It’s one thing to be told that customer success is integral to company success. It’s another thing entirely to know what to do with that information. How do you measure customer success? How can it be improved? Why is it important?
Finding the answers to these questions can be challenging, even if you are willing to invest the time and resources.
It can have an immediate payoff, though, as a growing body of research shows that customer success metrics and KPIs (key performance indicators) can be used to improve customer satisfaction, loyalty, and, ultimately, bottom-line results.
With an endless stream of information at our fingertips, getting overwhelmed is easy. That’s why it is important to know which customer success metrics and KPIs are the most relevant and meaningful.
Skip ahead:
- 6 Key Metrics for Measuring Customer Success in the SaaS Industry
- Setting KPIs for Customer Success Managers
- Final Thoughts
6 Key Metrics for Measuring Customer Success in the SaaS Industry
There are dozens and dozens of numbers you could look at to judge and evaluate your customer success performance. We will examine six of the most important user success metrics and KPIs for the SaaS (software as a service) industry.
While other metrics can also provide insight, grasping these six is a make-or-break proposition when it comes to tracking customer success:
MRR is a simple calculation of all your monthly subscription revenue, minus any discounts, refunds, and failed payments. This metric measures the rate at which customers are signing up for your service (or product) and how much they’re willing to pay for it.
If your MRR is increasing, that’s a sign that customers are happy with your product and want to keep using it. Decreasing MRR, on the other hand, indicates that something is wrong and needs to be addressed.
MRR is one of the most important customer success metrics in the SaaS industry because it offers a snapshot of your company’s financial health. It measures:
- The rate of new customers signing up for your product/service
- Expansion revenue from existing customers upgrading their subscriptions
- Retention revenue from current customers renewing their subscriptions
Each of these components is vital to the success of your business.
New customers are the lifeblood of any organization, and understanding how they’re finding you is essential. Expansion revenue from upgrades allows your business to scale quickly and efficiently. And retention is key for long-term success; it’s much more cost-effective to keep an existing customer than to acquire a new one.
When it comes to the SaaS industry, there’s only one way to calculate MRR:
MRR = Number of monthly users x average revenue per user
For example, let’s say you have 50 monthly users paying an average of $100 per month. Your MRR would be:
MRR = (50 x 100) = 5,000
Finding the average revenue per user can be a bit tricky, as it should involve
- The average subscription price
- Any discounts or promotions
- Upgrades and downgrades
Sometimes, companies will calculate gross and net MRR:
- Gross MRR is the total revenue before any discounts.
- Net MRR is the total after all discounts and adjustments have been applied
The more information you can track, the more accurate your MRR calculation will be.
According to data from Nathan Latka, who interviews SaaS entrepreneurs on his podcast The Top, there is a huge gap between median and average MRR. Thanks to their outstanding customer success, some very successful companies are driving the average way up.
In 2020, productivity management company ClickUp was approaching $3 million in monthly recurring revenue after investing heavily in organic growth and customer success. By 2023, they were sitting at $6.7 million MRR and had strong retention and expansion numbers.
ClickUp CEO Zeb Evans explained their strategy:
“Content is certainly king. We create helpful articles for people searching long-tail keywords of competitive information or productivity hacks. We also started with other organic stuff: [posting on] Reddit and Quora still really works, especially for your first hundred customers.”
MRR became a key metric for ClickUp, and they took it seriously. They scaled their customer success team and created content that drove organic growth.
Customer Lifetime Value (LTV) is the estimated value of a customer’s relationship with your business. It considers factors such as how much money they’ve spent on your product or service, how long they remain customers, and their potential to refer other paying customers.
By monitoring LTV, you can understand how worthwhile your customer success efforts are. If LTV is increasing, it’s a sign that customers are happy with your product and want to keep using it.
For SaaS companies, LTV is especially important. Because customers pay a monthly or annual subscription fee, it’s important to have an accurate idea of how much money they will likely spend with you.
With that knowledge, you can make informed decisions about:
- Marketing efforts
- Product development
- Pricing strategies
It also allows you to anticipate customer churn and take steps to prevent it. Acquiring a new customer can be anywhere from five to 25 times as expensive as retaining an existing one, so understanding LTV – and doing everything in your power to increase it – will pay off in the long run.
