The effects of a successful What is Customer Success? Customer Success refers to the approach that has your company in a position where it ensures that each customer is successfully connected to their desired outcome…. department can have long-lasting effects on various other departments of a company.
But to track the real performance of the CS people in your company, you’ll need to utilize a few metrics.
In this guide, I will cover the essential customer success metrics and the KPIs that you need to track for a better CS operation.
Let’s start with the basics:
What Are Customer Success Metrics?
Customer success metrics and KPIs are the metrics marketers and their managers can track to see if they are working effectively, how well a customer is doing with What is product adoption? Product adoption is the process where an individual learns of a new product and becomes a user of it, learning what it does, how it does…, What is retention? Retention refers to a customer continuing to use a business’ product or a service and to pay for the said product or service. It is a key…, and recommending the product to others. They are fundamental to establishing processes that will maximize the lifetime value of your customer relationships. When properly tracked, customer success metrics can give you insights into critical areas like customer What is churn? Churn refers to a customer cancelling their subscription to your products or services. It is a common metric among especially SaaS(service as a subscription) businesses. Churn exists…, adoption rates, product satisfaction, and more.
What Are The 5 Most Important Metrics For Performance of The Products?
The significance levels of product performance metrics vary depending on the business focus. However, here are the 5 most important metrics for the performance of products:
- Product technical performance metrics such as defects, downtime, response time
- Product business performance metrics such as monthly recurring revenue (MRR)
- Customer engagement metrics such as What is NPS? NPS is the abbreviation of Net Promoter Score, which is a measurement of your customers’ satisfaction with your product on a scale of -100 to 100. It…, average session time, and customer satisfaction score
- Lead management metrics such as lead generation and sales funnel conversion.
- Customer ROI (Return On Investment) such as Customer Acquisition Cost (CAC), Lifetime Value (LTV)
How Do You Measure Customer Success?
Customer success is all about knowing what you want to track for success.
Within Customer Success, there are several metrics and key performance indicators that you should track. The most significant ones include churn rate, Net Promoter Score (NPS), Average Revenue Per Customer, etc.
There are various methods to draw numbers and data for customer success KPIs and metrics. For example, What is SaaS? SaaS is the abbreviation of Software as a Service, and refers to a software licensing model based on user subscription with monthly or annually payments. The model… companies, in particular, can achieve customer engagement data and measure customer success with several methods such as:
The What is user onboarding? User onboarding is the crucial process that starts from the first login of a new user and ends up in their aha moment, and usually beyond…. period, for a business, is one of the most critical times in the SaaS customer life cycle. During this period, customers decide to purchase your product and start getting value from it or abandon it forever.
Using customer onboarding to see the drop-offs and who are more likely to convert into paid customers can be a valuable benchmark for early customer success.
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Upgrading from free plans to paid ones is a strong indicator of a successful customer success and account management. In this ratio increases, there is surely improvements provided by the effort of the CS team.
10 Customer Success Metrics & KPIs You Need to Track
1- Customer Churn Rate
Customer churn rate (sometimes referred to as customer attrition rate) is used to capture the percentage of customers who no longer use your product or service. For example:
- Canceled subscriptions
- Closed accounts
- Loss of recurring value
- Loss of a recurring business or contract
All companies must measure customer churn rate simply because it’s a key performance indicator of your customer success strategy.
How To Calculate Churn Rate
The total number of churned customers / total number of all customers = Customer Churn Rate
For churn rate calculation, whether monthly or annually, take the total number of churned customers over a period of time and divide it by the total number of all customers in that period.
Note that for all businesses, particularly for SaaS companies, keeping customers paying and reducing churn is crucial for growth.
2- Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue or MRR is a normalized calculation of a business’s predictable revenue on a monthly basis. MRR is a critical metric for Software-as-a-Service (SaaS) or subscription-based companies. SaaS companies track their MRR for financial forecasting and planning, as well as measuring growth and momentum.
