Using Customer Success KPIs to Drive Growth in SaaS Startups
In the world of SaaS, startups face a unique set of challenges when it comes to driving growth. Unlike traditional software companies, SaaS startups rely on recurring revenue from a customer base that can churn out quickly.
To succeed in this environment, you must not only acquire new customers but also retain and grow existing ones. Afterall, the cost of acquiring new SaaS customers is about four to five times higher than that of retaining existing ones.
To achieve this goal, you must measure and track customer success key performance indicators (KPIs). These metrics can provide valuable insights into how well you are serving your customers and can help identify areas for improvement.
In this article, we will explore the importance of measuring customer success KPIs in SaaS startups and how these metrics can be used to drive growth.
Understanding Customer Success KPIs in SaaS Startups
Before we dive into the specific KPIs that SaaS startups should track, let’s define what we mean by “customer success” and “customer success KPIs.”
Customer success refers to the proactive and strategic efforts made by a company to help customers achieve their desired outcomes and goals through the use of the company’s product or service. The aim of customer success is to create long-term value and build strong relationships between the company and its customers. This involves understanding and anticipating the customer’s needs, providing ongoing support, training, and guidance to ensure that the customer gets the most value out of the product or service, and ultimately driving customer retention and loyalty.
Customer success KPIs are metrics that measure the effectiveness of a company’s efforts to help its customers achieve their goals. In SaaS startups, these goals might include improving efficiency, reducing costs, or increasing revenue.
There are several types of customer success KPIs that you can track, including:
- Churn rate: The percentage of customers who cancel their subscription within a given period.
- Net Promoter Score (NPS): A measure of how likely a customer is to recommend a company to others.
- Customer satisfaction (CSAT) score: A measure of how satisfied customers are with a company’s product or service.
- Cost of customer acquisition (CAC): The cost to acquire a new customer.
- Customer lifetime value (CLTV): The amount of revenue a customer generates over their lifetime as a customer.
- Average revenue per user (ARPU): The average amount of revenue generated by each user.
Each of these KPIs can provide valuable insights into the health of a your customer base. For example, a high churn rate may indicate that customers are dissatisfied with the tool or that the onboarding process needs improvement. On the other hand, a high NPS score may indicate that customers are happy with the tool and are likely to recommend it to others.
Measuring Customer Success KPIs
There are multiple ways to gather numerical data for measuring customer success KPIs and metrics. For instance, you can obtain customer engagement data and gauge customer success through various means, including:
The user onboarding process is a crucial phase in the SaaS customer lifecycle, during which customers decide to either purchase the product and start receiving its benefits or abandon it altogether.
Utilizing customer onboarding to identify drop-offs and assess the likelihood of conversion into paid customers can serve as a valuable benchmark for measuring early customer success. Onboarding tools can be utilized to create product guides with minimal effort and without any coding.
Upgrading from free plans to paid ones is a strong indicator of successful customer success and account management. As the ratio of free-to-paid conversions increases, it is a testament to the improvements provided by the customer success team’s efforts.
Customer Retention and Growth:
Merely getting customers to sign up and pay for the first month is not enough to guarantee customer success. You must consistently provide value to keep them renewing their subscription and using your product.
Furthermore, when customers upgrade their subscription or purchase add-ons, it signifies that their business is expanding. Your product is contributing to their growth by continuing to meet their needs.
Using Customer Success KPIs to Drive Growth in SaaS Startups
Now that we understand what customer success KPIs are and why they are important, let’s explore how SaaS startups can use these metrics to drive growth.
Improving Customer Retention Rates with Customer Success KPIs
One of the biggest challenges that SaaS startups face is retaining customers. With a business model based on recurring revenue, losing customers can quickly eat into profits. .To address this challenge, you must measure and track customer success KPIs that can help identify the reasons for churn and take action to prevent it.
According to research, decreasing churn rate by 5% can lead to a significant increase in profit, potentially as much as 25%. Therefore, it’s important for companies to focus on retaining their existing customers in addition to acquiring new ones.
The churn rate is a critical KPI for SaaS startups. A high churn rate can be an indicator of underlying problems with the product, customer support, or other aspects of the business. To reduce churn, you must identify the reasons why customers are canceling their subscriptions.
For example, if the churn rate is high among customers who have been with the company for less than three months, this may indicate that the onboarding process needs improvement. By tracking this KPI, you can take steps to improve the onboarding process, such as providing better training materials or offering personalized onboarding support.
Generally, in order to optimize SaaS growth, you should aim to keep your SaaS churn rate within the range of 3 to 8%. However, factors such as industry, product, market, and seasonality can cause variations in the churn rate.
The harsh reality is that some level of SaaS churn is inevitable. For instance, losing a customer due to their business going bankrupt may seem beyond your control, leaving you feeling helpless. While some churn is unavoidable, it’s still crucial to make efforts to minimize it as much as possible. Neglecting to take preventive measures against churn can be risky.