Calculating your customer lifetime value is relatively straightforward. You simply need to multiply the average revenue per user (ARPU) by the length of time they are expected to remain a customer.
LTV = ARPU x Customer Lifetime
For example, let’s say you have a SaaS product that charges customers $40/month and, on average, they stay with you for 18 months:
LTV = 40 x 18 = $720
This is a general estimate since customer lifetime and ARPU can fluctuate monthly. But it gives you a good starting point for understanding the value of your customers and how to allocate resources accordingly.
When Slack went public in 2019, Anand Vatsya of Medium did a deep dive into their financials. Their customer acquisition cost was ballooning at the time, reaching $7,650. That came hand-in-hand with an average customer lifetime value of $99,000, though, meaning that the company was still making a healthy profit and could invest in growth.
Nearly 40% of the company’s revenue came from “heavy customers,” with annual revenue exceeding $100,000.
The success of Slack and other SaaS companies is a testament to the importance of LTV. By understanding their customers’ needs and providing exceptional service, they increased customer loyalty – and drastically improved their bottom line.
Satisfaction is the first step toward success, and Customer Satisfaction (CSAT) is one of the best ways to measure it. CSAT gauges customers’ satisfaction with your product or service by asking them directly.
After interacting with your product, you can survey customers and ask them to rate their experience on a scale from 1-10, or any other scale you choose.
Regularly conducting CSAT surveys lets you know how well customers are responding to your product and make improvements as needed.
With the SaaS industry always introducing new players to the game, customer satisfaction is more important than ever. Companies need to be able to retain customers and keep them happy in order to remain competitive.
The baseline for satisfaction continues to rise. Salesforce reports that two-thirds of customers say their standard for a “good experience” is higher than ever.
Customer success can’t be accomplished if your business is just hitting the bare minimum of satisfaction, meaning your CSAT measurements should go beyond the basics.
When calculating CSAT, it’s important to take into account the context of each customer’s situation.
For example, if you survey customers new to your product, their responses may differ from those of more experienced users.
You can also use more nuanced questions than “How would you rate your experience?” Ask questions like:
- How easy was it to use our product?
- Did you encounter any problems with the product?
- Would you recommend our product to others?
These will give you more detailed information and help you better gauge customer satisfaction.
When Thinkific migrated its support team to Zendesk, automating help tickets and improving response times, CSAT scores went through the roof. They could put their online education platform in the hands of more customers, and they would stick around longer.
By reaching a 91.7% CSAT score, they could secure new customers, increase their customer retention rate, and show that they could provide a better user experience. Customer success – something Thinkific is dedicated to – had been achieved.
Net Promoter Score (NPS) is a metric linked to CSAT but measures customer loyalty rather than satisfaction. It’s based on a single question: “How likely are you to recommend [product/service] to a friend or colleague?”
While overall satisfaction starts any customer success journey, loyalty is the end goal. A high NPS indicates that customers are not only satisfied but actively promoting your product or service to others.
Raising your NPS score can have a significant positive effect on your bottom line. Referrals are often called the “holy grail” of marketing, and NPS is the best way to measure how likely customers are to refer your product or service.
As competition for a user’s business rises, most customers will fall back on the opinions of their peers. A high NPS can lead to:
- Increased word-of-mouth marketing
- More referrals and organic growth
- Lower customer acquisition cost
- Higher customer retention rates
- Higher customer lifetime value
If there is one statistic that can give a true snapshot of customer success, NPS is it. Unfortunately, it can also be impacted by several variables:
- Customer service quality
- Product performance
- Pricing and value for money
- Ease of use
- User experience design
Knowing this, you should continuously monitor your NPS score to ensure customers are satisfied with their experience. That way, you can identify problems early and take the necessary steps to rectify them before they become bigger issues.
When calculating NPS, there will be three categories customers will be divided into, depending on their response to the question “How likely are you to recommend [product/service] to a friend or colleague?” on a 1-10 scale.
- Promoters (9-10): These are the customers that actively promote your product or service.
- Passives (7-8): These are the customers that are satisfied but don’t necessarily go out of their way to recommend it.
- Detractors (0-6): These are the customers who have a negative experience and would not recommend your product/service.
The NPS score is then calculated by subtracting the percentage of Detractors from Promoters, which gives you an overall score between -100 and +100.
