How do you measure Customer Success?
At a high level, measures of Customer Success often fall into three areas:
- Retention — secure renewals and protect recurring revenue.
- Advocacy — inspire product champions and customer advocates.
- Expansion — find opportunities to grow recurring revenue.
Let's dive into the most popular Customer Success metrics and KPIs for Software-as-a-Service (SaaS) businesses.
Part 1: Customer Metrics
Metrics at the customer level include a combination of:
- Account behavior
- Account attributes
- Subjective data
This information is used to actively monitor accounts and determine when customers need attention from the Customer Success team.
For SaaS businesses, a primary source of behavioral data comes from product usage:
- Activity (login frequency, session length)
- Module usage (how much time they spend in different areas of your product)
- Feature usage (which features they use and how often)
Granted, capturing this data is no small feat. Customer Success software like Natero can collect granular usage data including hundreds of features, time spent in various modules, and the length of each session — at both the individual user and aggregate account level.
Why is this important?
Detailed product usage data can better inform Customer Success Managers (CSMs) to proactively engage with customers based on specific behavior.
Account attributes include all of your customer data stored in various business applications, such as your CRM, billing, and support ticketing systems.
Integrating these siloed systems provides Customer Success teams with data-driven context about each account, including:
- Account contacts, stage, industry, size, location (CRM)
- Email history, recent meetings, and key documents (CRM)
- Number of open and closed support tickets, resolution time (Support)
- Revenue, invoice/payment history, subscription history (Billing)
Subjective data supplements account behavior and attributes, and offers qualitative input about the customer’s current state.
These types of metrics can come from a variety of sources, including:
Customer Success Manager's Personal Assessment
- Sentiment of recent customer interactions — positive, negative, or neutral?
- Strength of use case — are expectations in-line with the scope of your product?
- Customer profile score — how well do they fit your ideal customer profile?
Customer Feedback Metrics
- Net Promoter Score (NPS): Net Promoter Score is a single question survey that asks if the responder would recommend a company, product, or service. The response is measured on a scale of 0 to 10, and the overall score for an account can be calculated as the percentage of promoters (those with a score of 9 or 10) minus the percentage of detractors (those with a score of 0-6).
- Customer Satisfaction Score (CSAT): Customer Satisfaction Score (CSAT) measures the responder's perception about a particular product, service, or interaction.
- Customer Effort Score (CES): Customer Effort Score is a survey that aims to measure the responder's effort required to use a product or service.
One key distinction between these customer feedback metrics is the responder's perceived relationship with a company. Unlike NPS, neither CSAT or CES aim to measure the responder's overall satisfaction with a company.
Customer Health Score
Another important Customer Success metric is the account health score, which is an aggregate number based on fundamental KPIs, such as login activity, feature usage, support history, subjective inputs, etc.
Health scores help shed light on a customer’s overall health, as well as health trends for an account or segment of accounts.
Health scores can be used as a basis for various outreach programs, such as contacting the bottom quartile of customers to try to improve their scores. They can also be used as one of several ways to measure the performance of the Customer Success team or Customer Success initiatives.
Sophisticated use of health scoring can take into account a customer's lifecycle stage, tier or segment, and other relevant characteristics. Given the varied nature of SaaS products and their usage models, it's important to use a flexible CSM solution that can incorporate the right metrics for each type of customer.
Customer Success Managers should be able to select and weight the fundamental metrics that compose the overall health score, so it can align closely with the characteristics of their successful customers.
Time to Value (TTV)
The faster your customers realize meaningful value from your solution, the better your chances of keeping those customers for a long time.
But what exactly is value?
Depending on your product, value can be a singular outcome or it can vary widely based on each customer's use-case.
While there is no universal rule for measuring value, consider using your in-app usage data to understand what features, actions, or behaviors most often lead to successful customers — then measure the length of time it takes for subsequent customers to reach this level of product adoption.
Naturally, time to value for simple or self-serve implementations should be relatively quick. Complex deployments on the other hand, often require a phased approach with progressive levels of value to maintain momentum and keep your customers engaged.
Part 2: Business Metrics
Popular Customer Success metrics at the business level include customer retention, expansion or contraction, and lifetime value.
Aside from growth, customer retention is perhaps the second most important metric for subscription-based businesses, and Renewal rate is the most popular way to measure retention on an ongoing basis.
Renewal rate is calculated as the percentage of accounts renewed divided by accounts up for renewal in a given time period.
Account Expansion / Contraction
Successful customers tend to purchase more services while those that don't see enough value often downgrade (or churn).
Account expansion and contraction measures the monthly number of accounts that had a net increase (expansion) or decrease (contraction) in monthly recurring revenue (MRR), calculated as end of month MRR - start of month MRR, on a monthly basis over the last year.
Customer churn rate is the percentage of customers who cancel or don't renew their subscription in a given time period.
For example, monthly churn rate can be calculated as the number of churned accounts during the month divided by number of total accounts at the start of the month.
Churn rate is a critical indicator of SaaS growth.
Clearly, in order for a SaaS business to grow, the number of new customers need to exceed the number of customers lost to churn on a monthly, quarterly, or yearly basis.
Taking it further, revenue churn rate can be calculated as the ratio of Lost MRR plus Contraction MRR during the month, divided by Total MRR at start of month.
Does your business have multiple plans or subscriptions?
You may want to consider tracking your churn rates by specific customer segments in order to truly understand the impact of churn on your business.
Customer Retention Cost (CRC)
The cost of acquiring new customers is often five or six times that of retaining existing ones. In addition, the probability of selling new services to existing clients is a lot higher than selling the same services to brand new customers. This is why, when executed correctly, a Customer Success program can provide a serious boost to the bottom line of a subscription-based business.
Customer Retention Cost is measured as your total retention costs divided by the number of customers retained.
While the calculation is pretty straightforward, accounting for all of your retention costs can be tricky. For example, these costs can be associated with Customer Success, Customer Service, and Support teams, as well as Marketing and Account Management functions.
Average Revenue Per Account (ARPA)
Average Revenue Per Active Account is the average revenue per account across all of your active customers. SaaS businesses often use this metric to understand the evolution of pricing within their customer base, especially when comparing ARPA between new and existing customers.
Average Revenue Per Active Account is commonly calculated as total MRR divided by total accounts at the end of the month. Depending on your business, ARPA can also be calculated as measure of revenue per account on an annual basis.
Customer Lifetime Value (CLTV)
Perhaps the most critical customer-related metric for any subscription-based business, Customer Lifetime Value is the average revenue an account generates during their lifetime.
In other words, CLTV is the projected revenue that a customer will generate for your business before then churn.
A basic CLTV is calculated as ARPA divided by customer churn rate.