How important is customer success KPIs to your SaaS business?
The corporate world is becoming increasingly dependent on data and analytics to make informed business decisions. Customer success metrics help you analyze how effectively you help customers gain value from your SaaS product.
When measuring customer success metrics, it’s never only about the results. KPIs tied to customer success initiatives help identify weaknesses in strategies so that you don’t have to waste time and resources on the wrong ones.
Let’s look at the most important customer success KPIs for your SaaS product.
- Key performance indicators are metrics that are directly tied to your organization’s specific objectives and measure progress towards said goals.
- Customer success in SaaS is the mindset and collection of strategies that help customers receive continuous value from your product, even in the long run.
- Tracking the right customer success metrics allows you to respond proactively to customer needs and keep users on the road to success.
- The right metrics help increase retention and customer lifetime value, maximize upselling opportunities, and increase customer loyalty and drive word-of-mouth.
- Tracking customer success KPIs at each stage of the user journey helps you see where customers leave and improve the customer experience at those points.
- The most important stages you should focus on are primary onboarding, trial to paid conversion, retention, and expansion.
- The 7 essential customer success KPIs that will help you retain loyal customers, regardless of your industry/product are: customer health score, customer satisfaction rate, churn rate, customer lifetime value, retention cost, Net Promoter Score, and expansion revenue.
What are key performance indicators (KPIs)?
Key performance indicators refer to metrics directly tied to your organization’s specific objectives. These objectives are based on your overall business strategy.
Therefore, KPIs can measure progress toward gaining strategic objectives, making them essential for success in the long run.
Moreover, KPIs are vital inputs for improvement. When you track your progress toward strategic goals consistently, it becomes easier for you to address your weaknesses and maintain your strengths efficiently.
Key performance indicators must be quantifiable and empirical.
What is customer success in SaaS?
Customer success refers to the strategies and methods used to enable customers to achieve value from your product or service.
Customer success in SaaS, however, is a mindset and collection of strategies needed to help customers gain value from your product or service.
A customer success team takes a proactive, relationship-based approach to address customer pain points before customers even realize them.
What distinguishes customer success in SaaS from customer success in other industries is that it concentrates on digital user experience that requires a customer success team to have more critical thinking skills and intuition.
Overall, customer success ensures that your customers are successful, consequently leading to organizational success.
Why do SaaS businesses need to pick the right customer success KPIs?
All businesses need to make sure that their customers are happy. If customers’ perceived value of your product does not align with what you charge them, they are more likely to churn. It’s especially critical for subscription-based businesses since they depend on customer retention to earn more profits.
Tracking the right customer success metrics lets you act proactively and ensure your customers are on the right path to success.
Tracking the right metrics allows you to:
#1 — Increase retention and customer lifetime value
Your customers won’t stick around if they struggle with your product. Existing customers must be able to achieve value from your product to stay happy continuously.
In SaaS, happy customers turn into long-term customers who improve all the important metrics that ensure good health for your business. They reduce churn and improve customer lifetime value. An in-app resource center and/or quick support via live chat is necessary so that customers can get answers no matter where they face problems on your site.
#2 — Maximize upselling opportunities
When the value of your product meets, or even better, exceeds customer expectations, it provides a great opportunity for having customers who are willing to pay more. It helps you upsell to happy customers so that they purchase a higher-end version of your product and achieve even greater value than they originally signed up for.
Maximizing the value your customers receive also maximizes the value you gain from them in return.
#3 — Increase customer loyalty and drive word of mouth
When your customer success efforts result in more happy customers, it inspires brand loyalty. Loyal customers tend to become advocates for the product.
These happy customers are significantly more likely to recommend your product to other people, resulting in much-needed word-of-mouth marketing.
How does SaaS measure customer success KPIs?
Measuring customer success in SaaS is equivalent to keeping track of whether your existing customers progress and get value from your product continuously or get stuck on their customer journey.
You need to track the conversion KPIs at every stage to check where customers leave and make sure you improve the user experience at each point and your customers stay on the path of becoming advocates.
Below are some of the stages of the user journey that your customer success strategy should focus on.
The primary customer onboarding period is one of the most important times in the SaaS customer lifetime. This is the period when customers decide to buy your product and start gaining value from it or drop off forever.
