Top 10 Customer success metrics for SaaS

It is a well-known fact among all SaaS business leaders that establishing a good and long-term relationship with your clients is crucial to the success of your firm.

However, within the subscription-service industry, the consumers have all the power particularly helpful. If they cannot see the value of using your offerings, they will just stop paying for it. Hence, your users can very easily cancel a subscription service and turn to one of your competitors to gain the value they are looking for.

This is why the importance of making a conscious decision to invest in strengthening customer relationships gets more and more vital every day. This is done by investing in customer success.

Yet, instead of just making guesses about how your company is performing in relation to customer success, you need to make use of data. Therefore, it is essential that SaaS companies focus on customer success metrics that will help them decide on what to prioritize. In addition, you have to measure the right success metrics that will increase your firm’s growth.

We have gathered a list of the top 10 customer success metrics that all SaaS owners need to consider. You can also read more about important customer success metrics you should know if running a business.

1. Expansion Revenue

The expansion revenue metric refers to the percentage of your new revenue that is coming from your existing customers. This measure shows how good you are at getting your existing customers to grow with your product or service.

Expansion revenue can be generated when customers upgrade from lower-tier plans to higher-tier plans or from customers who start to pay for additional features and/or functionalities from your service.
When measured on a monthly basis, expansion revenue is known as expansion MRR.

Once you have to calculate expansion MRR simply take all of your new revenue from upsells and cross-sells for a given month and divide it by the revenue you ended up with the month before.

Let’s look at an example: if your MRR from upsells and cross-sells in December totaled $200, and your ending MRR for November was $1,000, your expansion revenue for December would be 20%.

2. Churn

Your company’s customer churn rate is the percentage of customers who cancel their subscription in a given period of time.

However, there are actually two additional churn rates that you can measure. These are gross dollar churn and net dollar churn.

Gross dollar churn is referred to as the percentage of total revenue lost as a result of customer churn, down selling or downgrading. If this metric is measured on a monthly basis, it is also known as “monthly recurring revenue churn,” or just “MRR churn”.

Net dollar churn also looks at the revenue lost from customer churn and down selling. However, this metric also factors in the revenue that result from expansion income. This is the revenue that is generated from upselling or cross selling to existing customers. If the net dollar churn metric is measured on a monthly basis, it is also known as “net MRR churn”.

So when evaluating your churn, you need to include all three churn metrics in order to understand how churn is affecting your company. Just measuring customer churn alone will not give you the full picture.

3. Customer Retention Cost (CRC)

Customer retention cost (CRC) is the sum of all investments a firm undertakes for each user. This kind of expense usually lies in technical support to keep and cultivate existing consumers.

When calculating CRC you need to add all the costs necessary for customer retention and engagement.

The formula to calculate the average cost of retaining each customer segment looks like this:

Customer Retention Cost
=
Cost of {Customer Success Team
+
Renewals and/or Account Management Team
+
Customer Engagement and Adoption Programs
+
Professional Services and Training
+
Customer Marketing}

CRC is indeed helpful when measuring the performance of a SaaS company. It will to determine the financial health and directing the investment decisions as the metric can help determine the areas of concern from a product perspective. In addition, the metric also supports the development team to discover the best feature upgrades.

4. Customer Health Score

A customer health score is a metric that can inform you about the health of each of your consumer accounts. More specifically, the score indicates the probability for a user to become a profitable, high-value consumer for your firm or the risk for consumers to drop off on a long-term basis.

The measure usually consists of several smaller metrics that help determine the current condition of the consumer account. These can be measures such as the anticipated churn rate that identifies customers who will not make repeated purchases and the renewal rate for a customer.

The customer health score allows any business to be proactive and take the required actions based on the estimations. However, be aware that there does not exist a standard customer health score for all SaaS businesses. Hence, each company will have to build their own score based on their specific business and goals.

If you find the processes of creating your own customer health score a bit too overwhelming you can get help from experienced experts. Saizmo can help any SaaS company to recognize which customers that might be about to churn before they actually do. Then you can take action and prevent that from happening. Consequently, you will have the possibility to retain more of your existing customers and grow your firm.

5. Customer Satisfaction

When applying the customer satisfaction metric, the focus will be on how your customers are feeling.

It is essential for any customer success manager to know what customers’ are feeling toward your product or service. Especially if some customers’ feeling are changing for the worse. Knowing about this will give your customer success team the opportunity to take action before those specific customers decide to either downgrade or completely churn.

By continually monitoring customer satisfaction, you will be able to identify those users who are most at risk of churning. Then you can start to work toward enhancing their overall consumer experiences.

6. Customer Satisfaction Score (CSAT)

The Customer Satisfaction Score (CSAT) can be used as a metric when analyzing the short-term happiness of your consumers.

When conducting a CSAT survey you will be asking a question similar to “How would you rate your over­all happiness/sat­is­fac­tion with [Product/Service]?”

