CVMBoK

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

Diving deeper into each of these categories in detail:

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).

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

ARPU Definition and Calculation #

Formula:

ARPU = Total Customer Revenue (monthly) / Number of Active Customers (monthly)

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, and more.
  • Incoming revenue: This is the revenue generated from incoming traffic.

Defining Active Customers

• • • For prepaid services, active customers are typically based on certain activity metrics, such as:
      • Days without revenue-generating activity < X
      • Days without a recharge < X
      • Days without outgoing activity < X
      • Days without any activity < X
    • For postpaid services, active customers usually refer to subscriptions with active contracts.

AMPU Definition and Calculation #

Formula:

AMPU = Total Customer Margin (monthly) / Number of Active Customers (monthly)

Components of customer margin:

• • Gross Margin: This is calculated by subtracting the direct costs associated with providing services to the customers from the total revenue generated from them.
  • Net Margin: This is derived by further subtracting indirect costs (like operational and administrative expenses) from the gross margin.

While ARPU focuses on revenue, AMPU zeroes in on profitability per user. To calculate AMPU, it’s essential to incorporate cost information, allocated either to customer segments or individual customers.

The primary challenge with AMPU is ensuring accurate cost information and establishing consistent cost allocation rules.

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.

Here’s how to calculate CLV:

CLV = Customer value ✕ Average customer lifespan

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 telco provides back to their customer during their lifetime.

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.

Note: Defining Customer Base is often significantly more challenging 
than anticipated.

A starting point provides a hierarchy of definitions for the Customer Base:

• Device
  Equipment and platforms facilitating service access – televisions, broadband connections, and other customer premises equipment – acting as primary customer engagement touchpoints.
• User
  Primary individuals directly using the products or services. Users can be identified through various means such as TV accounts, email accounts, website cookies, or mobile app IDs. These identifiers help in tracking the usage patterns and preferences of individual users.
• Contract / Commercial customer
  Represents one or more subscriptions.
• Person
  The natural person who holds the subscription or the pay-as-you-go service. A natural person, also sometimes referred to as a physical person, is an individual human being, distinct from a legal person, which can be either an individual or a corporate entity. This distinction is vital in understanding the legal and financial obligations linked to the service contracts.
• Household
  A unit that consists of one or more individuals who live at the same address, often sharing various telecom services such as broadband, TV subscriptions, and mobile plans. This unit aids in analysis of usage patterns, preferences, and the potential for upselling or cross-selling services. Understanding the dynamics of a household helps in crafting tailored packages and offers that cater to the collective needs and preferences of the individuals within it. Moreover, it aids in more efficient marketing strategies, while also optimizing network resources to satisfy 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.

Defining retention #

Depending on the strategy, the company might expect that the customer base size will be stable, grow or decline over time.

CVM’s role is to take the ownership of the customer base size after the customer acquisition is done. CVM’s primary responsibility lies in overseeing key retention KPIs, which encompass:

• Active customers: The total number of customers currently engaged with the business.
• Churned customers: The count of customers who disconnected in a given period.
• Churn rate: The percentage of customers discontinuing their business relationship within a set timeframe.

Understanding churn rate #

Churn rate serves as a barometer for the effectiveness of CVM strategies. A consistent or rising churn rate signals the need for further analysis and strategy recalibration. It’s particularly straightforward for subscription-based models, where subscription cancellations offer direct insights.

Formula:

Churn Rate = (Number of Churners / Number of Active Customers) × 100%

Churn rate definition #

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. Some common CX measurements include:

• NPS
  Net Promoter Score (NPS) 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
  Evaluates the quality of customer service and product experiences. Calculated as:
  CSAT = (Number of satisfied customers / Total number of responses) x 100%
  Feedback from CSAT can highlight areas needing improvement in customer service.
• CES
  Assesses the customer effort during interactions with the business. It is valuable post-purchase, post-customer service interactions, or along side UI/UX testing.
  CES = Sum of customer effort ratings / Total number of responses
• 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 are an essential part of CVM KPIs, as they underpin the calculation of customer profitability and the contribution of CVM to the overall P&L.

Allocating costs to a particular segment poses a challenge. 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.

Addressing cost allocation is a crucial task. While Activity-Based Costing (ABC) offers one solution, another solution involves using a company-specific framework, developed internally. Such a framework could be tailored to the company’s unique operations and financial structure, leading to a more refined method for cost allocation, oversight, and management.

Tracking Incremental Revenue from CVM Initiatives #

Definition: Incremental revenue is the 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

Formula:

Incremental Revenue = Retention gains + ARPU change gains

• • Retention gains = # of retained customers * ARPU * # of months customer remained active
  • ARPU change gains = (Target group ARPU – Control group ARPU) * # of customers in Target Group * # of months of sustained change

Monitoring Total Cost of Ownership (TCO) for CVM #

Definition: TCO 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 #

Definition: ROI measures the efficiency of an investment, indicating the gains or losses relative to its cost.

Formula:

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. This aids in understanding and measuring whether the focus should be on maintaining existing processes or if evolving and innovating them proves more advantageous.