Customer retention is the most valuable metric for SaaS companies to follow.
If your churn rate is high and users aren’t coming back to your platform, your product will not grow – not in Daily Active Users nor in revenue.
A few years back, all the buzz was about user acquisition, but as the industry matured, the focus shifted into user retention.
This is why the role as a Success Manager has acquired notable momentum in the past few years.
As Jason Lemkin pointed out at the Gainsight Pulse Conference: “Customer success is where 90% of the revenue is”.
“As the SaaS industry matured, the companies matured, founders and investors matured, and the focus on customer acquisition shifted to customer retention.”
If you think about it – it makes total sense. User acquisition is a big challenge for most companies, but getting people to use your product is just the first date – you now need to build a long lasting relationship if you want to see your MRR (Monthly Recurring Revenue) increase.SaaS Customer Success metrics - What to measure to drive growth Click To Tweet
What is customer success
The term Customer Success (not to be confused with Customer Support was originally coined by Salesforce.
Here’s how some of the top leaders in the field define customer success:
Lincoln Murphy (Storm Ventures, Sixteen ventures):
Ensuring your customers achieve their desired outcome through the use of your product or service.
Margot da Cunha (Wistia):
“To go above and beyond to ensure your customers are actively working towards their goals and that they will be happy with the service provided.”
Petr Pinkas (Feedly)
“I see the role and mission of a customer success worker as a system to find all the possible ways to make the customer successful. I don’t see it only from the perspective of excellent customer service. Making sure everything in the process goes smoothly should also be taken into consideration – including onboarding, marketing, sales, company culture, etc.”
Angela Chisholm (InVision)
“As a customer success manager, my role is to educate and work alongside our enterprise customers to best integrate InVision into their product design process.”
'Ensuring your customers achieve their desired outcome through the use of your product or service' Click To Tweet
Even though each Customer Success Manager has their own tweak to the original term, they all have one thing in common – it’s about making the users accomplish their goals and delight them with an optimized experience.
If you want to put it into day-to-day responsibilities, Chargify does a good work in breaking down the main comprehensive points:
Driving growth with CS – What Customer Success metrics should you follow?
Customer Success requires involvement in many different areas of the product-user relationship that can impact both retention and revenue.
So how do you decide what to measure? What KPIs would you attach to be able to determine the success of your CSM’s work?
7 metrics you should track to audit your CSM.7 Metrics every Customer Success Manager must track to grow a product Click To Tweet
RJmetrics, (who developed this cool tool to measure churn and its impact) described churn as: “The amount of customers or subscribers who cut ties with your service or company during a given time period. These customers have “churned.”
In other words – Churn is the percentage rate at which customers stop subscribing or quit paying you.
Why should you track churn as part of your customer success related metric? The logic is simple. The main role of a customer success manager is to make sure the users are happy with your product. A happy user will keep using your product.
You should consider the fact that if you have CSMs but they don’t have a valuable position or authority over the product’s feedback, it will be hard for them to do their job properly. Because no one can save a product without the authority to do so.
There are many different formulas to calculate your churn rate and each company uses a slightly different one.
The most simple churn calculation is Lost Customers over a Time Period / Customers at the beginning of the Time Period:
15 churned customers this month, 500 customers at the beginning of the month will be calculated as such:
15/500 = 3% churn.
If you’d like to get more examples of how you can measure the churn rate, you can try Andrew Chen’s template, MRR and Cohort analysis for free here (It’s gated with email though) – http://andrewchen.co/the-easiest-spreadsheet-for-churn-mrr-and-cohort-analysis-guest-post/
Or go more in-depth with Close.io’s “SaaS metrics: The no-BS guide to understanding churn”You should measure Average Revenue per User, but also Median Revenue per User. Here’s why and how. Click To Tweet
Subscription Renewal Rates
Knowing your subscription renewal rates is key to predicting the stability of your yearly revenues and building predictions for the future.
More importantly, your renewal rate is a sign of what your users think about your product.
Assuming your product is good, low renewal rates could mean that you’re either not communicating your product’s value well enough or that you’re not exposing them to its benefits.
