Closing the customer feedback loop is a widely adopted business practice. Some even consider it the holy grail of customer service – by quickly contacting customers after they have provided feedback, businesses aim to reduce churn and increase customer loyalty and engagement in addition to other potential benefits. However, closing the loop doesn’t always make good business sense if it doesn’t have a demonstrably positive impact on finances. You could be squandering valuable resources that would be better directed elsewhere.

A personalized follow-up can make 70% of customers more likely to recommend a company, but as few as 14% of firms report seeing positive financial results as a result of engaging in a Voice of Customer (VOC) program. Putting data at the heart of the process is key to making sure that your efforts to gather feedback and close the loop will lead to better financial outcomes.

Choose specific and measurable goals

The purpose of closing the loop is to improve customer satisfaction, which in turn improves your bottom line. In order to find out if your follow-up efforts are having the desired effect, it’s necessary to set specific goals and measure your progress towards them. Choose relevant goals that are linked to financial outcomes and can be measured tracking specific metrics, such as Customer Retention Rate (CRR).

Which metrics you choose to track is less critical than being consistent in collecting and analyzing your data. Compare any improvements in your chosen metrics with relevant financial data to reveal whether your approach to closing the loop is helping you achieve your goals. If you’re not getting the results you want, go back and identify possible problem areas, make some changes, and try again until you’re satisfied that you’re on the right track. And even then, be sure to re-evaluate your follow-up system on a regular basis.

Quantify the costs of closing the feedback loop

The impact on customer behavior is only one side of the story when it comes to the profitability of closing the loop. To be able to make decisions that maximize your Return on Investment (ROI), it’s necessary to quantify the costs of the process, too.

List all the costs associated with your approach to closing the loop, including any remediation strategies (such as offering discount vouchers, replacements, or refunds), the costs of your chosen contact methods, any spending allocated to employee training as well as employee time spent on follow-up calls and related activities instead of other duties. Aim to build as complete a picture as possible of the costs of closing the loop. Is the positive impact of your follow-up efforts large enough to justify the costs? If the benefit-to-cost ratio is unsatisfactory, it may be time to become more selective about when to reach out.

Identify your highest-priority customers

Bad experiences fuel customer churn: 59% of customers in the U.S. abandon a brand they love after several disappointments, while 17% walk away after a single bad experience. However, investing in follow-up efforts in order to prevent every instance of customer churn isn’t realistic. Some customers are of higher value than others, so in order to improve ROI, make sure that you’re directing resources to where they will have the greatest impact.

Your customer churn rate by itself isn’t meaningful enough to base follow-up decisions on. Use the Net Promoter Score (NPS) to identify detractors (those customers who give an answer between zero and six when asked whether they would recommend your company to others), and then look at the average churn rate for each NPS value in order to identify those detractors who are most at risk of churning. You can divide your high-risk detractors into further groups based on, for example, whether they have interacted with your customer service team before.

Finally, determine the lifetime value of your customers. This is one of the most critical metrics to include. A simple formula to calculate a lifetime customer value is (Average value of a sale) X (Number of repeat transactions in a given period) X (Average retention time, measured in the chosen period, for a typical customer). You can use this formula to work out how much you should really be spending to retain customers.

Instead of reaching out to all your business’s detractors, you can prioritize more effectively by digging deeper into your data. Use your findings to create an alert system that triggers follow-up tickets, with the highest priority tickets generated for high-value customers who are at high risk of churning. It’s best to use your own data whenever possible but refer to similar figures elsewhere if you haven’t yet collected this information. Note that even if it’s impossible to resolve an issue, you should send a sincere apology. In terms of customers’ willingness to recommend a company after a follow-up, one survey revealed that receiving an apology was almost as good (70% would recommend) as a resolution (80% would recommend).

Consider alternatives to closing the loop

What should you do when closing the loop every time doesn’t make financial sense? Utilize more cost-effective strategies to tell your customers that you’re taking their feedback seriously. Send automated messages to thank them for their feedback or to offer them an apology (perhaps sweetened with a discount code). Today’s consumers are comfortable with AI and self-service – 30% of U.S. consumers find chatbots effective, while over 60% prefer to resolve simple issues using automated self-service portals – so make these options available whenever possible.

Another way to demonstrate your commitment to taking feedback on board is to send regular newsletters to your customers detailing the actions you’ve taken to improve your products and services as a direct result of customer feedback. Even without the personal touch of direct communication from a representative, your customers can see that it’s worth their while to participate in surveys and express their views. Besides, by doing this you’re already outperforming 95% of your competition since only 5% of companies inform their survey participants how they’re using the feedback they gather.

Taking a data-driven approach to closing the customer feedback loop takes time, effort, and commitment, but it will help you avoid many costly mistakes and drive towards better financial outcomes in the long run.