Measuring the right customer success KPIs
Data is only as good as the insights it helps your customer success team generate. So, if you find yourself tracking every single instance of user behavior but aren't seeing any clear patterns and trends, well then, Houston, we've got a problem.
Fortunately, you won’t need a crystal ball to see into the future of your SaaS company. All you need to do is follow the success metrics that closely correlate with specific user outcomes. From there, you’ll be well on your way to a stronger understanding of your long-term profitability — as well as what you need to do to drive even more revenue.
1: Customer churn rate
Whether you’re a seasoned success specialist or are new to the industry, you already know that churn matters. If you’re losing customers, it’ll be next to impossible to grow no matter how high your conversion rate is.
So what can we do to change that?
Step one is measuring your churn rate over time to know where you currently stand. All you need to do is divide the number of customers you lost during a set period of time — usually a month or a quarter — by the number you started with. If you’re doing that math along with us, it should look something like this:
Customer churn (%) = Users lost during a set period
÷ Users at the beginning of the period
There’s a big issue with that formula, though: You can only calculate it once you’ve already lost customers. So if your goal is to simply “reduce churn,” it’ll be like trying to put the fire out once the house has already burned to the ground.
Doesn’t sound like a fun time, does it?
Although churn will help you see the bigger picture, it’ll be impossible to solely rely on it to figure out why you’re losing customers. Don’t lose hope on us just yet, though. There are several warning signs that signal a customer is about to churn, meaning there’s still time to fix the situation. Have your team track the following:
- Login frequency: This number can depend on the type of solution you offer. Some products may need to only be run weekly, while others will be used throughout the day. However, if logins have dropped substantially, something is definitely wrong.
- Customer support tickets: If a user is sending in ticket after ticket and seeing no resolution, churn is soon to follow. Reach out and close the loop person to person.
- User sentiment: If customer feedback is trending downward, there’s no clearer sign that something isn’t right. The manager assigned to the account should be sure to personally follow up and get an understanding of the situation.
So although churn is a vital customer success metric, saying it’s one of the most important ones to measure is a little misleading. Sorry about that — you have to admit it would have been hard to fit all of that in a header, though.
Instead, check in with your churn on a regularly scheduled basis and keep an even closer eye on the predictive indicators we talked about.
2: Customer loyalty and user sentiment
Now this one can be a little tricky. Loyalty is something that looks different to everyone. While someone may show their appreciation of your product by sharing the good word with others, another satisfied customer might just keep using it.
To try and navigate that challenge, many SaaS teams measure loyalty through a voice-of-customer program, tracking changes in sentiment through their net promoter score. NPS surveys all feature the same question, asking whether a user would recommend the product.
But as a customer success leader, you know that the user experience can’t really be boiled down to a single question. Although your NPS results are a helpful indicator of how your brand is doing compared to your peers, you’ll need to use a few other metrics to get a clear understanding of user sentiment.
Noticing a theme here?
Like churn, NPS surveys can be a great tool when it comes to getting that big-picture view. But, to really understand what makes your users tick — and how you can drive loyalty further — you’ll want to measure the following:
- Engagement rate: Are you sending out thoughtful and relevant communications that make a customer want to stay in touch? Or, are you getting the cold shoulder?
- Expansion: How many of your existing customers sign on for new features? Do you need to further develop your product to better align with their long-term needs?
- Customer retention rate: How many customers stay on with you month after month? What can you do to keep more of your user base?
By focusing your customer success strategy on how you can better help users succeed, you’ll find that sentiment will naturally begin to trend upward. Happy customers equal loyal customers — and a greener bottom line.
3: Product usage across the customer journey
As we mentioned with login frequency, how users interact with your software will look different depending on the type of solution you offer.
For example, our own customer success team keeps a close eye on user activity levels. This not only alerts them to who is inactive — and therefore at risk for churn — but also shows where a user might be stuck or confused inside the app. This information helps them chart a course for correction through relevant messaging campaigns like guided tours or feature callouts.
If you’re not sure where to start when it comes to finding the right activity levels, we recommend trying your hand at lifecycle mapping. Spend some time mapping out each stage of the customer journey across every touchpoint. From there, you’ll get a clear understanding of what a positive customer outcome looks like as well as the behaviors associated with it.
As you work through your customer experience to find the right activity metrics to track, ask your team the following questions:
- How fast is your onboarding process? The sooner customers are using and finding value in your product, the more likely they’ll be to stay on with your company longer.
- How many users in a specific account are using the product? If your product is meant to be a team- or organization-wide solution and only one or two of the licenses are being used, something isn’t right.
- Which key performance indicators are related to success? If your team can’t effectively measure customer satisfaction with tools you already have, you may need some additional software support.
By mapping out how your customers’ behavior evolves over time, you’ll have an understanding of exactly what your team needs to measure to accurately get a clear read on product usage.
4: The value of an existing customer
Still with us? Good. The last success metric is arguably the most important — and, fortunately, the most straightforward. Customer lifetime value (CLTV) is the total worth of a customer to your business over the entire relationship.
At its most basic, the formula for CLTV will look a little something like this:
Customer Lifetime Value = Customer Value x Customer Lifespan
You can find your “customer value” by multiplying the value of a purchase by the number of purchases a customer makes. And, by segmenting your customer base into different categories based on their lifetime value, you can start to find patterns in how CLTV correlates to user behavior.
So, why is this magic number so important?
Well, let us explain.
It costs less to keep existing customers than it does to acquire new ones. By increasing the value of your existing customers, you’re driving growth without incurring a higher customer acquisition cost. You’ve already put in the sales and marketing work to convert these customers. Now, it’s up to your success team to find new ways to keep them engaged.
That brings us to the big question: How do you offer more value to the customers you already have?
The answer lies in your renewal rate and expansion revenue. Getting customers excited about new features and products can help you boost their CLTV when it comes time to sign on for the next year.
But, as we all know, expansion can create some awkward moments.
No customer success manager wants to feel like they’re pushing products that their customers don’t need. Lincoln Murphy, an expert in customer success, has outlined some helpful tips to ensure you’re offering customers something that helps them to achieve their goals — all while boosting your own revenue:
- Use the right message at the right time: Leverage success milestones where there's a logical expansion opportunity. If a customer has reached a long-term goal that was outlined when they first onboarded with your platform, it could be the perfect time to expand their feature usage.
- Take a customer-focused approach: For expansion to be a “win-win” situation, you should only present features that directly align with your customers’ own goals. If you're selling just to sell, there's a chance you may only succeed in pushing the user to churn.
- Plan the months leading to renewal: Don’t be a stranger to your customers. Nurturing the relationship and keeping them engaged in the months leading to renewal will be key to fostering expansion that benefits them and you.
As you measure CLTV over time and take the steps to drive more value for you and your customers, you’ll be well on your way to achieving the ultimate SaaS goal: long-term recurring revenue.
Creating your own success formula
If one thing is for certain, it’s that finding the right success metrics isn’t exactly a one-size-fits-all process. Within these four categories, there are an endless combination of behaviors to track.
Although every team's "most important" metrics will vary, leveraging a customer health score system will help your team to keep an eye on each key performance indicator you select. And when in doubt, just remember: The goal is to uncover the insights that will empower you to foster success in every account.
Give your team the tools you need to drive customer success with UserIQ.