There are many ways to improve your renewal rates.
A high renewal rate indicates better products and stickier customers, which directly translate to more predictable revenue and lower customer acquisition costs.Low renewal rates can mean your product is not making real impact on your user’s life: Click To Tweet
Net Promoter Score
Net Promoter Score (NPS) is a way to measure customer’s happiness.
The NPS is the percentage of customers who would recommend you to their friends, coworkers, and family.
It can be a quick survey that asks your users one simple question: “how likely are you to recommend this product?“
For the survey, you’d want them to answer on a scale between 0-10.
Here’s how Wootric recommends you analyze the results.
“Anyone who scores above an 8 is a “promoter”, those who score between 7 and 8 are “passives”, and scores lower than 7 are “detractors”.”
The process can be done in two ways:
- You can run the survey manually through well-segmented emails, reaching out and replying to each email you get.
- Use an NPS management tool – usually, an add-on that sits at the bottom of your email that lets people vote and then processes the replies in a dashboard.
If you choose to go with the first option, here’s a formula you can use to measure your NPS:
NPS = % Promoters – % Detractors
New to Net Promoter Score? Here’s the intro you need to know (including formulas) Click To Tweet
Referral & Recommendation Rates
It is very similar to the essence of the NPS, except it is based on actions. How often do your users recommend your product to other users?
This can be done organically, through an active campaign or a referral program (think Dropbox).
If your users are happy with your services and keep paying for it, but they don’t recommend it to anyone else, it might mean that your product has no meaningful impact on their lives.
Making your product’s experience meaningful in your user’s lives is a big part of your CSM’s role.
Measuring it can give you many insights on how your users perceive your product and how you fit into their lives.
Onboarding Success Rate
The onboarding process is broader than what most product managers usually account it to be.
The onboarding process is probably the most critical time for new users.
For SaaS products, it’s the first 30-90 days that either hook your customers or make them leave.
The first 1-3 months are the most crucial for educating your users about how they can benefit from your product, how they can use it and how is it going to help them achieve what they want.
A successful onboarding process can guarantee you a long LTV which also means better CAC.
But how should you measure your onboarding success metrics? GrooveHQ suggest this technique:
“First define what behaviors correlate to onboarding failures and successes for your product. Companies like GrooveHQ send new customers a series of onboarding prompts, and they’ve noticed that free users who complete those prompts within 24 hours are almost 80% more likely to convert to paid customers than those who don’t.
Once you’ve identified your onboarding success metrics, start tracking, and put benchmarks in place.
And, finally, show your improved metrics. Even better, take the next step: correlate successful onboarding with Lifetime Value to estimate the dollars-and-cents ROI of your efforts over the long-term”
Adoption rates refer to the number of users who became “pro” in using your product.
The more experienced a user becomes with your product, the less likely he is to churn.
You want to understand two things:
- What qualifies a user as a “beginner”, “intermediate” and “pro” and what behaviors or actions separate the beginners from the professionals – Time, usage of features, etc.
- What pushes your users towards those behaviors – Emails, on-site notifications, personalization, etc.
A good customer success manager should understand what those behaviors are and how to foster them.
Measuring the success of your adoption rates is done by dividing the number of “pro” users by the total number of users and comparing the rates over time.
Basically, your formula should look something like this:
AR (August) – n“pro users” / Total number of users
AR (September) = n“pro users” / Total number of users
Adoption Rate Growth: [ (ARseptember – ARaugust)/ARaugust]*100.
Or simply follow this growth formula:
Now to you
Retaining your users is the key to your product’s growth. It’s about customers who use and love your product.
Your Customer Success manager is the person in-charge of your user’s happiness and satisfaction with your product.
They are the main communication channel between you and your users and can also be the best advocates for meeting their needs within your product.
Measuring the right things will allow you to place SMART goals for your CSM which will ultimately lead towards better product adaptation, Longer LTV and dramatically reduce CAC costs.
This is your real way to growth.
What metrics are you measuring right now for your customer success manager’s work?