Customer Success Metrics
Customer success is a business strategy of ensuring that customers reach their goals by using your product or service. The idea behind it is that your business will be successful if customers can successfully use your products.
With customer success metrics, you can measure your business’s performance. They help you understand how effective your strategies are and whether your customers are satisfied with your service.
In this article, I’ll define the top customer success metrics, explain why they’re important, and show you how to calculate them.
Net Promoter Score (NPS) is customer loyalty and satisfaction measurement used in customer experience programs.
How to measure NPS?
NPS is measured by simply asking users the question:
“On a scale of 0-10, how likely are you to recommend [company] to a friend or colleague?”
Respondents are categorized in the following way:
1. Promoters (9-10) are loyal customers who will keep buying your product and bringing in new customers.
2. Passives (7 or 8) are satisfied users who are not enthusiastic enough to promote your brand to others. They are close to being promoters, but they are also susceptible to competitors.
3. Detractors (0-6) are unhappy customers who are unlikely to purchase from you. They may recommend against your company.
Why is NPS important?
- NPS measures the likeliness of customers to recommend your company to family and friends, which is one of the most effective ways in which a brand gets promoted. It is a simple yet valuable metric that gives you a perception of your brand through customers’ eyes.
- NPS is used by many companies as a key benchmarking figure to increase customer loyalty. It’s a great value to compare with that of competitors and understand where you stand in the market.
- You can track NPS not only for the whole company but also for specific businesses, products, or even customer segments to have more in-depth insight about your customers’ perceptions.
- Based on your NPS score, you can identify if you have a high risk of losing customers and assess specific problems.
How to Calculate NPS
To calculate NPS, subtract the percentage of detractors from the percentage of promoters. Passives are not included in the calculation.
The resulting number is between -100 and 100. A score higher than 0 indicates that you have more promoters than detractors. Anything below 0 is a bad score, as it means you have more detractors than promoters.
Number Of Support Tickets
The number of support tickets shows you the total number of customer requests in your support inbox.
Why is Number of Support Tickets important?
- Tracking this metric helps manage workload distribution more efficiently and prevents the support team from being overloaded with requests
- With better management of staffing needs, customers spend less time waiting for a response
- Sometimes there can be sudden fluctuations in ticket volume that indicate something is going on. A sharp rise can mean that there is an issue, such as a broken feature in your product
How to Calculate Number of Support Tickets
The number of support tickets is found by simply adding up all tickets submitted during a given period.
Average Time To Respond
Average Time to Respond or Average Response Time (ART) is the amount of time it takes for the support team to respond to a user’s request.
Why is ART important?
The response time is an important indicator of the efficiency of your customer service. Lower response times are associated with a better perception of your service and higher customer satisfaction. Higher response times cause frustration and may indicate that you lack customer service staff.
How to measure ART
Average Time to Respond = Total time taken to respond in a given period / Total number of responses in the selected period
Churn rate is the percentage of customers who stopped using your service in a given period of time.
How do you identify a churned customer?
In general, a customer may churn by canceling a subscription, closing their account, or stopping their service renewal.
Why is tracking churn rate important?
- By comparing churned customers with acquired customers, you can get an idea of overall business performance
- Churn rate can reveal patterns about which customers leave and why
- For every churned customer, you will need to spend more money to acquire a new one than you would to retain that customer.
How to calculate churn rate
Churn rate = (Users at the beginning of the period – Users at the end of the period) / (Users at the beginning of the period) x 100
For SaaS companies, an acceptable annual range for churn rate is 5-7%.
Customer retention and dollar retention are two different retention metrics.
Customer retention rate is the percentage of customers that you retain over a period of time.
Why is customer retention rate important?
- Retention rate is a key indicator of growth. The book Marketing Metrics states that “the probability of a successful sale with a new prospect is 5-20% while the probability of a successful sale with an existing customer is 60-70%”.
- Its more expensive to acquire new customers than to keep existing customers
- Satisfied customers that stick around help boost your business health by leaving good reviews/feedback and promoting your business online.
How to calculate Customer retention rate
Customer retention rate = Number of active users continuing to subscribe / Total active users at the start of a period
Net Dollar Retention (NDR) measures the percentage of revenue growth or churn that your company has experienced over a period of time. It shows you how your recurring revenue changes based on the upgrades, downgrades, and churn of existing customers over the past year. It does not factor in the revenue from new customers acquired in the current year.
Why is NDR important?
- Measuring NDR is one of the best ways to know if your product is solving problems and providing value over a long period of time. For instance, if you have a high NDR, it shows more about the strength of your product than a spike in revenue from a campaign because it indicates that users are continually using your product.
- For SaaS businesses, acquiring new customers is costly. It’s important to focus on existing customers by offering new products/services and upselling and cross-selling opportunities. NDR measures how well you’re retaining customers so that you can improve these tactics.
- The value of NDR can show you if your company can grow with existing customers or not. An NDR over 100% indicates an increase in revenue from existing customers and tells you that your company has the potential to grow from these customers. An NDR less than 100% indicates that churn and downgrades are higher than revenue from existing customers and calls for a change in customer success strategy.
How to calculate NDR
NDR = (Revenue at the start of the period+ upgrades – downgrades – churn) / Revenue at the start of the period
First Contact Resolution Rate
First Contact Resolution Rate (FCR) is the percentage of customers’ queries resolved successfully at the first contact with the customer.
