If your company is a SaaS business relying on recurring revenue (subscriptions and renewals), you know how important an investment in customer success is. Unsatisfied customers can cancel and switch to a competitor at any time, so getting them up and running and achieving the value you promised as quickly as possible is critical.
But how can you tell whether your investment in customer success is really working? What are the key metrics you need to track?
To get the answers, we turned to Guy Nirpaz, CEO and co-founder of customer success software provider Totango.
Leading Indicator Metrics to Track
Ask most people to name one customer success metric and if they have any answer at all, it will likely be churn. (the percentage rate at which customers stop subscribing). But if all you’re looking at is churn, you’re stuck focusing on the past. In order to gain true insight into your customer success challenges and opportunities you need to take into account not just what happened, but what’s happening now.
That’s where identifying good leading indicators of churn come in.
“Churn is very important, but this is the outcome,” Nirpaz explains. “Churn, renewal, upsell, these are all the outcomes. In order to impact the outcome, [you need] to look at the leading indicators.”
“A good way to think about it is coming up with a customer health score for your company,” Nirpaz suggests. That way you can have a way of monitoring how engaged your customers are and to what degree they are receiving value from your product. From there, you can identify which customers are primed for upsell opportunities, and which ones are at-risk to churn.
As Nirpaz breaks it down, common ingredients for a customer health score are:
- Business outcomes: Are they achieving what they were looking for in terms of the solution?
- Usage and engagement: Are they actually using and engaging with your product and your team?
- Utilization: Out of the 100% capability that they have purchased, how much of that is actually being utilized?
“These are all good indicators that will help you make the right decision of what to do [with each customer] next,” Nirpaz says.
Customer Retention Cost (CRC) Ratio
Another key metric Nirpaz encourages entrepreneurs and their teams to track is CRC. The majority of us have heard of customer acquisition cost (CAC), but few SaaS companies actively track how much it’s actually costing them to successfully keep those customers, and how quickly they can recover that cost with renewals/upsells, etc.
“The customer retention cost is basically how much does it cost you to retain your customers,” Nirpaz says. “It’s a very simple metric we came up. The question [it helps you answer is], are you putting in enough or not?”
“I know for a fact that a lot of customer success leaders are having those conversations with their CEOs and CFOs — ‘I need more resources, people or financial resources, to invest in our customers.’ And the CEO/CFO says, ‘How do you know that you need more resources? What proof do you have to figure that out?’ And this is what it’s all about. So start tracking it, and over time you will learn the impact of it.”