Then your consumers have to give a response on a 1-5 scale:

  • 1 = very unsatisfied
  • 2 = unsatisfied
  • 3 = neutral
  • 4 = satisfied
  • 5 = very satisfied

The result of the CSAT survey can be represented as a percentage between 0-100 based on how many customers were “satisfied” or “very satisfied.” This means, that a score of 100% would indicate that every single customer gave you a 4 or a 5.

7. Net Promoter Score (NPS)

One of the most widespread metrics used to measure customer satisfaction among SaaS businesses is the Net Promoter Score (NPS).
Why is this specific metric so popular? You might wonder.

The reasons lie in its simplicity!

When conducting an NPS survey among your users, you ask them just one question; “How likely are you to recommend the product/service to a friend or colleague?” The customer then provides you with a response on a scale from 0-10.

A score of “0” means that the user is not at all likely to recommend the product, while a score of “10” means that the user is extremely likely to recommend the product.

All customers are then grouped into three categories, based on the responses they have given:

  • A score of 0 – 6 = “detractors” (no business wants to have many of these consumers).
  • A score of 7 or 8 = “passives” (not necessarily bad, but not great either).
  • A score of 9 or 10 = “promoters” (these are the consumers you want to gather and in a perfect world, all of your users would fall into this category).

Once you have to calculate your actual NPS score, you have to subtract the percentage of users in the “detractor” category from the percentage of users in the “promoter” category. The percentage of users within the “passive’ category can be ignored.

Let’s look at an example where you have 500 customer responses in an NPS survey. If 250 are promoters (= 50% of respondents), 150 are passives (ignore them), and 100 are detractors (= 20% of respondents), then your NPS would be 30. Because 50% – 20% = 30%.

As a customer satisfaction measure, NPS is a strong predictor of business growth. In most cases, firms that have the highest NPS in their industry usually outgrow their competitors.

Furthermore, NPS is also closely tied to customer loyalty. Users who fall into the “promoter” category tend to have an average lifetime value (LTV) that is between three to eight times higher than those in the “detractor” category. This means that your promoters are loyal to your firm, often spend more money, are less expensive to serve, and they even recommend your product/service to other people.

8. Average Revenue per Account (ARPA)

The average revenue per account (ARPA) calculates the average amount of revenue per consumer or revenue generated per account over a defined period of time. The time interval is often measured in months or years.

ARPA is useful when analyzing a firm’s revenue generation and growth at a per-unit level. This metric can help classifying high and low revenue products or services.

When you have to calculate ARPA, you need to divide the total revenue generated by all customers during a defined period by the number of customers.

The formula looks like this:

ARPA (per month) = Monthly recurring revenue (MRR) / Total number of customers

If there has been a significant change in the pricing of your offering, it is advised to measure ARPA for new and existing customers separately. This will provide you with a more accurate average revenue per account and thereby help you to understand the progression of your ARPA.

Please be aware, that if you have a wide pricing range of your products or service, ARPA may not generate a valid result. Thus, it must be used in the context of other key SaaS customer success metrics.

9. Customer Lifetime Value (LTV)

A business’ customer lifetime value (LTV) is an estimation of the average gross margin contribution of a consumer over the lifetime of that specific consumer.

We know that acquiring new customers is much more difficult and expensive compared to increasing the revenue of an existing customer. Concentrating on LTV is also a solid way of maintaining growth. This can be explained by the fact that the LTV can account for the majority of revenue coming from repeat purchases.

The formula looks like this:

LTV = ARPA / Customer Churn Rate

Or

LTV = (ARPA * Gross Margin %) / Revenue Churn Rate

(If you calculate different ARPA across your customer base)

10. LTV (Lifetime Value) /CAC ratio (Customer Acquisition Cost)

The LTV/CAC metric is the most important measure to determine how your company has improved over time, how much you should invest and how it will impact your business growth.

LTV : CAC Ratio = LTV (Lifetime Value) / CAC (Customer Acquisition Cost)

A good ratio between these two measures is 3:1, which means that the LTV is 3 times higher than the CAC. This implies that for every dollar invested your return is 3 times higher ($3).

If you wish your business to grow and succeed you should not let the ratio fall below 3:1. Normally, a lower ratio implies that the investment is too high. However, if your ratio is greater than 3 – well done! It only indicates that your company is getting a good return on your investments.
Would that mean that the higher the ratio, the better it is?

No, not exactly.  Often a higher ratio such as 7 or 8 might suggests a huge return on investment. Yet it also indicates that the company’s growth is being held back by underspending.

Conclusion

So there you have our top 10 list of the best customer success metrics for SaaS companies. Now you need to figure out the right metrics for your company. That will allow you to analyze your company’s current situation and help your customers to achieve their goals.

Avoid working with too many metrics as it can often result in over-analyzing the situation. You need to only track a few success metrics that are a true measure of success for your specific company.

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