MRR provides accurate, predictable, and largely consistent financial projections, helping companies estimate and plan their businesses accordingly. Also, MRR is a key indicator of growth for SaaS companies, and critical especially if backed by investors.
How To Calculate MRR
Monthly Average Revenue per User (ARPU) X Total Number of Monthly Users = MRR
For MRR calculation, take your Average Revenue per User (ARPU) on a monthly basis and multiply it by the total number of active users on a given month.
3- Average Revenue Per User (ARPU)
Average Revenue per User (ARPU), also known as Average Revenue per Unit, is the average revenue received per user over a period of time. It is a metric commonly used by SaaS, digital media, social media, and telecommunications companies. ARPU allows businesses to gain a deeper insight into:
- Profit generation capability
- Understanding customers
- Financial forecasting
- Comparison to competitors
How To Compute Average Revenue Per User
Total Revenue / Average Users = Average Revenue per User
ARPU is calculated by taking the total revenue and dividing it by average users during a period. The selected time period is usually monthly because many businesses that use the ARPU metric work on a monthly paid subscription model.
4- Net Dollar Retention
Net Dollar Retention is the metric that calculates the revenue change that is generated by existing customers. It is one of the most crucial customer success KPIs. NDR is used to further describe the changes in recurring revenue over time according to upgrades, downgrades, and churn.
To put it differently, Net Dollar Retention measures how much money you’ve gained or lost from existing customers. Examples for it include:
- Upgrading an existing subscription plan,
- Paying for additional features, storage, functionality,
How to Measure Net Dollar Retention
NDR = (Starting MRR + expansion – downgrades – churn) / Starting MRR *100
5- Net Promoter Score (NPS)
Net Promoter Score or abbreviated as NPS refers to a measurement that evaluates customer satisfaction and loyalty. NPS is measured based on the answers of a survey that asks customers how likely they are to recommend your service or product on a scale of -100 to 100.
Participants of NPS surveys are expected to explain the reason for their scores. This allows businesses to analyze the underlying issues of negative What is Customer Experience? Customer experience refers to the experience of customers with a business’s products and the overall brand. When offering products and services to a group of people,…. As a critical customer success KPI, Net Promoter Score provides valuable customer feedback, and helps to measure quantitative and qualitative data to improve upon.
How To Measure Net Promoter Score
To calculate NPS, you need to conduct an NPS survey asking customers one question: “On a scale of 1 to 10, how likely are you to recommend our product or service?” Once the participants provide their answers, you need to group them as customers that give a score of:
- 0-6 are classified as detractors.
- 7-8 are group as passives.
- 9-10 falls under the name of promoters.
After the survey scores are grouped, you can calculate the NPS. The NPS calculation is done by subtracting the percentage of promoters from the percentage of detractors. The result gives your business’s Net Promoter Score.
The percentage of promoters -(minus) percentage of detractors = NPS
6- Conversion Rate
What is the conversion rate? Conversion rate is the percentage of visitors that visit your website or landing page and convert. Converting in this context means that the visitor does… is one of the most important customer success KPIs you should be already tracking. It is the percentage of customers that complete the desired action. It shows how successful you are at converting prospects into paying customers or taking the desired actions. Conversions vary depending on the business goals. Here are the most common conversion examples:
- Making a purchase
- Subscription to a paid plan, mailing list, etc
- Registering on a site
- Upgrading a service
- Submitting a form
How to Calculate Conversion Rate
(Conversions / Total Number of Visitors) X 100% = Conversion Rate
(Conversions / Total Number of Leads) X 100% = Conversion Rate
Conversion rate calculation depends on what defines a conversion for your business. For example, the conversion rate for websites is calculated by dividing the number of conversions over a period of time by the total number of people who visited your website or landing page during that time frame. Then, multiply it by 100%.
