4 Ways To Measure Customer Engagement In SaaS That Will Help Improve Retention, Expansion, and Advocacy
Why is it important to measure customer engagement in your product? For SaaS companies, this can help to get insights into customer interactions with your product and brand which tells you what brings value to your customers.
You can use these insights to proactively deploy in-app experiences to relevant customers and increase retention, customer lifetime value while reducing customer churn and improving customer experience overall.
In this article, we’ll go over what customer engagement is, why you should measure it and how plus some of the top metrics to track.
TL;DR
- Customer engagement refers to repeated interactions that users have with your product or brand across their user journey.
- Measuring customer engagement helps improve retention, account expansion, and product advocacy.
- Segment users with low engagement to create in-app experiences that increase engagement and improve retention.
- Identify opportunities to prompt users to get upgrades and purchase add-ons.
- Measure customer engagement by month, week, or day to find out how many users return to your app over time.
- Measure by acquisition channels to find the channel that leads to your most profitable users with the lowest CAC.
- Track engagement by feature usage to identify the features users value.
- Use customer engagement scores to get an indicator into low or high engagement per user that can indicate potential churn
- Some of the top metrics to measure when tracking customer engagement include core action use, stickiness, NPS, user activation rate, and product adoption rate.
- Use a tool like Userpilot to build engaging experiences in-app- Get a demo and see how!
What is customer engagement?
Customer engagement is the repeated interactions that a customer has with your product and brand across the entire user journey.
It is usually measured in frequency and number of engagement touchpoints.
The more features customers engage with, the more chances of them becoming product advocates and recommend your product. Such customers are likely to stay around longer hence increasing their lifetime value (LTV) and product adoption.
Customer engagement is different from one product to another depending on the type of product and user use cases. In spite of that, these two things are true:
- It involves users repeatedly taking meaningful actions in your product.
- Users who are highly engaged are the most profitable. A study by Gallup showed that fully engaged users represent a 23% premium in wallet share, profitability, revenue, and relationship.
Engagement, therefore, determines how indispensable your product is to users. Understanding how your app creates value is important to boosting engagement.
Why measure customer engagement for SaaS?
In general, measuring engagement gives you a lot of insights into three key areas: retention or churn, account expansion, and product advocacy.
For SaaS companies, the quality of the product is the true differentiator. When users don’t engage with your product, it means they are not benefitting from it and will possibly churn.
If they are very engaged, it shows they are satisfied customers that will possibly stay on for longer.
When new users are not finding your product useful, they might not even get to become paying customers. This is why you should also measure engagement for freemium accounts and free trials too.
Let us break down some benefits.
1. Improve retention
Are customers likely to stay or churn?
Each customer engagement metric can provide insights into why customers churn (we’ll talk about user engagement metrics in a bit).
In SaaS, this is strongly impacted by the activation rate. You want more users to not only see the value by getting to the Aha! moment, but also experience the value and activate. This means repeated engagement brings more value and gets users to adopt your product, improving your retention and getting them closer to becoming product advocates.
Measuring user engagement tells you how many users perform meaningful actions in your product or and are on the right path to activation.
Tracking engagement can tell you if your customer engagement strategy is working or not.
2. Improve account expansion
Account expansion is the practice of creating increased value for customers, and as a result, generating more revenue from the customers you already have.
You can achieve account expansion through upselling, cross-selling, and creating add-ons in your product.
Engagement metrics provide insights into specific user actions that might indicate their changing needs within your product and inform your customer engagement strategy.
Users with changing needs are great candidates for account expansion. You can upsell advanced features that address their need at that particular point.
For instance, in the image below Loom prompts users to upgrade to a feature that cleans videos immediately after users finish recording:
Another example is Intercom. When users want to add a visual builder element that is not included in their current plan, Intercom uses a tooltip to explain to the user the value of the element and then prompts the user to upgrade.
By tracking how their customers engage with the product, both Loom and Intercom are able to show upgrade messages at the right time when users might find value in the advanced features.
This reduces upgrade friction and improves account expansion.
3. Improve product advocacy
Customer engagement metrics provide insight into happy users that are more likely to become your product advocates.
These users are in the later stages of the user journey and have experienced value with your product over and over again. They are likely to give you valuable feedback and even write reviews advocating for your product.
Tracking NPS and other customer satisfaction pointers will help you identify your promoters. Users with higher NPS scores are more likely to become advocates of your product.
Ask these users for product reviews as shown in the image below.
In a nutshell, measuring engagement is important for identifying user behavior patterns.
Segmenting users according to their roles, size of the team, and jobs to be done provides insight into product usage by different users. Run A/B experiments to find out what drives more engagement in heavily used parts of the product. Use this data to improve future product design.
In Userpilot, easily set experiment goals and run A/B tests without writing any code as shown in the image below.