You must focus on providing a good onboarding experience from the first moment of value. Beginning from the signup flow, you should have a welcome screen and other options so that customers can interact with your customer success team.
The first few moments would determine whether your customers will have a great experience that will lead to their Aha! Moment (the moment users realize the value of your product) and activation.
Or, they may have a poor experience and decide to leave your product even before their user journey really began.
One key point you need to keep in mind is that every SaaS product is unique and your onboarding flow should reflect that. Moreover, you should create user segments and figure out the Aha! Moment and activation point for each of them.
You can use primary onboarding as a benchmark for early customer success to determine the users who leave or convert into paid customers.
There are onboarding tools that allow you to create product guidelines without any coding and with minimum effort.
Here are a few ways to measure your customer success efforts during onboarding.
Using a product adoption tool, your customer success team can set goals and milestones that your customers must achieve to gain success.
Then you can build in-app guidance flows so that users engage with your product and experience value.
With a tool like Userpilot, you can:
- Create checklists, interactive product tours, tooltips, and more to drive in-app customer engagement.
- Create custom goals to track the success of your customer success strategy.
Trial to paid conversion
SaaS companies generally use free trials to attract more users and offer them a value preview before converting to customers.
The trial to paid conversion rate is a metric that helps you determine whether your product provides real value to users and makes them willing to pay for it. The higher this rate, the lower your acquisition cost, and the quicker you grow.
With a high trial to conversion rate, together with a high retention rate and a low CAC: LTV (customer acquisition cost: customer lifetime value) ratio, you’ll get a highly sticky product.
Switching from free plans to paid subscriptions is a strong sign of customer success. When you analyze trail conversion data, you can segment it into multiple user demographics like age or location.
This lets you identify the users who converted at the highest rates and their use cases, such as agency vs. individual users.
Retention and expansion
Once your customers decide to stay and pay for their first month, you shouldn’t believe that you’ve achieved customer success. They need to continue receiving value from you to keep renewing their subscription.
On top of sticking around, when customers begin upgrading their subscription or paying for add-ons, it translates into the fact that their business is growing. Continuing to use your product means that you’ve contributed to their success.
Now let’s look at some specific customer success KPIs you can track.
7 Essential customer success KPIs to track
Measuring customer success is not always a straightforward process. The importance of customer success metrics varies according to business focus.
These are the 7 essential customer success KPIs needed to drive customer success, regardless of your industry/product.
- Customer health score
- Customer satisfaction score (CSAT)
- Customer churn rate
- Customer lifetime value (LTV)
- Customer retention cost
- Net Promoter Score (NPS)
- Expansion revenue.
1. Customer health score
Customer health score is a metric used to score customers based on how likely they are to stay consistent, grow, or churn. When monitored properly, it allows customer success teams and leaders to find out risks proactively and tackle them to prevent unhappy customers.
For instance, you can identify existing customers at risk of churning and take actions to avoid it.
How to calculate the customer health score
Determine key customer actions that affect customer health scores based on the user segments and the goal of the score. After determining the actions, assign a score to each of them depending on its importance to the user persona and your product.
Once you’ve attached an impact score to each action, record the number of times a user takes that action over a certain period.
For example, the image above shows that key action #1 has an impact score of 4 and an action frequency of 17. Thus, the total action value is 4*17=68.
Finally, the formula is:
Customer health score = total action value #1 + total action value #2 + total action value #3 + …
Then build a customer health scale according to the socre.
- negative score = very sick (at high risk of churn)
- 1–40 = sick
- 41–70 = somewhat healthy
- 71–100 = very healthy
- above 100 = thriving (power users who you can expect to upgrade).
2. Customer satisfaction score (CSAT)
Customer satisfaction score (CSAT) is an on-the-spot metric for measuring customers’ experience and satisfaction levels with a particular feature, product, or team interaction.
You can measure it at multiple touchpoints in the user journey to understand the overall customer satisfaction level with your product.
How to calculate customer satisfaction score
The above is a customer satisfaction survey, where users can rate their experience on a scale of 1 (worst)-7 (best).
You can conduct this survey by asking one of the following questions:
- How satisfied were you with your experience/the waiting time today?
