Given that customer success is critical for the success of any SaaS business, it’s important to measure key customer success metrics.
As a SaaS business, how often do you measure your customer satisfaction score (CSAT)? Do you know your customer lifetime value (CLV)? What about your customer churn rate?
If your customers are able to use your product/service successfully, that’s a good indicator that you’re providing value. If customers are struggling to use your product, that’s a red flag that something needs to be fixed.
But, if you’re not measuring these key customer success metrics, you’re missing out on valuable data that could help you improve your business. You will not know what your customers are thinking and how they feel about your product.
With that being said, let’s take a look at 8 key customer success metrics that every SaaS business should be measuring:
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Customer Effort Score
Customer effort score (CES) is a metric that measures how much effort customers expend to use a product or service.
This metric is important because it’s a good indicator of customer satisfaction. If customers have to put in a lot of effort to use your product, they’re likely to be less satisfied with it.
Suppose you have a customer who is trying to use your product but keeps running into glitches. This customer is going to have a high CES because they’re expending a lot of effort just to use the product. On the other hand, if you have a customer who is able to use your product with ease, they’re going to have a low CES.
Research published in the Harvard Business Review found that 94% of the customers who rated product interactions as ‘low effort’ repurchased the product in the future.
Moreover, 81% of the customers who rated product interactions as ‘high effort’ are likely to speak negatively about the brand and company and may not return to repurchase it again.
So, this metric can have a big impact on customer satisfaction and customer retention. This is because CES can help you predict customer churn.
How to Calculate CES?
Basically, finding the CES typically requires a survey where customers are asked a question.
Customers are asked to rate how much they agree or disagree with a statement (question) about their experience with the product/service. They are provided with a rating scale between 1 and 7 and are often asked to rate how much they agree or disagree with the statement on a scale of 1 (Strongly Disagree) to 7 (Strongly Agree).
The CES is calculated by finding the average score of all the respondents.
Here is an example CES question: “How easy was it to use the product/service?”
Once you have your CES score, you can then compare it to industry benchmarks to see how your company stacks up.
It’s important to keep in mind that a CES score is not a static number. It will change over time as your product and customer base evolves. This is why it’s important to measure CES on a regular basis. Perhaps once every quarter or six months.
Customer Satisfaction Score
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Another important customer success metric is the customer satisfaction score (CSAT).
The CSAT measures how satisfied customers are with a product or service. This metric is based on real-time customer feedback rather than your company’s internal data. Hence, it is a good indicator of customer loyalty.
Customers who are satisfied with your product are more likely to use it and recommend it to others. On the other hand, customers who are not satisfied with your product are more likely to churn.
Basically, your customer satisfaction score comes down to how happy customers are with your company. But there’s more to it than that: you can decide what question(s) to ask customers, what kind of rating scale to use, etc., in order to determine the CSAT as per the industry standards.
How to Calculate CSAT?
Similar to CES, finding the CSAT typically requires a survey where customers are asked a question. So, you need to design a series of questions that will help you gauge customer satisfaction.
Some common questions to ask include:
- How satisfied are you with the product/service?
- How likely are you to recommend the product/service to a friend or colleague?
- How would you rate your overall experience with the product/service?
- Did you find everything you were looking for?
Once you have narrowed down the right question(s) to ask your customers, you need to determine the type of rating scale to use.
The most common rating scales are:
- 1 to 5 scale
- 1 to 7 scale
- 1 to 10 scale
It is advised to offer a neutral option to your customers so that it is easy for you to calculate the average.
After you have collected all the responses, you can calculate the CSAT score by finding the average rating.
Once you have your CSAT data, you will take the positive rating, divide it by the total number of ratings, and then multiply by 100 to get a percentage.
Here’s the formula:
CSAT = (number of positive responses/number of total responses) x 100
Net Promoter Score
Another customer success metric that is gaining popularity is the Net Promoter Score (NPS).
Compared to other customer success metrics, the Net Promoter Score (NPS) relies on data that comes directly from customers. This makes it a more reliable and accurate way to measure customer satisfaction.
Essentially, it looks at the voice of customer data (VoC).
Voice of the Customer (VoC) research allows businesses to understand their customers more fully. When you know your customers’ behavior, preferences, and needs well, you can serve them better and communicate with them more effectively.
Voice of the Customer (VoC) data is critical for contemporary businesses. This type of data can be gathered through many methods and helps to inform nearly every business decision.
- By delving into VoC research, product teams can develop roadmaps for product creation that take into consideration consumer wants, how much they value the potential product and any voids between the two.