Why is First Contact Resolution Rate important?
- Measuring FCR is critical for improving customer satisfaction. According to a study by SQM Group, a 1% improvement in the FCR rate leads to a 1% improvement in customer satisfaction. Moreover, the customer satisfaction rate drops by 15% if the customer has to repeat their request.
- Customer satisfaction plays a critical role in how your business is perceived. If you resolve problems quickly, it can even change the mindset of those who are dissatisfied about your product and turn them into loyal customers.
- A high response rate leads to a good image of your business, which increases sales opportunities. Customers that are satisfied with the quick response rate are more likely to repeat a purchase.
How to calculate First Contact Resolution rate
First contact resolution rate (%)= (Number of issues resolved on first contact / Total number of issues) x 100
Qualitative Customer Feedback
Qualitative feedback is used to understand the reasons behind why customers feel a certain way about your product/service.
Why is Qualitative Customer Feedback important?
- You may know whether a customer is satisfied from their rating, but you won’t know what exactly the customer likes/dislikes unless they express it through qualitative feedback
- Qualitative feedback provides a space in which customers can rant about their dissatisfaction and gives them the sense of being heard.
How to obtain Qualitative Customer Feedback
You can acquire qualitative data by asking open-ended questions through customer surveys or from social media and online review sites.
Lifetime Value (LTV) is a measure of how much revenue a customer will generate over the whole lifetime as a customer.
Why is LTV important?
- By calculating LTV, you can identify the customer segments that are the most valuable for your business. You can create a customer acquisition strategy that aims for attracting more of these customers.
- LTV can tell you if your marketing strategy to attract new customers is effective. If marketing costs are higher than LTV, then you won’t get a sufficient return on investment (ROI) from acquiring new customers.
How to calculate LTV
One of the simplest calculations for LTV is:
LTV = ARPU / Revenue or Customer churn
You can also find LTV by the formula:
LTV = ARPU (average revenue per user) × Customer Lifetime
ARPU is the average revenue per user. It’s usually calculated on a monthly basis.
Why is ARPU important?
- ARPU gives insight on your business’ capability for revenue generation. A higher ARPU is associated with greater profitability and is more attractive to investors
- ARPU is a great metric for comparing your business with competitors
- Measuring ARPU for users of different plans/products can help you understand the highest drivers of revenue and what areas you should focus on
How to calculate ARPU
ARPU = Total Revenue / Total Number of Users
Monthly Recurring Revenue (MRR) is the amount of revenue you generate each month. It’s one of the most critical SaaS sales metrics.
Why is MRR important?
- MRR gives an idea about the stability of your business. A steady MRR figure indicates that you have a stable business and you can spend more time and money to focus on future plans rather than sudden drops in revenue.
- Since MRR is a predictable monthly figure, calculating MRR can enable you to forecast future income and budget and determine how you should manage cash flows
- A good MRR is appealing to investors because it indicates that your business offers a valuable product/service that people are willing to pay for
How to calculate MRR
MRR = ARPU x Number of subscribers under a monthly plan
What is CSAT?
CSAT stands for “customer satisfaction score.” It’s measured by asking customers a rating scale question with a scale of 5 or 10 points to obtain the percentage of satisfied customers.
Why is CSAT important?
- CSAT tells you how your products and services are received by customers. Knowing about satisfaction levels can show you what areas are working well and what areas need improvement
- If your CSAT is high, you can publish your score to get ahead of competitors and attract more customers
- You can track how CSAT changes with new technologies, software, or employee trainings to see if the procedure is working
How to Calculate CSAT
CSAT is measured by asking a question at the end of a customer feedback survey such as
“How would you rate your overall satisfaction with the service you received?”
CSAT (%) = (Number of positive responses / Total number of responses) x 100
Measure Customer Success Team’s Affect On Revenue: HockeyStack
One of the biggest problems of SaaS companies is understanding what actually drives revenue to the company: Is it content marketing? Customer support? Or an ad campaign? Which one brings the most engaged customers and which brings the customers that are most likely to expand their accounts?
HockeyStack allows you to answer all of these questions.
Using HockeyStack, you can build any dashboard you need with metrics from different departments. Custom dashboards allow you to connect the dots to better understand what drives revenue for your SaaS.
For example, you can build a monthly support load by plan report:
A report to measure customer success team’s affect on activation:
Or a report to measure customer success team’s affect on expansion revenue:
On top of custom dashboards, HockeyStack has other features too, such as
- Step-by-step user journey
- Funnels & goals
- Revenue Attribution
HockeyStack has a free forever plan and 3 paid plans. Paid plans have a 14-day trial with a 30-day refund guarantee.
You can check out the pricing page here.
- Crisp Chat
- Salesforce (coming soon)
- Zapier (coming soon)
Customer success metrics are essential for business growth. They help you better understand what influences customer satisfaction, keep churn under control, and identify opportunities that lead to higher revenue.
You should follow up the tracking of customer success metrics with more in-depth research to make sense of the numbers and increase the efficiency of your customer success function.
Since SaaS companies are subscription-based, making a profit requires continuous customer satisfaction. Customer success helps provide increased customer loyalty and happiness.
Customer success provides a mechanism for creating up-selling and cross-selling opportunities and reducing churn for higher revenue.
The primary role of customer success is to ensure customers achieve their goals through the use of your product/service.