The importance of customer success metrics
There are an overwhelming number of metrics you could be tracking in your business for churn, growth, revenue, and retention. They all have their place, but customer success metrics provide some of the most significant insights for SaaS products. These metrics measure engagement and customer behaviors, helping startups identify specific areas they need to prioritize and improve upon in order to maximize growth.
Below, we take a look at some of the customer success metrics that can help you build a solid foundation for your SaaS startup.
Monthly recurring revenue (MRR)
This is the “big picture” customer success metric that all SaaS startups rely on to measure growth. It provides a snapshot of your business performance over a set time period, measuring your predictable incoming revenue from subscriptions.
Everything you do in your business from sales to lead generation to customer support is a factor in your monthly recurring revenue (MRR). When it comes to customer success metrics, MRR is a big one. If you’re struggling to keep this metric growing at a steady rate, customer success (or lack of it) is likely to be one of the core reasons you’re not moving ahead as fast as you should be.
Jason Lemkin of SaaStr stated, “customer success is where 90% of the revenue is” for your business. When reviewing customer success metrics as a means to analyze the growth of your startup, you shouldn’t stop at MRR, but rather look at expanding on it with upsells and cross-sells to your current customers.
If your customers are already finding good value in working with you and using your product, there’s a high chance they’ll be interested in premium features, special offers and other upgrades. These purchases (when calculated monthly) are your “expansion MRR”.
You can measure this by taking the new revenue from upsells, and so on, in a given month and dividing by the revenue you had at the close of the previous month.
It’s much more cost-effective to upsell your current users than it is to acquire new leads and start the whole process over again. A healthy expansion MRR rate shows that your customer retention is good and that customers are engaged and active with your product.
Average revenue per account (ARPA)
This customer success metric takes into account the average value of a monthly contract for each customer. Your average revenue per account (ARPA) per month can be calculated as MRR / your total number of customers.
In some cases, ARPA is also the average revenue per customer, but depending on the nature of your SaaS product, customers may have more than one account, so it’s important to consider the specific product characteristics and account creation requirements before making this leap. ARPA as a customer success metric allows for a company to analyze revenue generation and growth at the per-unit level, which helps you identify which products are high or low revenue-generators.
As subscribers deeply engage with and commit to your product, they are more likely to become long term users that may contribute to your expansion revenue. If your customer success team and product managers can provide good support and value to your customers, your ARPA should increase over time.
DAU and MAU
While some companies consider these vanity metrics, DAU (daily active users) and MAU (monthly active users) continue to be popular customer success metrics as they are helpful in terms of looking at your customer engagement levels.
The state of a customer being “active” with a product is subjective and measured differently by different companies. It might be as simple as a customer logging in, or it might be that they used their login details with your company to access a third party app — much like when we use our Facebook details to log in to another site. Facebook counts anybody who logs in like this as an “active” user, even if they don’t go near the actual Facebook platform.
Once you’ve decided what an active user looks like for your business you can calculate your DAU and MAU, and then measure the DAU/MAU ratio. This is a metric that gives you a sense of the “stickiness” of your product for a customer. It’s a simple calculation, but one that can show you at a glance how successful your product is for customers.
Paul Graham, VC and co-founder of Y Combinator, looks at active users as a direct growth indicator, stating:
“The best thing to measure the growth rate of is revenue. The next best, for startups that aren’t charging initially, is active users. That’s a reasonable proxy for revenue growth because whenever the startup does start trying to make money, their revenues will probably be a constant multiple of active users”.
Customer retention cost (CRC)
Customer retention cost (CRC) is another useful customer success metric measured by the total cost of retaining one customer (including time, marketing, and other related costs) divided by the total number of retained customers. It is sometimes calculated as the total cost of retention divided by the total number of customers, so there is some debate about which is the more accurate metric.
By looking at your retention costs, you can gauge how successful you are at keeping the new customers you sign up and helping them find value with your product.
As acquisition cost is higher than customer retention cost, your CRC should be lower than your customer acquisition cost (CAC) over the same time period.
Net Promoter Score (NPS)
This customer success metric looks at how happy customers are with your product and service, and how likely they would be to refer your business to others.
A healthy net promoter score (NPS) means that your business is performing well and your customers are finding value in doing business with you.
NPS can guide your business direction and reveal the aspects of your service that need improvements. It might be that your product isn’t performing as well as people expected, or that your customer support needs a little work. The feedback from your NPS surveys gives you a valuable glimpse into what needs fixing to increase customer loyalty to your business.
You can read more about calculating NPS for your business here.
This is one of the standard growth metrics for SaaS companies. It takes into account the percentage of customers who stopped using your product in a given time period. This could mean they canceled their subscription or failed to renew it.
As a customer success metric, customer churn offers important insights into how well you’re meeting your customer needs and helps identify any underlying problems with customer satisfaction. A high customer churn rate indicates customers are unhappy with your product for one reason or another.
Churn can be calculated by dividing the number of customers lost during a set timeframe (e.g. one month), by the number of customers you had at the start of that time period.
Let’s say you started the month with 1,000 customers, but by the end of the month you had lost 40 customers. This would put your churn rate at 4%. This doesn’t feel like a lot, but your aim is to get your churn as close to 0% as possible.
If those 40 lost customers had accounts worth $50 each, your loss during that month is going to be $2,000. Treating customers (and customer retention) as a top priority can help reduce your churn rate, avoid lost income, and save you extra money trying to acquire new customers to replace the ones that churned out. Even a 5% increase in customer retention can increase your profit by around 25%.
Use customer success metrics to take action
Tracking specific customer success metrics means you can turn the data you collect into an actionable plan to help customers find greater success with your product.
While the best metrics for tracking customer success can vary between businesses and industries, these measurements will give you a solid framework for looking at your data to enable you to optimize user success and engagement with your startup.
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