For example, if you surveyed ten customers and their responses were 4-5-6-6-7-9-9-10-10-10, then you would have four detractors (40%), one passive (10%), and five promoters (%50). With the formula
NPS = % Promoters – % Detractors
Your NPS score would be 10 (50%-40%). That number would be considered low, but it’s important to note that the absolute NPS score is less important than how it changes over time.
By routinely tracking NPS, you can get an idea of how customers feel about your product/service and if their opinion is improving or declining.
One thing that can conflate NPS numbers is true advocacy. In 2019, Christina Stahlkopf wrote a piece for the Harvard Business Review that examined public companies like Twitter, American Express, and Burger King.
She found a potential misclassification of advocates and detractors, groups that are not necessarily exclusive.
Burger King, for instance, had an NPS of 30 at the time. Forty-five percent of customers were promoters, and 15% were detractors. But when her company dug deeper, they found that 79% of customers had actually recommended the fast food brand, while just 2% had told others to avoid it.
That “earned advocacy score,” as Stahlkopf called it, was significantly higher than the NPS score.
This is where qualitative customer success metrics come into play. In addition to tracking NPS, it’s important to include qualitative metrics like customer feedback and surveys that can give you more insight into how customers feel about your product or service.
Adoption rate focuses on how quickly users adopt and use your product or service. It measures the effectiveness of onboarding processes, customer support, and other initiatives encouraging users to become active customers.
It also indicates how well customers understand the value provided by your product or service. If adoption rates are low, it may be a sign that you must invest more resources into educating customers about what you offer and why they should use it.
If measuring adoption rate for a new feature or pricing plan, you can also use this metric to gauge customer willingness to accept change.
Adoption rate is especially important in the SaaS industry, where customers must be convinced to use and pay for a product or service continuously.
If you release a new feature, for instance, with a low adoption rate, you’ll need to invest more resources into user education and training. Or, it can be a sign that the feature isn’t what customers need.
With appropriate tracking, companies can identify:
- Which features are being used
- How often they’re being used
- What customers need to become successful
For managers looking to make business cases to invest in customer success initiatives, adoption rate can be a powerful metric.
Adoption rate is typically calculated as a percentage by dividing the number of new customers who have signed up for a product or service by the total number of customers exposed to it.
Adoption rate = New customers / total exposures
For example, a company called “Widget Co.” has released a new product upgrade and has informed 1,000 potential customers. Of that group, 300 have agreed to the upgrade.
Adoption rate = 300/1000 = 30%
The adoption rate, in this case, would be 30%. You can then continue to take note of the adoption rate over time to measure its progress.
There’s no better example of adoption rate driving customer success than OpenAI’s ChatGPT, which reached 100 million users just two months after its launch.
UBS analysts wrote, “in 20 years following the internet space, we cannot recall a faster ramp in a consumer internet app.” On the back of this adoption, OpenAI released a monthly subscription offering, allowing customers to pay for more advanced features and access.
While product excellence is one obvious driving factor in adoption rate, several other things can impact it.
- Effective onboarding
- High-quality customer support
- Educational content and resources
- Net promoter score
- Customer health score
It can also help to look at how customers interact with your product or service. Are they using it often, or are their interactions sporadic? Does usage increase over time, or do users tend to drop off after a certain period of time?
Adoption rate can give you a look behind the curtain for the customer experience, and allow you to better tailor future releases to their pain points.
While the first five can all indicate customer sentiment, churn is the key metric for customer success. It’s a measure of how often customers are leaving your service or product. The lower the churn rate, the more successful your customer retention efforts will be.
Your goal should always be to reduce churn as much as possible by identifying and addressing any issues that keep customers from sticking around. This could include features, pricing, or customer service issues that need to be addressed in order for customers to remain satisfied with your product or service in the long run.
Churn is especially important in the SaaS industry, where customers often pay a subscription model that is a relatively small investment month to month. It’s not uncommon for customers to sign up for a free trial and then never convert into a paying customer, or even cancel after only a few months of use.
By monitoring churn closely, SaaS businesses can determine what factors are causing customers to leave the service and address those issues before they become bigger problems.
There are a few different ways you can calculate churn. The simplest way is to subtract the number of customers at the end of a certain period from the number at the beginning, and then divide that by the total number at the start of that period.