- With VoC, sales teams discover how to address customer concerns and objections efficiently.
- By using VoC, support teams are able to resolve customer problems before they even occur.
So, the NPS is a metric based on customer feedback that allows you to gauge customer satisfaction.
The NPS is calculated by asking customers how likely they are to recommend your product or service on a scale of 0 to 10.
Based on their responses, customers are divided into three groups:
- Promoters (9-10)
- Passives (7-8)
- Detractors (0-6)
Once you have gathered all the responses, you can calculate the NPS score by subtracting the percentage of Detractors from the Promoters.
How to calculate Net Promoter Score?
Essentially, NPS is a value that falls between -100 and +100. You can calculate it by surveying your customers, then taking the difference between the percentage of promoters and detractors.
Here’s the formula:
NPS = % Promoters – % Detractors
Please note that the NPS calculated will be denoted in number and not in percentage.
Customer Churn Rate
Churn rate is defined as the percentage of customers who stop doing business with a company over a certain period of time, essentially a month.
It is important to track customer churn rate because it can give you insights into what is causing customers to leave and how you can improve your product or service.
There are two types of customer churn:
Voluntary churn – when customers cancel their subscription or contract
Involuntary churn – when customers are removed from the service due to non-payment
While there are many ways to calculate customer churn, it can be calculated by looking at the customers you’ve lost or how much money those customers could have generated.
Here, the term ‘lost’ needs to be defined as per your company’s metric. For example, a customer is considered lost if they haven’t used your product in the past 30 days or if they’ve canceled their subscription.
Once you have this information, you can begin to calculate the customer churn rate.
How to calculate the customer churn rate?
Calculating this metric is relatively simple and only requires two numbers:
- The customers at the beginning of the period
- The customers at the end of the period
Divide the customers at the end of the period by the customers at the end of the beginning and multiply the total by 100. This will give you the churn rate.
Customer Churn Rate = (customers at the end of the period/customers at the beginning of the period) x 100
Customer Retention Cost
Customer retention cost (CRC) is the total revenue that a company spends to keep its customers over a period of time.
This metric is important because it can help you understand how much it costs to keep your customers and whether or not it is worth investing in customer retention initiatives.
There are a few benefits of measuring the CRC metric for a SaaS business.
- For starters, it can help you identify areas where you are losing money on customer retention and make changes accordingly.
- Moreover, measuring CRC can help you benchmark your performance against other companies in your industry.
Suppose your customer churn rate is 10%, and it costs you $100 to acquire a new customer. If you have a retention rate of 90%, your customer retention cost would be $10. This means that it costs you 10 times more to acquire a new customer than it does to retain an existing one!
How to calculate customer retention cost?
When you are trying to calculate CRC, there are two things that you need to take into account:
- How much it costs to successfully retain a customer (this includes the cost of retention teams and initiatives)
- Total number of active customers you have
You take these two pieces of information and just divide the total annual cost by the number of active customers. This will give you your customer retention cost.
CRC = Total Annual Cost of your Customer Success / Number of Active Customers
Customer Retention Rate
The customer retention rate lets you know what percentage of your customers come back to do business with you again over a given period. In other words, from one month to the next, quarter or year, how many of your customers are still coming to you for their specific needs?
This metric is important because it can give you insights into how successful your customer retention efforts are and whether or not you are retaining more customers than you are losing.
For example, if your customer retention rate is high, it could mean that your product or service is valuable to your customers, and they are satisfied with what you have to offer.
On the other hand, a low customer retention rate could indicate that your product or service is not meeting the needs of your customers or that they are not happy with your company for some reason.
How to calculate customer retention rate?
Calculating CRR is pretty simple and only requires the following:
- Total customers at the beginning of the period
- Total customers at the end of the period
- Total number of customers acquired during that specific period
To calculate customer retention rate, subtract the total number of new customers acquired in a given time period (say 3 months) from the total number of customers you had in the given time period (3 months). Divide the result by the total number of customers your business had at the very beginning (start of the 3-month journey). Finally, multiply the answer by 100, and you will get your customer retention rate for that specific time period (3 months).
Customer Retention Rate = (Customers at the End of Period – New Customers at the End of Period) / total customers at the start of the time x 100
Repeat Purchase Rate
The repeat purchase rate is a metric that measures the percentage of customers who come back to make another purchase from your company within a given time period.
Say, for example, that you have a customer who buys a product from you today and then comes back to buy the same product again 6 months later.
This customer would be counted as someone who made a repeat purchase, and their purchase would contribute to your RPR.
The repeat purchase rate is important because it can give you insights into how often your customers are coming back to buy from you.
If your RPR is high, it could mean that your products or services are valuable to your customers and that they are satisfied with what you have to offer.
How to calculate repeat purchase rate?
To calculate your RPR, you will need:
- The number of customers who made a repeat purchase over the course of a given period
- The total number of customers you have over the same time period
Both of these numbers are often based on annual insights, but you can measure and analyze them however frequently makes the most sense for your company.
Take these numbers and divide them to get your RPR.
RPR = number of customers who made a repeat purchase over a given time / number of customers you have over the same time period
Customer Lifetime Value
Customer lifetime value (CLV) is a metric that measures the total revenue that a customer is anticipated to spend with your company over the course of their relationship with you.
In other words, it estimates how much revenue you can expect to generate from a single customer before they move on to another company.
For example, if you know that each customer has a high CLV, you may be more likely to invest more in marketing and acquisition efforts to attract new customers.
Suppose you have a customer who buys a product from you for $100 today and then comes back to buy the same product again 6 months later for $120.
This customer would have a CLV of $220.
How to calculate customer lifetime value?
To calculate customer lifetime value, you need to know three things:
- The average purchase value (APV) of your customers
- The average number of purchases your customers make over their lifetime
- The average retention time of your customers (how long they stay with you before moving on to another company)
With these numbers in hand, calculating CLV is pretty simple.
CLV = (annual revenue per customer x average retention time of your customer) – customer acquisition costs
How to Improve Your Metrics?
Now that you know how to measure customer success, it’s time to start thinking about ways to improve your metrics.
There are a few key things you can do to improve your customer success metrics:
Offer Great Customer Support and Service
Improve customer satisfaction by ensuring that your products or services are high quality and meet customer needs. For example, you can improve customer satisfaction by offering a money-back guarantee or by providing excellent customer service. It is advised that you use technology and automation to your benefit when managing customers.
There are plenty of customer management tools out there that can help you keep track of customer interactions, feedback, and support requests. At SaaS Genius, we have listed and reviewed some of the best Customer Management Tools in the market. You can explore and find the one that fits your needs.
Offer Discounts and Promotions
Boost repeat purchase rates by creating loyalty programs or offering discounts to customers who make multiple purchases. For example, you could offer a discount on the second purchase or give loyalty points that can be redeemed for future purchases.
Communicate with Your Customers
Make sure you are regularly communicating with your customers to get feedback and ensure they are satisfied with your products or services. For example, you can reach out via email, social media, or phone. Additionally, consider using customer surveys to gather feedback.
How Do You Measure Customer Success?
There are a few key things you need to do to measure customer success.
- First, track customer engagement with your product or service. This can be done by measuring metrics such as time spent using your product, number of features used, or number of support tickets filed.
- Second, measure customer satisfaction with your product or service. This can be done by collecting customer feedback and conducting customer surveys.
- Finally, track customer retention rates. This can be done by measuring how long customers continue to use your product or service and whether they make repeat purchases.
By tracking these key metrics, you’ll be able to get a better understanding of how well your products or services are performing and where there is room for improvement. Additionally, you’ll be able to identify any potential issues that may be causing customers to churn.
What to Do if You’re Not Meeting Your Goals?
If you find that you’re not meeting your customer success goals, don’t despair! There are a few things you can do to get back on track.
- If you see that customers are spending less time using your product or service, try to identify the reason why. It could be that your product is too complex or that it doesn’t meet customer needs. If this is the case, make some changes to improve the user experience.
- If you see that customers are unhappy with your product or service, try to identify the reason why. It could be that your product is buggy or that customer service is poor. If this is the case, make some changes to improve the quality of your product or service.
- Finally, if you see that customers are churning, try to identify the reason why. It could be that your product is too expensive or that it doesn’t meet customer needs. If this is the case, make some changes to improve the value of your product or service.
By taking these steps, you can get back on track and start meeting your customer success goals.
Customer success is vital to the success of any business, yet it can be difficult to measure. By tracking key customer success metrics, you can get a better understanding of how well your products or services are performing and where there is room for improvement.
Additionally, you’ll be able to identify any potential issues that may be causing customers to churn. If you find that you’re not meeting your customer success goals, don’t despair!
It could mean that you are executing things very well, but customers are not using the product as you had intended. This could be an opportunity to improve your product or service to better meet customer needs.