How to Use Customer Lifetime Value to Manage Employee Empowerment

February 18, 2020
How to Use Customer Lifetime Value to Manage Employee Empowerment | Man thinking

Employee empowerment is one of the most underrated tools in the customer experience leaders toolbox. Employee empowerment is what I call the win-win-win of customer experience leadership. By empowering employees to solve customer issues in real time, customers win, employees win and the organization wins.

Yet leaders often struggle with empowerment. One of the reasons is fear. It can be tough to let go of the reins to give up control. So often leaders are afraid of what will happen if they give up control and — this is not just theoretical — every leader of any decent vintage has been burned in the past and has seen firsthand what can happen when an employee misuses authority,

However, in a customer-centric culture we should manage risk but not live in fear. Employee empowerment is both a cultural imperative and a business decision.

In fact, and this is something you are unlikely to hear many other customer experience experts say, employee empowerment is specifically a risk reward decision.

What is the reward for customers — and employees — of giving more latitude and what are the potential risks? 

This blog post is to help give leaders a guideline for approaching that decision so they can make employee empowerment, more of a rational business decision and not something that they approach out of fear or concern. 

Employee empowerment has many different aspects to it. You can have job enlargement or job enrichment.

Job enlargement is horizontal; it’s expanding job responsibilities to include more responsibilities found at that same level. Maybe an employee is no longer constrained to helping the employees in their own department.

Job enrichment is more vertical. It’s expanding job responsibilities to include responsibilities typically found at a higher level of the organization. Maybe the ability to process a refund without a supervisor’s approval.

Within job enrichment is one of the most important aspects of employee empowerment, and it’s the one both employees and leaders think about when they think about empowering employees — it is the ability to allocate financial resources. That may be to give a refund, to give a comp card, or to otherwise spend budget in some way to help a customer.

But leaders don’t have to go at this blindly. One trick for understanding how to approach this is viewing it through the lens of customer lifetime value. Now, if you’re not familiar with customer lifetime value, we have a great resource called Understanding Customer Lifetime Value: A non-geek’s Guide. Make sure to check that out, but essentially customer lifetime value is the expected value of the average customer brings to the organization over their average lifetime.

And when you’re empowering employees financially, one of the ways you can view it is through that lens of customer lifetime value.

Two organizations that are known for their employee empowerment are Starbucks and Ritz Carlton. Now, if you’ve ever had a drink messed up at Starbucks, you’ll know if the barista is doing their job well and properly, if you say your drink is wrong, they will not argue with you.

They will not put you through any form of hassle. They will simply remake the drink, no questions asked. They are empowered to give you that free drink without having to get a supervisor or a manager. You’d be surprised how many other organizations would actually not allow a frontline employee to simply remake a cup of coffee.

But why does Starbucks do this? Because, and this is not official data, according to one estimate, the lifetime value of a Starbucks customer is in the neighborhood of $14,000. Starbucks is not going to tick off a customer for a cup of coffee that costs them 50 cents when that customer’s worth $14,000. 

Similarly, the Ritz Carlton is known for empowering their employees up to $2,000. Any employee at the Ritz Carlton can spend up to $2,000 to solve a customer issue. Why is it so high? Because the customer lifetime value of a Ritz Carlton customer is a quarter million dollars. So Starbucks won’t upset a customer for a few bucks.

The Ritz Carlton won’t upset a customer for a few hundred or a few thousand bucks. They won’t put them through the hassle of having an employee have to go get a supervisor or a manager or have to go to another department or have to call a corporate office. They’ve empowered their employees to solve a great majority of customer issues in real time, to not create hassle, and that is a the most powerful aspect of employee empowerment.

Now, it should be noted that financial empowerment is not the only kind of employee empowerment. In fact, in many ways, it is the least risky because you can set a cap. Empowering employees to accept returns or to deliver something to a customer’s house or to sign contracts are all forms of empowerment that aren’t purely financial. So bear that in mind.

So when you’re evaluating how to empower your employees to solve customer issues, how much budget they have for any individual customer, think about your customer lifetime value. Think about your average transaction size.

If you’re a restaurant, you’re not going to empower an employee up to $2,000 but you might empower them for a full meal or up to a hundred dollars by using this framework. By using customer lifetime value, you can eliminate some of the fear from the decision making of letting go of the reins and allowing your employees create better customer experiences in the moment.

And if you’re a small business or small department and don’t have a solid calculation for your customer lifetime value, then just use your gut. Think about it through this lens and you’ll probably have a pretty good idea of where the budget line should be.

Eventually, the more you can remove hassle from the customer journey by empowering teams to solve customer issues in real time, the less customer service issues you will have to resolve. The less customer issues will be escalated and the more positive experiences your customers will have.



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