6 Essential KPIs in Customer Success
KPIs that matter the most for Customer Success Management
Customer Success Key Performance Indicators or KPIs are the measurements that help us identify and quantify the effectiveness of Customer Success Management in delivering value back to our business. These KPIs allow us to reveal how we are doing as an overall CS function and what ROI we provide to our company.
Mistakes won’t be rectified without proper evaluation of the value generated by our Customer Success Management activities, and improvements are much less likely to be made. These KPIs’ measurement, analysis, and reporting can help businesses justify the investment needed to improve their CS offerings. Which KPIs in Customer Success are the ones that matter in terms of driving growth for the company?
1. Churn rate
The churn rate is also known as the “Customer Attrition Rate,” and often, it is just referred to as “churn.” It allows the Customer Success team and company to identify how many customers are leaving compared with how many are staying and is always expressed as a percentage ratio, where a lower ratio is more desirable.
Exposing new customers is often significantly more expensive than retaining existing ones, and losing these existing customers is a lot like having a leaky revenue bucket. Identifying the churn rate, which products or services produce more churn than the others, and what specific strategies are being used that didn’t meet the customer’s standards can provide an insight into how a Customer Success Manager’s approach can be improved and eventually keep the customer’s from leaving.
Churn Rate is generally of specific interest to “X-as-a-Service” providers and only applies to existing customers, not to net new customers. You can think of net new customers as new water pouring into our revenue bucket from the faucet, whereas churn is the existing water already held in the bucket draining away due to a leak. If churn is low, then our bucket continues to fill up, and we will continue to grow as a business. On the other hand, if we start to experience high churn, our overall growth rate may slow down or even begin to reverse.
How to calculate Churn Rate?
Customer Churn Rate = (Total number of churned customers/Total number of all customers) x 100
2. Customer Lifetime Value (CLV or sometimes written as CLTV)
Customers value their relationships with existing suppliers and their experience with incumbent products and services. Customers tend to trust a tried-and-tested supplier and a known and already utilized product or service over a new one. This makes good sense since the unknown brings a greater risk of failure. This trust is fostered from multiple interactions with customers that (done well) will leave them positively wanting more.
CLV is the average total revenue a company can expect to receive from a single customer over the entire period of their relationship. It’s a great metric, especially when your company is offering multi-year contracts, as it helps identify early signs of attrition. Increased CLV indicates that customers are more likely to renew their purchase or subscription to your company’s products or services for longer periods. It provides insights into strategies enabling you to acquire new customers and retain your existing ones. However, when your customers start buying less over time, and you see your CLV drop, there’s a greater probability that a customer might churn earlier than before. CLV is a great forward-looking indicator of growth and future revenue-earning opportunities, which could be very important in the current company valuation.
How to calculate CLV?
(Average of Purchase Value * Average Customer Purchase Frequency) * Average Customer Lifespan
3. Net Promoter Score (NPS)
Commonly used to assess the customer’s experience, NPS evaluates your customers’ loyalty to your company and its products or services. It’s known as the “gold standard CX metric” as it shows businesses how the customers perceive them. Is the company doing an excellent job in meeting the customer’s expectations? NPS shows the customers’ loyalty fostered from multiple interactions. A higher NPS score indicates a greater level of customer loyalty.
With one question, it enables segmentation between poor and positive feedback. Moreover, it helps identify which customers are more likely to become promoters that can drive revenue growth for the company.
How to calculate NPS?
To calculate NPS, you must first survey all or at least a sufficiently large representative cross-section of your customers to provide meaningful statistics to be returned for analysis. An NPS survey contains just one question, and NPS surveys are sometimes asked on their own and sometimes included in a broader survey containing more questions. However, this does run the risk of introducing bias that might skew the NPS results. The question asked in an NPS survey is:
How likely are you to recommend our product or service to your friends or colleagues on a scale of 0 (not at all likely) to 10 (extremely likely)?