Net Promoter Score (NPS)
The NPS is another important KPI for SaaS startups looking to improve customer retention rates. A high NPS score indicates that customers are satisfied with the product and are likely to recommend it to others, which can lead to increased revenue through referrals. By tracking this KPI, you can identify areas where you can improve the customer experience and ultimately reduce churn.
In order to gain a better understanding of this customer success KPI, you may compare it to the industry’s average NPS. For software companies, the NPS ranges from 28 to 55 with an average of 41.
Customer Satisfaction (CSAT) Score
The CSAT score is a measure of how satisfied customers are with a company’s product or service. By tracking this KPI, you can identify areas where you can improve the customer experience and ultimately reduce churn.
For example, if the CSAT score is low among customers who have contacted customer support, this may indicate that the support experience needs improvement. You can take steps to improve the support experience, such as providing more comprehensive training for support staff or implementing a new support ticketing system.
Customer Health Score (CHS)
The CHS is a key metric used to evaluate the likelihood of retaining customers by measuring their current level of engagement. This KPI is used in churn management and can be calculated in various ways, with different parameters. Customer Success Managers (CSMs) typically consider indicators such as product usage, relationship strength, unresolved tickets, and other subjective metrics to calculate the CHS.
For instance, the CHS is often calculated using factors such as the amount of time users spend on using the product, the adoption rate, and the number of active users in the account. CSMs may also take into account the number of features that customers are using to determine the CHS.
Driving Revenue Growth with Customer Success KPIs
In addition to improving customer retention rates, you can also use customer success KPIs to drive revenue growth. By tracking KPIs such as customer lifetime value (CLTV) and average revenue per user (ARPU), you can identify areas where they can increase revenue from existing customers.
Customer Lifetime Value (CLTV)
The CLTV is the amount of revenue a customer generates over their lifetime as a customer. By tracking this KPI, you can identify high-value customers and take steps to retain them. For example, you can offer personalized services or discounts to high-value customers to encourage them to stay loyal to your company.
Average Revenue Per User (ARPU)
The ARPU is the average amount of revenue generated by each user. By tracking this KPI, you can identify areas where you can increase revenue from existing customers. For example, if the ARPU is low among a particular customer segment, you can offer additional services or products to increase revenue from that segment.
Net Revenue Return
The Net Revenue Retention (NRR) metric is a useful tool for measuring the overall revenue generated by a business over a specific period, which includes upsells, minus the revenue lost due to customer churn. This metric is particularly important because it provides valuable insights into a company’s growth trajectory, even without the acquisition of new customers.
An NRR value above 100% is indicative of a healthy business, which suggests that it is growing despite the loss of some customers. It’s important to note that the accuracy of the NRR calculation is critical, so it should be calculated with great care and frequency to ensure that the data is reliable.
Reducing Costs with Customer Success KPIs
In addition to improving customer retention rates and driving revenue growth, you can also use customer success KPIs to reduce costs. By tracking KPIs such as cost of customer acquisition (CAC) and customer lifetime value (CLTV), you can identify areas where you can reduce costs without sacrificing revenue growth.
Cost of Customer Acquisition (CAC)
The CAC is the cost to acquire a new customer. By tracking this KPI, you can identify areas where you can reduce costs without sacrificing revenue growth. For example, you can focus on acquiring customers through lower-cost channels, such as content marketing or social media advertising, rather than expensive paid advertising campaigns.
The cost of acquiring customers can differ based on whether the acquisition is organic or inorganic. In the SaaS industry in the United States, the benchmark cost for organic customer acquisition is $205 . However, for inorganic acquisition, the cost is higher at $341.
In the context of customer acquisition, organic refers to customers who find and engage with a company through non-paid channels such as word-of-mouth referrals, search engine results, or social media. Organic customer acquisition often involves building relationships and trust with potential customers over time, rather than relying on paid advertising or other forms of direct marketing.
Inorganic customer acquisition refers to customers who are acquired through paid marketing channels such as paid search ads, display ads, social media ads, or affiliate marketing.
Inorganic acquisition usually involves a company spending money on various marketing tactics to reach potential customers and generate leads, rather than relying on organic growth or referrals. These customers may not have been aware of the company’s products or services otherwise and may not have any existing relationship with the company prior to their acquisition.
Customer Lifetime Value (CLTV)
The CLTV is also an important KPI for reducing costs. By identifying high-value customers and taking steps to retain them, you can reduce the cost of acquiring new customers. For example, by offering personalized services or discounts to high-value customers, you can encourage them to refer new customers to your company, reducing the need for expensive paid advertising campaigns.
Customer success KPIs are essential for SaaS startups to measure and track their progress towards achieving growth and success. By leveraging these metrics, you can identify areas of improvement, reduce churn rates, drive revenue growth, and reduce costs, all while ensuring that your customers remain satisfied and loyal to your brand.
To make the most of these customer success KPIs, it’s crucial for you to regularly review and analyze your data to identify trends and insights. By taking action based on these insights, you can make data-driven decisions that will help you optimize your business performance and ultimately achieve their growth objectives.
If you want to learn more about different strategies to grow your SaaS startup, be sure to check out our blog.