As face-to-face customer interactions become increasingly rare, it’s important to stay connected with your customers and put all the right tools and processes in place to ensure customer success. By keeping an eye on your customer success metrics, you allow your organization to gain valuable insight to maintain profitable, long-lasting relationships with your customers. 

What is customer success? 

Simply put, customer success is when the customer achieves the desired goal while using your products or services. It’s relationship-driven and results in client satisfaction, upsell opportunities, decrease of churn, and increase in revenue. 

Check out this blog to find out what you can do to increase your customer success! 

What is customer success in SaaS? 

With the arrival of the SaaS (Software-as-a-Service) concept, things have changed. Software licenses are no longer bought only once for long-term use. They are rented for a fixed period (trial period, monthly, yearly, etc.), which makes sense considering the speed at which online technologies are evolving. The customer now decides whether the software meets all of his criteria or not. If the customer experience is not a success on all levels, they may well decide not to renew the subscription. We live in a world with so much competition that customer success must be a priority for companies. 

Why is measuring customer success important? 

The answer is simple. No customer success means no success for you either. Proactive measures must be put in place in order to gain a deeper understanding of your customers’ needs and why they use your products or services. That way, you’re more likely to have happy and loyal customers. 

That’s what customer success is all about.  

Every SaaS company should be able to predict customer success to better manage revenue and profit. To demonstrate the return on investment (ROI) of your hard work, measuring customer success metrics is a must! It’s important to note, however, that customer success is not a metric in itself

How to measure customer success 

There are many customer success KPIs or metrics that companies should track. Here are 6 key metrics that we feel you should be focusing on in order to maximize value for your customers in 2021:

Customer success metric #1: Customer Churn Rate 

Customer Churn Rate is one of the most important customer success metrics. It’s the number of customers or subscribers who decide to stop using your products or services during a given period.  

In today’s competitive world, customers should never be taken for granted. Loyal customers provide stable revenue and financial flexibility. The subscription business model is becoming more and more popular. That said, companies must keep up with market developments to increase customer success and decrease churn rate. 

If you thought you would receive $3,000 from a customer over a 12-month period ($250/month), but he/she cancels their subscription after the first month, you’ve just lost $2,750. 

How to Calculate Customer Churn Rate 

Customer Churn Rate Formula

By understanding the reasons behind churn, it will be easier to implement solutions to prevent it from happening again. Moreover, customer churn will directly affect your financial metrics. 

Customer Success Metric #2: Customer Retention Cost (CRC) 

Implementing customer success strategies is good practice to limit customer churn, as customer retention is usually cheaper than customer acquisition. That said, you’ll still want to stay cost-effective, which is why it’s important to look at your Customer Retention Cost (CRC). This customer success metric helps determine how much you’re spending to retain a customer and at what point you should “fire” a customer.  

How to Calculate Customer Retention Cost (CRC) 

Customer Retention Cost Formula

To measure CRC, you first determine the annual cost of your success strategies (customer success team + account management team + customer engagement programs + trainings + marketing, etc.) and then divide this number by the number of active customers. 

Customer Success Metric #3: Net Promoter Score (NPS) 

Net promoter score is one of the most popular customer success metrics. To obtain your Net Promoter Score, you need to ask your customers a simple question: How likely would you be to recommend our company/product/service? The answers are based on a scale from 0 to 10:  

  • 9 to 10 = Promoters 

Promoters are more likely to bring clients and stay loyal to your company. 

  •  7 to 8 = Passives 

Passives are in between promoters and detractors 

  • 0 to 6 = Detractors 

How to Calculate Net Promoter Score (NPS) 

Net Promoter Score Formula

Let’s say your customer service department sends a survey to the 125 customers with whom they had an interaction with during the month. If the results of your survey show 100 promoters, 20 passives and 5 detractors, your NPS would be 76%. 

Promoters: 100 /125 = 80% | Detractors: 5/125= 4% | NPS = 80% – 4% = 76% 

NPS helps predict your business growth; if you have more promoters than detractors, you know your customers will help generate more leads with great word-of-mouth.  

In 2019, about 1.92 billion people purchased goods or services online and e-retail sales surpassed 3.5 trillion U.S. dollars worldwide (Statista, 2020). That said, customers rely heavily on online reviews to make informed choices. Reviews are the new word-of-mouth. It is therefore important to ensure your customers’ satisfaction, so they become promoters of your brand, and give you exceptionally good reviews. 

Customer Success Metric #4: Customer Satisfaction Score (CSAT) 

Whereas Net Promoter Score aims to measure a customer’s likelihood of recommending your brand, the Customer Satisfaction Score (CSAT) measures a customer’s satisfaction after a specific interaction with a product or service.  

The advantage of CSAT is that it’s one of the easiest customer success metrics to track. It provides a quick, simple way of collecting feedback at any touchpoint across the customer journey. It makes it easier to identify areas of improvement. 

How to Calculate Customer Satisfaction Score (CSAT)? 

Customer Satisfaction Score Formula

Most often, you will obtain a CSAT through a short survey that includes rating scales such as emojis, stars, or numbers. The survey is ideally sent immediately following an interaction with a customer to facilitate honest, unbiased answers. 

To calculate your CSAT, you first divide the number of positive responses by the total number of responses from your customer survey. You then multiply this number by 100. What’s considered a good score for you will depend on your industry. That said, a score of 75% will put you right on the national average.

Customer Success Metric #5: Customer Lifetime Value (CLV) 

The Customer Lifetime Value (CLV) is another important metric that shows the total profit that you expect a customer to generate over the course of their relationship with your company.  

With so much emphasis being placed on customer loyalty as a pillar for customer success, this metric puts a price on this loyalty. It’s also a great way to assess your customer profitability and determine how much you should be spending on customer acquisition. 

How to Calculate Customer Lifetime Value (CLV)? 

Customer Lifetime Value Formula

There are many methods of calculating CLV, each one more complicated than the next. Let’s take a look at a simplified formula:  

Calculate your average: 

  1. Number of transactions each month
  2. Order value
  3. Gross margin
  4. Customer lifespan (in months)

CLV = (1) x (2) x (3) x (4)

Customer Success Metric #6: Renewal Rate 

The Renewal Rate is a highly relevant customer success metric for software-as-a-service (SaaS) businesses that follow a subscription-based model. It measures the percentage of customers who renew their subscription at the end of the subscription period.  

A high Renewal Rate is indicative of customer success since it implies stable, recurring revenue from current customers. In turn, it allows you to focus more attention on acquiring new customers. 

How to Calculate Renewal Rate? 

Renewal Rate Formula

You can easily calculate your Renewal Rate by dividing the total number of customers who renew their subscription by the total number of customers up for renewal. 

Conclusion  

With competition for customers fiercer than ever, having the right customer success metrics for your company is key to retaining your current customers and acquiring new ones. The 6 metrics described above should take you one step closer to achieving success for your clients in 2021. 

For a more comprehensive list of customer success metrics, make sure to check out this blog.