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: