Customer success is arguably the most important factor in the success of your business, and so it’s also the most important metric you can measure.
Most SaaS companies, and in fact most successful companies, are already aware of this and have put in place strategic plans to improve their customer success rates. We’ve covered some of these before, in articles on what customer success means for SaaS, the different approaches you can take to customer success, and tips on improving this metric.
Having a plan of this type is great, of course. But you also need to measure how you are performing in relation to it. Unfortunately, while it is fairly easy to grasp the idea of customer success in itself, it can be a difficult thing to measure.
That’s why, in this article, we’ll show you the five most important customer success KPIs, explain why you should measure them, and then show you how.
|Table of Contents|
|Customer Success IS NOT Customer Service|
|2. Expansion Revenue|
|3. Support Tickets|
|The Bottom Line|
First, though, let’s get one thing out of the way:
Customer Success IS NOT Customer Service
This is a common misconception, even among business consultants, so let’s clear up the difference between customer success and customer service right at the beginning of this guide.
The confusion is understandable, of course. At first glance, improving customer success appears to be much the same process as offering great customer service: both involve talking to your customers about how they use your goods and services, and helping them to get the most out of them.
There are a number of subtle differences between these terms, though. Customer success processes take a proactive approach in helping customers work toward goals, whereas customer service is a reactive response to the issues they are experiencing. Related to this is the fact that customer success programs have a long-term focus, and much longer than the kind of troubleshooting that customer service programs have.
Perhaps the biggest difference, though, is that customer success generates revenue, whereas customer support only consumes it. By helping your customers achieve success through your products you are encouraging them to stick with you, and they will be more likely to recommend your services to their peers.
That’s why customer success is one of the most important KPIs for a new eCommerce business, and why SaaS entrepreneur and investor Jason Lemkin said in 2015: “Customer success is where 90% of the revenue is.”
With that out of the way, let’s look at how to measure customer success. There are five main ways to do this, starting with …
Churn is a pretty easy concept to understand, but it can be a difficult metric to measure. This is because there are actually a number of different ways in which this KPI can be built up.
Let’s start with the basics. Churn is a measure, essentially, of how many customers stopped using your product over a given period of time. For eCommerce stores, this is going to be a relatively high percentage of customers if looked at over a short period of time; for businesses running a subscription model, the rate will (hopefully!) be lower.
Beyond this simple description, though, there is actually a lot going on. You can measure churn in terms of total customer numbers, total revenue generated, or even look at it in relation to new revenue generated (see below). These three “churn rates” can be significantly different from each other.
When measuring customer success, you want to take the broadest measure possible of how many customers stopped using your services, and how many new customers you attracted. This measurement is referred to as your “net MRR Churn” rate and is calculated by subtracting expansion MRR (for example, revenue gained from upgrades or service expansions) from churn MRR. Take that number and divide it by your MRR at the beginning of the month. Then multiply it by 100 to convert to a percentage. Not to be confused with Gross MRR Churn Rate, which is a measure of the percentage or revenue lost to customers leaving or downgrading their subscriptions.
2. Expansion Revenue
Expansion revenue and churn rate are twinned KPIs that each measure opposed types of customer interaction with your brand. Expansion revenue also called expansion MRR, is an assessment of how much new revenue is coming from new customers.
This is a great KPI for measuring customer success because it captures a number of key behaviors that reflect on your customer success metrics: not only the number of customers that have stuck around and are still using your products but more importantly the number who have upgraded their plan and therefore want to grow with your product.
As a percentage, expansion MRR rate can be computed by dividing the difference between Total expansion MRR at the end of the current month and Total expansion MRR at the beginning of the current month, by Total expansion MRR at the beginning of the month, multiplied by 100.
When looking at expansion revenue, it’s also a good idea to break down the raw numbers by the new revenue generated by each income source: upgrades to plans, customers paying for additional storage, or from customers paying for extra features. These data will provide you with an understanding of the typical customer journey, and have a huge direct impact on the level of markup you put on your products.
3. Support Tickets
I know, I know: I said above that customer service was not the same as customer success, but now we’re looking at support tickets. But in truth, it is possible to use aspects of your customer service benchmarking to measure customer success as well. It’s just that this needs to be done in a slightly counter-intuitive way – by measuring the number of support tickets you DON’T receive.
That might sound strange, but statistics on the most successful SaaS companies indicate that their spending on customer service is extremely low in a sector that is generally regarded as requiring excellent and direct customer engagement. This is because many firms find that the majority of customer support tickets are not related to problems with services at all. Rather, they are requests for information on upgrading plans, or how to achieve particular outcomes from your products.
In other words, most support tickets are obsolete if you are doing the kind of proactive outreach that customer success programs require.
The key to measuring customer success in this way is therefore to segment the support tickets you receive, and measure the number of these that can be rendered unnecessary by providing more detailed information to your customers, or by your customer success team pro-actively showing them how to get the best out of your products.
Next up, we’ll look at two ways of measuring customer success that is a more direct measurement of how your customers feel about your products. One of these, and one of the most common, is your “Net Promoter Score” or NPS.
NPS is a fairly simple measurement, but there are some subtleties involved in when and how to measure it. At a basic level, to measure NPS you ask your customers how likely they are to recommend your products to a friend or colleague. This kind of question is becoming ubiquitous, and you’ve probably seen a similar question pop up on your phone at least once in the last week, and it probably asked you to rate the probability of recommending an app or service on a scale of 1 to 10.
If you implement the same system, you can then calculate your NPS. To do that, you code the answers to this question into three categories:
- 0 – 6: “Detractors” who are unlikely to recommend your products,
- 7 or 8: “Passives” who don’t have a strong feeling either way, and
- 9 or 10: “Promoters” who are likely to recommend your products.
To find your NPS, subtract the number of responses in the detractor category from those in the promoter category.
A high NPS is a great sign. Research indicates that companies with a high NPS are likely to outgrow their competitors by at least two times, and this KPI is also a good indication of customer loyalty. A high NPS can also help you acquire new customers through recommendations. That said, you need to be careful when you ask this question.
Integrate an NPS survey into your support ticket system, for instance, and customers with a pressing issue are going to skew it negatively. Ask it just after you’ve upgraded to cloud storage for a particular customer, on the other hand, and your numbers will look good but won’t be reflective of reality.
Finally, let’s look at the Customer Satisfaction Score, also known as CSAT. This is a KPI that asks customers to rate their overall satisfaction with your services, generally on the same kind of numeric scale used in NPS.
Typically, measuring CSAT will involve asking customers “How would you rate your overall satisfaction?”. Customers give a response on a 1-5 scale, with “1” indicating “very unsatisfied” and “5” meaning “very satisfied”. You can then calculate an overall satisfaction score based on the number of customers who gave an answer of 4 or 5.
This can be an extremely useful KPI for measuring customer success, but you should also be extremely careful about how you work with the results. The responses given by the majority of customers will be driven by short-term experiences with your products, and are not a particularly good guide to the long term process of ensuring customer success. On the other hand, if you are able to look at CSAT over the course of a year (or, ideally, even longer) it can be a valuable, high-level indication of how you are performing.
Once these KPIs are in place, you can begin to set targets for each of them. Every company and sector is different, but here are some common targets that indicate relatively good performance:
- Customer Churn: below 5% is a common goal, at least for established companies looking to work on customer success.
- MRR Churn: below 1% for best-in-class companies
- Net MRR Churn: anything negative indicates that you are generating more in growth revenue than you are losing in churn, which is great.
- For the number of support tickets you receive, unfortunately, there are few benchmarks out there, because this will depend on your business sector, model, and the size of your company. That said, reductions in the number of support tickets received are always a good thing.
- NPS: 50 is good, but as a more ambitious target you should note that Apple’s latest NPS score was 89.
- CSAT: 80% is a common goal, though be aware that your CSAT will vary significantly over time.
The Bottom Line
The KPIs above are not, of course, the only KPIs that you should be measuring. They are not even all of the KPIs that relate to customer success: metrics on many areas of your business, from cybersecurity to compliance processes will also have an effect on your overall customer success performance. They are, however, the most important, and represent the absolute minimum “toolkit” that you will need to start looking at customer success seriously.
With these KPIs in place, you can begin your customer success story in earnest. To do that, take a look at some of the resources we’ve published on how to improve your customer success performance, and especially our tips from experts on customer success strategies.
About the Author:
Nahla Davies is a software developer and tech writer. Before devoting her work full time to technical writing, she managed—among other intriguing things—to serve as a lead programmer at an Inc. 5,000 experiential branding organization whose clients include Samsung, Time Warner, Netflix, and Sony.