A few years ago, I was asked to give a quote for an article to answer this question: What is your favorite customer service metric and why? When the article came out, the great majority of answers were what you would expect NPS, C-SAT, CES, but my answer was different. 

I responded with one word: profit.

Let me explain.

I started the Customers That Stick blog in 2011. The blogosphere was a lot like social media is now. There were trends, and people tended to talk about the same things. 

A few years into blogging about customer service and experience, Tony Hsieh (may he rest in peace) and Zappos were all the rage for customer service experts and bloggers. 

But aside from one article about the User Interface of the Zappos home page, I never wrote about Zappos. Why? Because I was running a small business, and at the time, it was obvious that Zappos was delivering their legendary service without profitability. I was trying to talk about customer service in the real world and delivering service that depended on burning through an immense amount of venture capital money was not instructional.

Customer service must be delivered profitably.

Now, two big clarifications. 

First, I was and am a big fan of Tony Hsieh. I think he was a true innovator in customer experience, and I think Zappos is an incredible company with an amazing customer experience culture. I know people who have gone out to Las Vegas to do the Zappos Insights tours, and all have spoken highly of it. 

Second, believing that companies must be profitable does not mean believing in extreme versions such as profit-at-all-cost and maximizing shareholder value. Profitability equals survival, but after that, other things are important too.

So, let’s take a look at the three types of profitability you need to focus on as a customer experience leader.

Transactional Profitability

The fundamental measure. Is the individual transaction profitable? . The more complicated the industry and the larger the business, the harder this can be to calculate, particularly if you are trying to distribute pro rata non-variable costs like overhead. However, we generally have a fairly good grasp on this number. 

We sell the widget or a service for X dollars; it costs Y amount of raw materials and labor, and the transaction is profitable. But in customer service, individual transactions can quickly become unprofitable when there is a service issue. One refund or a service issue that is not resolved quickly can easily make a transaction unprofitable.

But of course, we are modern customer experience leaders. We know that sometimes you have to have an unprofitable transaction because what really matters is a profitable relationship.

Relational Profitability

Is the relationship profitable over the long term? As noted, we may sacrifice short-term transactional profitability to achieve relational profitability, to have a happy customer who continues to buy from us and whose lifetime value increases because they were happy across many transactions. 

Relational profitability is also why we have to sometimes say goodbye to problem customers. Apart from their impacts on team morale, habitually difficult customers are often unprofitable over their lifetime and are more trouble than they are worth.

Experiential Profitability

Obviously, organizational profitability is essential to the firm’s continued survival; however, it is also a broad, sprawling theme that involves things such as rent, debt, service, human resources, and so on. We want to know if the customer experience, including the sale of products and services, is not only profitable but sufficiently profitable to contribute what is needed to achieve organizational profitability. 

Obviously, this is a wide-reaching and nuanced evaluation with many dynamics at play, but customer experience leaders should have an idea of the profitability of the hard and soft costs of delivering and executing the customer experience across the organization. 

Now, if the organization is not profitable or profitable enough, that does beg a further question about customer experience profitability, which is it profitable enough to contribute what it needs to the bottom line?

In conclusion, while profitability at each level can be challenging to ascertain with precision, we can often get a reasonable estimate of how we are doing. Just remember the following:

Every transaction does not need to be profitable, but most do. 

Every relationship doesn’t need to be profitable, but almost all do.

And unless you’re swimming in venture capital money and can lose money for years on end, your customer experience needs to be profitable. Full stop. 

Use NPS, use C-SAT, use CES. Use whatever you like. But just remember that at the end of the day the metric that matters most is profit, because without it, you won’t have a business to measure anymore.