- How helpful was this answer/tech support session/article?
3. Customer churn rate
Customer churn is the number of customers you lose within a specified period (usually a month).
Examples of churn include canceled subscriptions, loss of recurring value, loss of a recurring contract or business, and closed accounts.
You should keep separate metrics for tracking users who stop paying and downgrade to freemium accounts because you have a greater chance of getting them back. When the churn rate gets too high, it indicates that you need to take action.
How to calculate customer churn rate
Divide the number of customers lost during a specific period by the number of customers at the beginning of that period. Then multiply the result by 100 to obtain the churn rate.
4. Customer lifetime value (LTV)
Customer lifetime value is the average amount of money a business earns from a user over the period they are a paying customer. Increasing the lifetime value increases the overall profitability of your product.
In SaaS, most of the profit comes not from a single transaction but repeated subscription payments. The longer your customers stay, the more money you earn per subscription, the lower your costs per customer, and the higher the lifetime value.
How to calculate the LTV
The lifetime value equals the average revenue per user account divided by the customer churn rate.
If you spent $500 on acquiring customers and then spent $1200 on customer service, it doesn’t matter much if you earn average revenue of $2,000 per customer.
5. Customer retention cost
Don’t mix up retention cost with retention rate.
Customer retention cost refers to the financial investment your business needs to retain each customer.
It’s useful to measure this customer success metric because:
- It measures the impact of customer success and related efforts to retain customers. This way, customer retention can outrank operational costs.
- It lets you understand whether the lifetime value justifies the amount you invest in retention and customer success.
In short, customer retention cost lets you know whether your customer success strategy is working out.
How to calculate the customer retention cost
You need two things to measure customer retention costs:
- The total annual expenditure for retention and customer success teams and initiatives
- The number of existing active customers.
Customer retention cost, in dollars, is the total annual cost divided by the number of active customers.
6. Net Promoter Score (NPS)
Another way of measuring customer satisfaction is the Net Promoter Score (NPS). It is a measure of user sentiment on your product and how likely users are to recommend it to others, on a scale of 1–10.
It gives you both quantitative and qualitative customer feedback. An NPS survey is usually followed by a question asking users to give explanations for their score.
This way, you get valuable customer feedback and address issues in the customer experience accordingly.
How to calculate the NPS
The net promoter score can lie anywhere within -100 to 100 based on your promoter-detractor ratio. Below is an example of an NPS survey that uses a range of 0–10.
The Net Promoter Score is equal to the difference between the percentage of promoters and the percentage of detractors.
Detractors are people who give a score of 6 or lower who are not likely to recommend your product because they’re not getting value from it. Resolving the issues of detractors helps reduce churn.
Passives are those who give 7–8 in the NPS survey. Since they are overall satisfied but not very keen on your product, you can convert them to promoters by helping them reach their Aha! Moment.
Promoters, with a score of 9–10, love your product, are loyal to it, and are likely to become advocates. You can build on your strengths by finding out what they like about your product the best.
7. Expansion revenue
Expansion monthly recurring revenue (MRR) is the additional revenue earned from existing customers via upsells, add-ons, and cross-sells.
When the expansion MRR rate increases the churn rate, it means you’ve earned more money than you lost in a specific period, and you reach negative churn.
It’s more important to keep existing customers satisfied than acquire new customers. Focusing on expansion revenue allows you to increase your profits as well as ensure happy customers with an improved lifetime value.
How to calculate expansion revenue
Subtract expansion MRR at the start of the month from expansion MRR at the end of that month. Divide the result by expansion MRR at the start and multiply the value by 100 to obtain the expansion MRR rate.
Some SaaS companies also consider reactivated subscriptions when they calculate expansion MRR. But it’s important to account for only the revenue generated via cross-sells, upsells, and add-ons.
All the customer success metrics discussed in this article are correlated with achieving customer success and thus retaining more users. Tracking and responding to these KPIs will let you identify and address your weak points in your customer success efforts while simultaneously building on your strong ones.
Userpilot enables SaaS businesses to create products that perfectly align with individual customers’ needs so that they continue receiving value from their products. And happy customers lead to loyal customers.
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