7- Customer Health Score
Customer Health Score or Customer Health Scoring is a metric that is used to measure customer success. It is the process of scoring customers based on their likelihood to grow, renew flat, or churn. Customer health scoring systems vary from company to company and assessing customer health scores is critical for customer success teams. Often, customer success teams don’t know which customers to help, and they over-service to the loudest accounts that are likely to churn anyway.
When established, monitored, and responded correctly, a customer health score can help customer success managers and teams to identify the risks before they arise and unhappy customers. This way, they can minimize the churn rate.
How to Measure Customer Health Score
In order to measure customer success, you need to formulate a customer health score. For example:
Frequency: How much time do users spend on your product?
Breadth: How many users in a specific account are using the product?
Depth: How many of your product’s or service’s key features are being used?
Apart from these, you can measure your customers’ growth as well.
8- Customer Lifetime Value (CLV)
Customer lifetime value (CLV or CLTV, LTV) is one of the essential customer success metrics for any business to track. Customer lifetime value is the expected total revenue or net profit that you can expect from a single customer to bring to your company throughout the whole relationship with the customer.
In simpler terms, customer lifetime value is a metric that shows:
- How much a customer is worth to your brand and their value
- How much money you should be investing in customer retention
- An insight into whether or not a customer is likely to become a repeat customer
Assessing CLV is crucial to invest in the right customers that are more likely to bring value to your brand.
How to Compute Customer Lifetime Value
You can calculate the customer lifetime value by taking the average purchase value and multiply it by the average customer purchase frequency. Then, multiply the outcome value by your average customer lifespan. The result provides an estimated revenue that one customer is expected to bring to your company.
9- Customer Retention Cost (CRC)
Customer retention cost is also one of the most fundamental customer success metrics to ever exist. Customer retention cost or CRC is a metric that shows the total cost of retaining an existing customer. Businesses shouldn’t rely solely on acquiring new customers each month. If your marketing campaign turns out ineffective, then you might risk losing revenue.
Therefore, a loyal customer base is a cornerstone for financial stability and your business’s long-term health. By measuring your CRC, you can make smart moves on how much you should spare for your marketing budget and keeping loyal customers.
How to Calculate Customer Retention Cost
To calculate your customer retention cost, you should audit all your expenses of your customer success efforts. Your customer success efforts to audit include the expenses spent on payroll for customer success and customer service teams, engagement and adoption programs, professional services and training, and customer marketing.
Add these expenses into a sum. Divide that value by your total number of customers. The result will give you your business’s customer retention cost.
10- Qualitative Customer Feedback
Qualitative customer feedback might not really be a metric, but it enables you to achieve valuable data and insight into why customers provided negative or positive feedback about your service or product. With qualitative customer feedback, you can answer critical questions such as;
- Why has a customer given you a low NPS?
- Why have they decided to abandon their shopping carts?, etc.
You can collect qualitative feedback using open fields in feedback forms. This way, your customers can explain why they have given a specific score. Once the qualitative customer feedback data is collected, it can be analyzed using text analytics.
Customer success metrics and KPIs are vital parts of a successfully-running business and key to keeping customers happy.
Trying to find the underlying issues behind increased churn rates and loss of customers can be challenging. However, when systematically evaluated, these metrics uncover the strengths and weaknesses of your company, product, or service.
Once you find out the underlying problems, customer success, and support teams, as well as the managers can better focus on developing effective strategies. Keep in mind that every improvement requires a vision, in this case, provided by CS metrics.
Frequently Asked Questions
What is the most important metric for customer success?
The most important metric for customer success can be considered the churn rate, as it is the department’s duty to fight churn and eliminate reasons leading to it.
How can I measure the effectiveness of customer success?
Various metrics, such as churn, retention, MRR, ARPU, and NPS can be used to measure how customer success department performs.
What metrics are customer success responsible for?
Customer success is responsible for metrics such as NPS, churn, and ARPU in most cases.