For example, if you had 100 customers in January and 95 in February, your churn rate would be 5%. That means you lost five customers over that month-long period.
But that doesn’t necessarily tell the whole story. You could have lost 75 customers during that period and landed 70 new ones through marketing efforts. A 5% churn rate would be misleading.
So the more effective method is to look at a segmented user base that does not include any new customers.
Then apply the following formula:
Churn = Number of customers lost / Number of customers at the start of period
This will give you an accurate picture of how many users are leaving the service and give you a number to use in forecasting.
For example, if you had 100 customers at the start of a month and 10 left, your churn rate would be 10%.
While the average churn rate for the SaaS industry is 5%, this number can vary wildly depending on a number of factors.
Statusbrew, a social media management platform that works with businesses like Ford, Samsung, and Spotify, wrote a case study on how they achieved a 20% churn reduction.
Some companies can complicate the churn picture, blaming various things for their poor performance. Statusbrew took a different approach, focusing on two simple tasks:
- Figure out why customers leave.
- Encourage them to stay.
While that may sound too simple, it is often easier said than done. Statusbrew opened a new customer success team and implemented a few serious changes. They:
- Integrated live chat
- Redesigned the cancellation page
- Integrated with Slack
- Added an Intercom trigger for canceling customers
- Followed up through email and SMS
These changes, combined with a dedication to better customer service, helped Statusbrew reduce their churn rate by 20% in just one year. It’s a great example of how paying attention to the right metrics can lead to improved customer retention.
Setting KPIs for Customer Success Managers
Even if you know these six metrics should be tracked, you may not know how to set KPIs for customer success teams. Here’s a step-by-step guide on how to set KPIs for customer success:
The first step is to identify your primary goals. What are the ultimate objectives of customer success? It could be:
- Increasing customer satisfaction
- Reducing churn rate
- Improving product adoption
Any of these are valid goals, though it’s best to focus on one or two at a time as trying to implement a strategy that is too broad can lead to confusion and misdirection.
Once you have identified the goal, it’s time to list out all of the necessary tasks that must be completed in order to achieve it.
For example, if your goal is to reduce churn rate, some of the tasks could include:
- Analyzing customer data for common issues and trends
- Reaching out to customers who are at risk of leaving
- Improving product features or pricing plans
- Training customer service teams
- Building a customer education plan
These tasks should have clear objectives and deadlines, allowing your team to track progress and success.
The next step is to set measurable targets for each task. These should be based on the primary goal and should be achievable in a reasonable amount of time.
For example, if your goal is to reduce churn rate by 10%, then you can set a target of reducing it by 5% within the first three months, and then work towards achieving the full 10%.
It is critical to make these goals realistic, as setting unreachable targets can lead to frustration and a lack of motivation on the part of your team.
A single snapshot of your metrics won’t tell you much. You need to track the change in order to get a true picture of customer success.
The best way to do this is by creating a dashboard that can be used to monitor key performance indicators, such as LTV and churn rate, over time. This will allow you to quickly identify areas where more work needs to be done or trends that may indicate changes in customer behavior.
By tracking these metrics on an ongoing basis, you can make sure that your team is heading in the right direction and working towards the goals they have set out.
Don’t hesitate to celebrate and encourage success, but also be willing to learn from failures.
When analyzing successes or failures, ask yourself questions such as:
- What worked?
- What didn’t work?
- How could we improve?
Answering these questions can help you determine what strategies should be kept and which should be discarded in order to maximize customer satisfaction. It’s also important to take into account customer feedback when analyzing successes and failures, as this will provide invaluable insight into how your team is performing.
Final Thoughts
Any company that is committed to customer success should track and measure the relevant metrics and KPIs. Doing so will allow you to gauge how successful your efforts are, identify areas for improvement, and adjust your strategy accordingly.
Remember to use:
- Monthly recurring revenue (MRR)
- Customer lifetime value (LTV)
- Customer satisfaction (CSAT)
- Net promoter score (NPS)
- Adoption rate
- Churn rate
For SaaS companies, these metrics and KPIs are essential to understanding customer success. By setting measurable targets and working with your team towards achieving them, you can ensure that your efforts are paying off and that every customer is getting the most out of their relationship with your business.
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