Any company with a customer base needs to develop a strong customer success strategy. But what exactly is — and how do you — measure customer success?
There are so many different metrics out there that it can feel overwhelming. That’s why we at PayPro Global decided to clear up some of the confusion. This article will provide you with all the metrics you need to measure customer success within your Software as a Service (SaaS) business.
Customer success is a business methodology about anticipating customer needs and challenges, as well as being proactive in terms of offering solutions.
This type of success involves multiple parts of your business. For example, are your customers happy with the way your product works? Are they using its full functionality? Are they satisfied with the value it adds to their lives? Do they understand the full value of your product?
Considering all these questions and more is the key to truly understanding and creating customer success.
Acquiring new customers can be expensive and time-consuming, with most unlikely to be locked into lengthy contracts with your business. Good relationships with your existing customers are, therefore, critical, and keeping them happy can lead to longevity for your business.
Customer success is the key to your business’s overall success. If your customers “succeed” in using your product, they’ll continue using it. And, if they use your product successfully, your business will continue to grow. Happy customers are likely to convert from a free trial to a subscription, become regular users, and, with some luck, loyal advocates for your business.
To get to this point, you need data in the form of customer success metrics and KPIs. Read on to learn more.
The metrics outlined below are the most critical when measuring customer success for SaaS and so should form the basis of your success strategy. Track these metrics, and you’ll be able to tell how successful your customers are at using your product.
Customer Lifetime Value (CLV) represents the total revenue a business can earn from a customer over the lifetime of the relationship. It forms an essential link between customer success and revenue.
If a customer’s lifetime value increases over time, they’re getting value from your product, which means your profits rise. Conversely, if the Customer Lifetime Value is decreasing, you’ll have to work out why the value or benefit of your product lessens over time, as it could hurt your profits.
To calculate customer lifetime value, you need three pieces of data:
➝ Annual Revenue per Customer (ARPC)
➝ Customer relationship (in years)
➝ Customer Acquisition Cost (CAC)
Take your annual revenue per customer, and then multiply that by the number of years your customer has been with you. Finally, subtract the cost it took to acquire the customer, and you’re left with their Customer Lifetime Value.
An efficient customer success team focused on retaining customers will increase your ARPC and the average length of the customer relationship. In turn, these metrics will dramatically increase your CLV.
Your Repeat Purchase Rate (RPR) refers to if your customers continue to do business with you or not. This rate can include subscription renewals and whether they remain with your company or move to a competitor.
To calculate your RPR, you’ll need to know how many customers made a repeat purchase over a set period of time (let’s say a year) and the total number of customers over that same year.
To increase your RPR, you’ll have to increase the number of repeat purchases being made. Increasing your repeat purchase rate will positively and directly affect your CLV, meaning more revenue for you over time.
Your CAC refers to the cost of acquiring a new customer. This metric typically includes expenses such as research, marketing, and advertising costs. It can also consist of the salaries of your sales and marketing employees.
To calculate your CAC, you must divide the total number of sales and marketing costs of your SaaS product by the number of new customers acquired over a certain period.
CAC is one of the more important SaaS customer success metrics when it comes to predicting growth, helping you determine the long-term health of your business. Also, without looking at this value, you won’t know for sure if your marketing strategy is effective or not. Calculating your CAC helps you to determine the resulting return on interest (ROI) of an acquisition.
Customer Retention Rate (CRR) is another one of the critical customer success metrics for businesses that value ongoing relationships, making it an essential value for SaaS businesses like yours.
That is because CRR measures the percentage of customers your business retained over a period of time. In other words, it tells you how many are sticking with you, rather than churning.
To calculate customer retention rates, you’ll need to take the volume of customers you had at the end of a given period and subtract it by the number of new customers you acquired over that time. Take that figure, then divide it by the volume of customers you had at the beginning of that same period, then multiply that by one hundred.
Customer Retention Cost (CRC) is the amount your business must invest in keeping a customer. This metric is very effective in helping you understand your customer’s success.
An effective success strategy will grow customer retention at a greater rate than the cost of implementing the plan. It also helps you understand whether your customer retention cost is high enough to justify your customer success and retention spending. Finally, customer success metrics like this will help you figure out whether your efforts to keep your customers on board and spending are working effectively.
To calculate customer retention cost, you need the total number of annual costs spent on customer success and retention initiatives as well as the number of current active customers.
Customer Churn Rate (CCR) measures how many customers your business loses over time. The churn rate is calculated either monthly or annually and can refer either to the number of customers lost or the amount of money (revenue churn) the customers would have represented.
To accurately work out your precise customer churn rate, it’s critical to define what a churned customer looks like to your business. First, you’ll have to decide how to count customers and how you define the moment of churn. Then, you have to apply your definition consistently.
To calculate the number of churned customers, you need to know how many customers you had at the beginning of a month and how many were lost (churned) during that same period.
There is no one size fits all answer when it comes to determining what makes a good churn rate. Most in the industry consider a 3–5% monthly to be a typically “good” churn rate for SaaS companies targeting smaller businesses. However, the larger the businesses you work with, the lower your churn rate has to be. This is to account for the fact there is a smaller number of them in the market.
Explore the full guide covering 10 more customer success metrics, and learn how they can help you achieve SaaS business growth on PayPro Global’s blog.
ActiveCampaign is a marketing and sales automation platform that helps growing businesses meaningfully connect and engage with their customers. Its SaaS platform enables businesses to create optimized customer experiences by automating many behind the scenes processes and communicating with their customers across channels with personalized messages.
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