Finally, tracking customer engagement also provides reliable history to the support team. When users contact support, they can get help based on how they had been engaging with the product.
How do you measure engagement?
You can measure engagement using the following four ways:
- by month, week, or day: Know if your product is successfully creating loyal users over time.
- by channel: Find the acquisition channels that bring in your most profitable customers.
- by feature usage: Identify invaluable features for your users to guide product development efforts.
- by customer health score: Predicts the likelihood of getting a selected outcome from a customer based on engagement.
Let us discuss each of these ways in further detail below:
1. Measure engagement by month, week, or day
You can measure user engagement against set periods of time.
For example, how many loyal users your product is creating over a day, week, or month. These can be categorized as follows:
- Daily active users (DAU): This refers to the number of users that log in to use your product every day.
- Weekly active users (WAU): This is the number of users that use your product every week.
- Monthly active users (MAU): The number of users that use a tool every month.
Which one of the three above should you use to track engagement? It depends on how you expect people to use your app.
However, in relation to each other, the DAU, WAU, and MAU provide a percentage metric to measure the proportion of users engaged in your app over specific periods of time.
For instance, the DAU:MAU ratio informs the proportion of your monthly users who use your product in a 24-hour period.
Why is this important? The DAU:MAU ratio is also referred to as the stickiness ratio. It helps you understand the value of your product by measuring how often users return to your app.
A high stickiness ratio means customer engagement within your product is high.
However, it is important to note that while the DAU:MAU ratio gives you insight into engagement and retention, it does not consider users that churned. For a comprehensive analysis of retention, churn, and growth, use cohort analysis.
2. Measure engagement by channel
Most companies acquire users through more than one channel. Without measuring engagement by channel, it is hard to tell which channel brings you the most profitable users with the lowest CAC too.
Let’s say you are acquiring users through the following channels:
- Organic leads
- Lead nurturing
- Referrals
- Affiliate
Group each of the acquisition channels above into four different cohorts, measure engagement over time and do cohort analysis to find your most engaged users.
If you find that users acquired by affiliate marketing are more engaged in your product, hence more profitable, focus your acquisition efforts on this channel to acquire even more users.
This leads to increased customer retention which is key for SaaS companies as shown in the stats below.
High retention lowers your CAC overall because you are no longer spending resources on less productive acquisition channels.
3. Measure engagement by feature usage
Measuring engagement over time and by channels gives you an overview of the whole product core user actions. However, you also need to understand what users value about your product to inform future development efforts.
This is why measuring which features customers engaged with is important.
Knowing which feature received more engagement over a specific period would help you direct resources to improve that feature further.
Pick out feature usage patterns to understand the reasons behind the high usage of certain features. This insight can provide lessons to improve on the features with low usage.
Userpilot makes feature usage tracking quite easy. Quickly tag features using UI elements without writing any code and automatically track how users engage with them.
Feature tagging on Userpilot helps you track customer engagement on a feature-by-feature basis and identify who your engaged vs disengaged users are. You can then use these analytics and create in-app experiences to drive more engagement and increase feature usage.
4. Measure engagement with the customer engagement score
A customer engagement score is an engagement measurement based on customer behavior. It’s calculated based on core user actions, or inactions. In other words, every time a user performs a core action you assign points and then subtract points if they haven’t performed the core action in the given time frame.
Core user actions will vary based on your product and user persona but you should consider tracking and assigning a specific number of points for each based on its importance when looking to understand if a customer is engaged or not.
Here are some examples of core actions:
- engagement with a core product feature
- engaging with your in-app surveys
- customer satisfaction score
- net promoter score (customer loyalty)
- product upgrades and renewals
- support tickets opened
Once you decided on the core actions you will track and assigned points to each, decide on the categories you want to use to determine which are your engaged customers and which are a churn risk.
- a negative score= risk of churn
- a score between 1–40 = very disengaged
- a score between 41–70 = somewhat engaged
- a score between 71–100 = highly engaged and satisfied
- a score above 100= power users
Measuring customer engagement: Top customer engagement metrics
User engagement metrics are the main data points that help you to measure users’ interactions with your product.
Here are five metrics that are important for SaaS:
- Core action use — helps to measure how often users use one of your major features. Measure core action use by calculating the mean number of key actions per user or the average time between each key action per user.
- Stickiness — the number of daily active users divided by your monthly active users (DAU/MAU).
- NPS — Run NPS surveys to figure out how users feel about your products and what needs to improve.
- User activation rate — the number of users activated, divided by the total number of new users who signed up in a given time period, divided by 100%.
- Product adoption rate — measures the percentage of users that use all your features.
Conclusion
Measuring engagement is crucial to determine how much value users get from your product. You can measure engagement by time period, acquisition channel, feature usage, and customer health score.
Already tracking engagement and want to boost your numbers by engaging with your users in-app? Book a Userpilot demo and get started!
