), Passives (7-8), and Detractors (0-6). A greater number of promoters indicates a healthier business relationship with customers.
    • CSAT (Customer Satisfaction Score):
      Evaluates the quality of customer service and product experiences.

Feedback from CSAT can highlight areas needing improvement in customer service.

• • • CES (Customer Effort Score):
      Assesses the customer effort during interactions with the business. It is valuable post-purchase, post-customer service interactions, or along side UI/UX testing.

• • • Customer Interaction measurement:
      For each interaction with a customer, a specific index or metric should be established to evaluate the quality of the experience. In multi-channel scenarios, a channel-specific interaction or quality index becomes necessary. Both the occurrence of an interaction and any related issues need to be logged.
      Internal measurement: To navigate the complex reality of customer interactions, introduce several indicators you wish to measure. Define that Customer Experience (CX) of specific customer segment is identified within key blocks and within each block various elements such as sales channels, product usage, and payment are measured.
      External measurement: This integrates customer surveys, NPS, and other available CX metrics to validate the internal measurements and offer a comprehensive view of the customer experience.
    • Perceived Service Quality measurement:
      To ensure that the services provided meet the highest standards of quality and reliability, it is essential to focus on the following areas:

• • • • Network Performance – a range of metrics that assess the efficiency and reliability of the network:
        • Network Availability: The consistency with which services are accessible without disruptions.
        • Latency: The time taken to transmit data from one point to another within the network.
        • Packet Loss Rate: The percentage of data packets that are lost during transmission.
        • Download Speed: The rate at which data can be retrieved from the server to the user’s device.
        • Upload Speed: The rate at which data can be sent from the user’s device to the server.
      • Customer Service – the effectiveness and responsiveness of customer support:
        • First Call Resolution: The percentage of customer issues resolved during the initial contact with customer service.
        • Average Handling Time: The average duration taken to address and resolve customer queries or issues.
      • Quality of Experience – the overall user experience with the service:
        • Call Drop Rate: The frequency with which calls are interrupted or disconnected.
        • Voice Quality: The clarity and consistency of voice transmission during calls.

COSTS

Costs underpin customer profitability and the contribution of CVM to the overall P&L.

Allocating costs to segments can be challenging but is essential for accurate profitability analysis. One method to calculate the costs for a segment is using the Activity-Based Costing (ABC) allocation framework. This approach determines the cost of a specific activity and correlates it with the expected revenue and related expenses.

Cost Allocation Methods:

• • • Activity-Based Costing (ABC): Determines the cost of specific activities and correlates them with expected revenue and related expenses.
    • Company-Specific Frameworks: Tailored frameworks for cost allocation, oversight, and management.

Monitoring Total Cost of Ownership (TCO) for CVM

Encompasses all costs associated with CVM, from implementation to maintenance.

Components:

• • • Personnel costs (salaries, benefits, training):
      Salaries and benefits for the CVM team, which may include CVM managers, data analysts, customer experience specialists, and other supporting roles. It also covers costs related to hiring and training personnel.
    • Software and hardware expenses:
      The purchase or subscription cost of any necessary software solutions, like Customer Relationship Management (CRM) systems, data analytics tools, and AI/ML platforms. It also includes the hardware required to support these systems.
    • Implementation, maintenance, and upgrade costs:
      Setting up and integrating the CVM software and systems within the existing IT infrastructure. This may involve technical development, systems integration, and data migration. Over time, CVM systems will need to be maintained, upgraded, or even replaced to remain effective and keep up with evolving business needs and technological advancements. These costs should be factored into the TCO.
    • Data-related costs:
      Data collection, storage, and processing. Depending on the size and complexity of the customer data, these costs can be significant.
    • Training expenses:
      Training the team members on the CVM systems and processes, including initial training and ongoing education as the systems and strategies evolve.
    • Consulting and professional service fees:
      Engaging external consultants or service providers for specialized tasks related to CVM, such as data science or AI expertise.
    • Indirect costs (IT support, security, compliance):
      Essential for CVM effective functioning, such as costs for IT support, security, and compliance measures related to customer data.

Calculating Return on Investment (ROI) for CVM Initiatives

Measures the efficiency of an investment, indicating the gains or losses relative to its cost.

Regular Financial Impact Reporting

Purpose: To assess CVM’s effectiveness, make informed decisions, pinpoint improvement areas, and maintain transparency with stakeholders.

Content might include, but is not limited to:

• • • Revenue from CVM initiatives
    • Incremental costs of these initiatives
    • ROI from CVM
    • Financial trends in CVM activities
    • Comparison of actual vs. projected outcomes
    • Identification of financial risks or opportunities in CVM

The aim is to provide management, stakeholders, or any relevant parties with accurate, timely, and meaningful financial information.

INTERNAL PROCESS METRICS

This category of KPIs captures metrics related to how well the internal processes that serve the customer work. These processes may:

• • • support customer experience, exemplified by metrics like NPS.
    • support commercial performance, seen in metrics like contract renewal rates.
    • support a specific focus area, such as the percentage of automated campaigns.

This area often remains under-measured, yet has profound impact on the overall success of CVM.

Recommended metrics should focus on agility, time-to-market, and the effort distribution between creation, maintenance and modification of processes (process efficiency). This aids in understanding and measuring whether the focus should be on maintaining existing processes or if evolving and innovating them proves more advantageous.

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