Every Employee Should Understand These Five Fundamental Customer Success Metrics
Software as a service (SaaS) and customer success people often use a host of acronyms, phrases, figures and metrics that many of us find difficult to decipher. When this happens, the very idea of customer success is lost on those not immediately bothered with annual recurring revenue and upsell goals (sometimes even management itself). That’s why most employees of an organization often perceive their customer success team as a standalone department, thus misaligning themselves from what’s going on there.
In today’s customer-centric economy, where customer experience leads to business growth, all your employees need to be aligned around customer experience. The simplest way to do this is to deconstruct and simplify customer metrics for all employees.
Here are five metrics that are at the core of customer growth and their definitions. Understanding them will help your employees develop a customer-centric mindset.
1. Net Revenue Retention (NRR).
Why it matters: A key element in a profitable business is its long-term customers. So, the health of a SaaS company is based on its customer retention rate. It indicates that your services offer a strong value proposition for your customers. Now, in a customer-centric business scenario, your organization is laser-focused on retaining customers to achieve a high NRR.
A high NRR is directly proportional to the company growth rate and is calculated by subtracting revenue churn (loss of revenue through downgrades, cancellation of subscriptions, non-renewed contract expirations, etc.) from the total revenue (earnings through new customers, upsells, renewals and cross-sells). A simple formula for calculating your NRR rate is: (Monthly recurring revenue + expansions – downgrades – churn), divided by MRR, multiplied by 100.
2. Customer Health Score (CHS).
Why it matters: At an elementary level, CHS will tell you just how happy customers are with your product. Are they getting value from your service/product? If all employees know how to check this score, won’t they all try to max it?
It’s a given that, these days, customer service goes far beyond just selling someone your product; you now have to ensure your customer is obtaining their desired outcome, again and again, using your product. If everyone in your company is on board with this, then your CHS can hit an all-time high.
The health score is calculated by measuring how many customers use your product extensively, returning customers, how many upsells you’ve done and the number of new sales. Of course, you can include more parameters customized to your particular needs, but the bottom line is, a good CHS can help you increase existing revenue and also impact new sales.
3. Customer Lifetime Value (CLV).
Why it matters: In a way, this is a measure of your entire business and is attained if every department in your company delivers on the customer success metric.
CLV calculates how much a customer will spend on your products throughout their journey with you. For example, let’s say a customer spends $1,000 on your site or in your store every time they visit, and they visit four times a year. Now, if you know the average journey lasts about four years with your company, then the CLV would be $16,000 ($1,000 per visit, multiplied by four visits per year, multiplied by four years).
4. Net Promoter Score (NPS).
Why it matters: Because feedback matters in every SaaS company, NPS is a customer satisfaction survey. It will tell you how customers feel about your product or service and the brand as a whole. It will also tell you what kind of experience your customer success managers provide your customers with and whether they’re happy enough to urge others to buy your product.
To measure NPS, you need to generate a survey and ask your customers to rate their experience on a numeric scale. The questions should offer both qualitative and quantitative insights about your customers. The calculation that follows is simple: Subtract the percentage of those who rated you poorly (could be 0 to 6) from the percentage of those who rated you good (7 to 8) and excellent (9 to 10). If 60% of respondents liked your services and 20% didn’t, your NPS score is 40. A good score should border on brand advocacy.
5. Customer Churn Rate (CCR).
Why it matters: The more customers leave you, the more you need to spend on new customer acquisition, which causes your costs to go up and the brand value to suffer. Every department in SaaS businesses must try to minimize churn and ensure customers stay with them long term to grow the business.
The simplest explanation for churn is the number of customers who leave or stop using your product or service. It is about how satisfied a customer is with the experience you are giving them. Would they want to stay on to experience more of it, or are they fed up and want to leave? To get a clear picture, measure each customer success personnel’s churn rate; then, average it to know what kind of a relationship each rep has with their set of customers. The number of customers churned divided by the number of existing customers is your CCR.
Customer Success Metrics Education Made Easy
These metrics are used to understand customer adoption and forecast. Of course, arguments about how CLV is a better measure than NPS or how CCR is the most straightforward measure of customer satisfaction are part and parcel of healthy CSM debates.
The bottom line is this: Your entire organization needs to align to a customer-first model of doing business. Everyone must become aware of these metrics that measure customers’ happiness based on the continued value they’re getting from your product or service.
You can also read this article at Forbes Council.
About the Author:
Emilia D’Anzica, Founder, Author, Growth Molecules™
Emilia has personally onboarded 1000s of customers in her 20+ year career and is an early Customer Success Manager in SaaS. She has held every title in customer success ranging from Support Manager to Chief Customer Officer. She believes that customer onboarding sets the trajectory for churn or growth. After helping companies like WalkMe experience exponential growth, she is now helping companies build teams, processes, and systems to scale. Emilia holds an MBA from Saint Mary’s College of California and a dual BA from the University of British Columbia. She is also PMP, and Scrum certified. She is the co-author of Pressing ON as a Tech Mom.