Any business function that you deploy towards your business goals must be measurable and generate returns. Before customer success was introduced, companies used to spend massive funds in acquiring the customers only to see them finally go. But as customer retention became a major goal for these companies, customer success ROI started paying off.
Customers don’t leave your company until they stop getting value from your product. As long as you ensure that you provide value to your clients, they would bring immense benefits to your business. They would not only continue to do business with you but would also attract more clients for you.
So, how can we quantify those returns generated by customer success? This is what we are going to see in this blog along with the tips to improve it.
Importance of measuring customer success ROI
Ok, let’s get straight to the point. Setting up a customer success function requires cost. The cost of employing CSMs, implementation specialist, chief customer officer, customer success automation tool, etc. Yet, companies are ready to invest in all these because the end results they produce are more valuable. So, let’s see why measuring ROI is helpful in business.
By measuring the end results, or ROI, you are able to know the efficacy of your CS department. Through right metrics that are generally used in customer success, e.g. NPS, retention rate, adoption rate, annual recurring revenue, etc., you are able to know which areas to improve on.
Holding employees accountable
Every employee in the CS team, right from the CSM to Chief Customer Officer, must be able to justify their own cost to the company. Hence, by producing annual reports on the results produced by the CS efforts, they are able to show how investment in CS paid off for the business.
Better business valuation
One of the major comparisons between any two values in customer success is that of customer acquisition cost and customer lifetime value. By measuring the ROI on customer success, when you are able to show how CLV is growing larger than the CAC, your business valuation goes higher. Investors take more interest in the businesses where the CLV is higher which represents a greater ROI of not just customer success but that of the whole business.
How to measure customer success ROI?
When you are doing investment in customer success, you are ultimately investing on customers at the end. All the other costs like employees’ cost, automation cost, etc., are in the middle. Hence, to measure the ROI, you must measure the end results that the customers are producing. These results can be one of the following:
Customer Lifetime Value
This is a clear indicator of the health of your business. Through CLV you can know the average revenue a customer would generate throughout his entire lifetime with the business. And when you multiply CLV with the number of customers you have, you get the total revenue forecast of your customer base. What better option do you have to measure ROI?
Taking the annual revenue churn rate of the previous year into account, you must measure the revenue retention rate for the current year. And when you compare the two values, you would know what impact CS has produced in increasing the retention revenue in the current year.
This is another revenue stream generated through customer success. All the account expansion activities like upsells and cross-sells must be measured for the entire year. The overall revenue generated through account expansion is also a key factor in measuring the return on investment in customer success.
The number of customers who have turned into your brand advocates can be measured through a simple NPS survey. This would give you an estimate of the number of channels you have for your word-of-mouth marketing. Asking the new customers about how they heard about your business would reveal if they have been referred by an existing customer. The overall value these customers would generate in a year is measurable and must be kept for further use that we will see below.
So, to measure the ROI of customer success, you must first add up the following revenue streams:
Total CS revenue = Customer retention revenue + Account expansion revenue + Customer referral revenue
Now, this total customer success revenue must be subtracted by the overall cost incurred that majorly include:
Total CS cost = Employment cost of CS personnel + CS automation tool + Customer loyalty program, etc.
So, finally what you get after subtracting total cost from the total revenue generated as above is your ROI on customer success.
Customer success ROI = Total CS revenue – Total CS cost
How to improve Customer Success ROI?
Now that you know the ingredients, you can fine-tune them individually to maximize your returns from customer success. Here’s how you can do it.
Using automation for scaling
When you are scaling, it is better to start using a customer success platform, to achieve maximum results with least amount of investment. It is much lesser than investing on hiring more CSMs for each group of customer accounts. Furthermore, it enhances the capabilities of a CSM to dive deep into each customer’s accounts finally producing better results.
Hiring right employees and training them
It might be hard to get employees from customer success backgrounds since it is a new function. Yet, you can hire people with similar experiences like account managers, sales executives, having skills of customer relationships. Once you hire them, introduce them to the world of CS by training them with the nitty-gritty of this function.
Reduce time to first value
Most of the customers who churn do so during the onboarding phase itself. In fact, over 90% of customers think companies can do better in their onboarding process. Hence, it is important to reduce the time to first value to curb churn in the onboarding phase.
Using right metrics
Finally, to improve any business process, not just customer success, you should be able to measure it through the right metrics. Using the metrics would let you know where you lag and where you need to put more efforts. The metrics mentioned in the previous section above (how to measure customer success ROI) must be fine-tuned individually to drive better results.
Measuring the exact customer success ROI would still remain a challenge for more years to come. Why? Because the CS industry is in a growing stage. There are no set standards that are being followed by everyone. Everyone is trying their own strategies to come up with the best results.24
When it comes to customer success, it is easy to get lost in the myriad of metrics and concepts it encompasses. Yet, if you always keep the final goals in mind – customer retention, account expansion, and brand advocacy – you would not lose focus on your ROI. Taking individual steps towards the improvement of these goals and empowering your employees with automation is the way to go towards higher returns.
Rohan has over 11 years of experience in client services, marketing and hospitality field. Previously, he was head of digital marketing for a hi-tech mobile application. Rohan is driven by new challenges and the possibility of making an impact on individuals and businesses.
Published December 04, 2020, Updated March 01, 2023