SaaS companies deploy customer success to help their customers achieve value from their product. As long as they are able to provide value to the customers, they would remain loyal to the brand. But value is a very generic term. You have to measure right customer success KPIs to ensure those values are being delivered from your product.
Most of the time, the KPIs are measured in terms of revenue generated or saved by the customer while using the product. You have to have measurable goals for your customers right from the beginning of your relationship with them. Then each milestone they reach in their roadmap defines a particular value achieved by them.
They need to be always driven according to the plan you as a Customer Success Manager (CSM) have made for them. You need to communicate to them about the progress they have made so far and the areas in which they are lagging behind. This will keep them tied to their goals and expectations from your product.
As you move along with the customers using your product, you would have multiple chances to measure many customer success metrics. While these metrics provide you with some basic idea of how you are conducting your customer success duties, they sometimes fall in the category of vanity metrics. Because not all the metrics can be considered as key performance indicators. Some are more important in revealing the efficacy of your customer success initiatives, while others show you the exact value achieved by the customers.
So, let us look at some essential customer success KPIs that can help you measure your progress in this business function.
Churn rate is the rate at which your existing customers quit using your product in a given time period. You can measure the churn rate in two ways. First, in terms of customer churn rate which shows the number of churned customers. Second is Revenue churn, which is the total loss of revenue due to those lost customers.
Customer churn happens due to various reasons ranging from dissatisfaction from your service to being unable to drive value from the product. As a CSM, one of your key responsibilities is to increase the customer lifetime value (LTV). The length of duration a customer stays subscribed to your SaaS business has a direct impact on the amount of revenue they would generate.
Hence, it is of great importance for you to prevent any churn from happening in your company. The simple formulae for calculating customer churn rate is:
CCR = (Total churned customers) / (Total acquired new customers) x 100
This can be calculated on a monthly, quarterly or on an annual basis.
Likewise, you can calculate the revenue churn rate as the percentage of total revenue lost as a result of customer churn or downgrades or downselling. It is also often calculated in terms of monthly recurring revenue (MRR) or annual recurring revenue (ARR).
One of the most widely used customer success metrics is the amount of revenue generated by the existing customers. This metric would show how good you are at account based marketing through which you are able to upsell or cross-sell related products to your existing customers.
The whole point of deploying a customer success team in your organization is that they would help grow your business through existing customers. Hence, this is one of the parameters that can be termed as an essential KPI for customer success.
The simple formulae for calculating your expansion revenue rate through your monthly recurring revenue (MRR) is:
Expansion MRR rate = (Net revenue in a month from your cross-sells or upsells) / (Total revenue at the end of previous month) x 100
Customer Lifetime Value (LTV)
LTV is another one of the most important customer success KPIs. It is simply the net revenue a customer generates during their entire relationship with your business. The revenue they generate starts from their initial purchase. Then later on, it arises from the various expansion opportunities your company has with them through upselling and cross-selling. Companies need to invest heavily on acquiring a new customer including the cost of marketing and advertising. Hence, to get a net amount of revenue you must subtract the acquisition cost from the total revenue a customer generates .
The formulae to calculate LTV is:
LTV = (Customer revenue in a year) x (Total number of years customer stayed) – (Total cost of acquiring a new customer)
LTV has a lot of impact on the business valuation of your company. Investors rely heavily on this metric to evaluate the overall health of your business. This is a clear indicator of the future profits investors can predict from a business.
Net Promoter Score (NPS)
A high NPS is the most sought after goal for the customer success teams. It comes as a result of endless efforts you have put in your relationship with the customer. When your product is working flawlessly and they are able to drive value from it, it is the first pass. Then, you need to give exceptional service to your customers for any issues they face while using the product. All the collective efforts you have put in that result into a greater customer experience would finally affect your Net Promoter Score, which has a direct impact on customer retention and generating more business.
It is a simple one question survey you send to the customer. In this, you ask them how likely they are to recommend your product to others. They will get an option to rate their answer from 1 to 10, where 10 means most likely and 1 means least likely. The ones who rate you between 9 to 10 are your brand advocates and would attract more business for you. The ones who rate you between 6 to 8 are neutral. While those who rate you between 1 to 5 are the detractors and would harm your business reputation if given a chance.
There are many other metrics that can help you gain a granular view of your customer success efforts. But the above customer success KPIs are the foundational ones based on which you can start measuring the efficacy of your CS function. Customer success is a relatively new function in modern SaaS companies. These companies have not yet fully realized the value of this function. Hence, you need to justify the cost they are putting in maintaining this function. These metrics tend to serve exactly that purpose.
The quality of service you provide to your customers reflect directly on these above metrics. While two of these metrics, LTV and Expansion revenue, give you a monetary value of customers, the other two metrics clearly reveal the impact of your relationship management. You can measure customer success in a few monetary aspects but that doesn’t comprise all the aspects of this function. The kind of customer experience you are giving to the customers matters too in nurturing a long-term relationship with them.