The responses are then collated as follows:
- % returning a score of from 0 to 6: detractors
- % returning a score of from 7 to 8: passives (which are ignored for calculation purposes)
- % returning a score of from 9 to 10: promoters
Once the customer’s feedback is categorized into the above three groups, you can now establish the NPS by the following formula:
NPS = the percentage of promoters – the percentage of detractors
4. Customer Health Score
One of the most common SaaS KPIs is the Customer Health Score, which identifies the likelihood of a customer to grow, renew, or churn. With the growth of Customer Success and the increasing focus on customer retention, the Customer Health Score has become even more essential. Compared to other metrics, CHS is highly specific to a company, and is calculated by combining multiple indicators, selected carefully to show overall customer “health.”
This combined value is then often shown as a traffic light style indicator for each customer, where GREEN indicates a healthy customer relationship that is in little to no danger of churning, AMBER indicates a reasonably healthy customer relationship but where there may be room for improvement, and RED indicates a likely or potential churn candidate if action is not immediately taken to prevent this from occurring.
CSMs often use a customer health score to help with time management decisions – as it contributes to an awareness of which customers need the most time and effort to be allocated to them to reduce churn. CSMs may sometimes be targeted based on customer health score statistics (individually or as a team).
There are many indicators (or metrics) that can be utilized within the overall combination formula used to calculate the overall customer health score, including:
- Usage Frequency tells how much time the users spend on utilizing the product or services of the company.
- Usage Breadth measures the number of users under a specific account and using the product; and
- Usage Depth identifies which products are often used compared to the others.
To know more about calculating Key Performance Indicators and their purpose, check out our Certified CSM Basic Practitioner Course: https://practicalcsm.com/certified-csm-professional/.
5. Customer Satisfaction Score (CSAT)
CSAT is similar to NPS in that they both try to understand what the customers specifically think about the company. However, unlike NPS, CSAT doesn’t measure the customer’s loyalty; it focuses on measuring how happy they are with the product or service and their relationship with the company.
It aims to answer whether the customer is satisfied with how the company helps them attain their goals, which can help the company decide which aspects of the customer’s experience should improve. Customer Success Managers utilize CSAT to evaluate whether customers can smoothly achieve their expectations.
How to Calculate?
(Number of Satisfied Customers/Total Number of Responders) * 100 = CSAT
6. Net Revenue Return (NRR)
Net Revenue Return has proven to be a powerful metric for Customer Success by helping Customer Success Managers visualize possible churns, retention, adoption, and expansion opportunities more three-dimensionally than just calculating churn. Just like churn, NRR only considers existing customers’ renewal activity and does not include net new sales within its calculation. However, unlike churn, NRR takes a more granular approach than simply asking the “Yes” or “No” question of “did the customer renew their contract?”. Instead, it looks at the total revenue attained from each renewal. It provides a way to measure revenue growth from existing customers without the revenues from net new customers interfering with the formula.
The upshot of this is that NRR allows the CSM to understand not just the increases or decreases in churn ratio but the increases or decreases in revenues attained from those renewals. This is important because otherwise, there is no way of knowing anything about the quality of the renewals that continue to occur, only their quantity. A higher NRR is desirable since it indicates higher revenue levels from existing customer renewals activities.
How to calculate NRR?
[(Annual recurring revenue) + (Up-sells, Renewals, Cross-Sells, Renewals, Price) – (Down-sells, churn, loss, downgrades)] / Annual Recurring Revenue
Ideally, it should produce a percentage more significant than a hundred indicating growth and improvement of the company. You can watch a more in-depth discussion of NRR and how it can be utilized here.
Making it short,
Customer Success professionals evaluate the customers’ ability to attain value and how it affects the company as a whole. Utilizing these Key Performance Indicators to develop a continuously improving strategy and fix mistakes would help retain customers while driving revenue growth.
What’s next?
Now that you know some KPIs that Customer Success Managers and Leaders are monitoring, their indications, and how to measure them, we recommend checking out our Certified CSM Basic Practitioner Course here: https://practicalcsm.com/certified-csm-professional/ and learn more about metrics and best practices in Customer Success.
Sources:
https://www.gainsight.com/blog/nrr-north-star-growth-metric/
https://userguiding.com/blog/customer-success-metrics/
https://www.profitwell.com/recur/all/customer-success-kpis/
https://www.smartkarrot.com/resources/blog/customer-success-kpis/
https://www.qualtrics.com/experience-management/customer/net-promoter-score/
https://www.qualtrics.com/experience-management/customer/customer-lifetime-value/
