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18 Most Essential Customer Success Metrics For SaaS Businesses

Customer Success Metrics SaaS

 

Providing customer success is one of the primary goals for any SaaS business. Without a decent customer success program, customers are unlikely to stay with a SaaS product for very long.

And more than just getting new customers to buy your SaaS solution, you need to get your existing customers to stay. Your growth and brand reputation depend on it.

That’s why you need to measure the performance of your customer success efforts. This is where customer success metrics for SaaS businesses come in.

In this article, we will define customer success and discuss some metrics that you can use to track customer success performance in your SaaS business.

Armed with this knowledge, you’ll be able to better understand the performance of your customer success efforts and take action to improve customer satisfaction and retention.

 

What Is Customer Success?

 

Customer success is a customer-facing team that focuses on customer satisfaction, retention, and loyalty. The customer success team works with your users to ensure that they are getting the most out of your SaaS solution and provides resources to help them use it effectively.

The goal of customer success is to create long-term relationships with your users so that they continue to use your SaaS product, stay loyal, and even become advocates for it eventually.

This helps to create a steady stream of revenue for your SaaS business and make each customer stay with your product for as long as possible.

 

Customer Success VS Customer Support

 

Customer success and customer support are often confused, but they are two very different things.

Customer support, also sometimes called customer service, focuses on customer inquiries and problem-solving. It is reactive in nature. The customer reaches out to your support team when they need help. Then your support representatives respond and troubleshoot their problems.

On the other hand, customer success is proactive in nature. The customer success team reaches out to customers to ensure that your SaaS solution is helping them reach their goals.

Still, both customer success and customer service each plays a crucial role in customer retention and customer loyalty.

 

Customer Success VS Account Management

 

It’s also worth noting that customer success is not the same as account management for existing customers.

Customer success managers focus on helping your customers make the most out of your SaaS product. On the other hand, account managers focus on upselling, cross-selling, and renewals for time-bound contracts.

However, customer success managers also sometimes fulfill the roles of an account manager, especially for enterprise SaaS solutions.

 

SaaS Customer Success Metrics

 

Now that we have a better understanding of customer success, let’s discuss customer success metrics for SaaS businesses.

Here are some of the most essential customer success metrics you can track to measure the performance of your customer success efforts:

 

1) Daily Active Users (DAU) or Monthly Active Users (MAU)

 

One of the most straightforward key performance indicators (KPIs) for customer success is how many active users your SaaS product has. Tracking the daily active users (DAU) or monthly active users (MAU) can help you understand customer engagement with your product.

Note that we are tracking active users here. So you would need to define what ‘active users’ means for your SaaS product.

How long should their session with your SaaS product be for them to be considered active users? What kind of user activity do you need for a customer to be considered an active user?

You would have to define that for your SaaS product.

 

2) DAU/MAU Ratio

 

Now, one of the problems with DAU and MAU is that they don’t tell you anything substantial about customer retention.

In fact, some businesses even consider them as vanity metrics — meaning they may show some sort of surface-level statistics, but they don’t really provide a lot of insight for your business.

That’s why we recommend tracking the DAU/MAU ratio.

This metric measures customer retention and customer loyalty by comparing the daily active users to monthly active users.

The higher the ratio, the better customer retention your SaaS product has.

To calculate your DAU/MAU ratio, simply divide your DAU by your MAU.

For example, if your DAU is 100 and MAU is 200, then the ratio would be 50%. That means your average user is engaging with your SaaS solution for 15 days out of the 30 days in a month.

 

DAU MAU Ratio Formula

 

3) Free-to-Paying-Customer Conversion Rate

 

Having a freemium model or offering a free trial of your SaaS product is a great way to attract new customers.

However, if these free users don’t convert into paying customers, then it’s not doing much for your SaaS business.

And your customer success efforts can play a crucial role in helping free users get so much value from our SaaS solution that they would happily sign up for a paid subscription.

That’s why your free-to-paying-customer conversion rate is one customer success metric you should track.

To calculate this customer success metric, divide the number of new customers that signed up for a paid subscription by the total number of free users you have.

 

4) Activation Rate

 

The activation rate is another customer success KPI you can use to measure customer engagement with your product. The higher the activation rate, the better customer success you have.

Activation rate measures how many users sign up for your SaaS product and actually get value out of it. This metric will give you a better understanding of how effective onboarding and customer education efforts are.

Since every SaaS product is different, “activation” will also be different for each SaaS solution. 

For an email marketing software, it could be scheduling an email. For a customer relationship management (CRM) solution, it could be creating a custom sales pipeline.

You would need to define what activation means for your SaaS product.

To calculate this customer success metric, divide the number of activations by the number of users you have.

For example, if you have 200 users and 100 of them activated, then your activation rate would be 50%.

 

Activation Rate Formula

 

5) Time To Value (TTV)

 

Measuring customer success isn’t just about counting how many of your customers experience the value of your SaaS product. It’s also about measuring how quickly they experience it.

This customer success metric, known as Time To Value (TTV), helps you understand the speed at which your customers are getting value out of your product. The lower the TTV, the faster customer success is achieved.

To calculate TTV, measure how long it takes for a customer to go from signing up to activation or getting value out of your SaaS product.

However, other SaaS businesses also have different ways to measure TTV.

Some count the time it takes for free users to convert into paying customers. Some track how long it takes for new users to go through the customer onboarding process.

While others track time to long-term value by monitoring how long till their customers achieve their desired return on investment (ROI).

You may also explore these ways to measure TTV for you to understand how fast you are delivering both short-term and long-term value to your customers.

 

6) Customer Retention Rate

 

Another straightforward way to measure the performance of your customer success efforts is tracking your customer retention rate.

This customer success metric reflects customer loyalty and satisfaction with your SaaS product. A high customer retention rate indicates that customer success has been achieved, as customers are sticking around for the long-term.

To calculate customer retention rate, simply divide the number of existing customers who stayed on from one period to the next by the total number of customers at the beginning of that same period.

For example let’s say you have 100 paying customers this month. And out of those 100, 85 remain as paying customers next month, then your customer retention rate is 85%.

 

Customer Retention Rate Formula

 

7) Churn Rate

 

The word “churn” refers to a customer canceling their subscription to your SaaS product. It’s what customer success aims to prevent.

However, churn is inevitable. There will always be customers who will stop using your SaaS solution for one reason or another.

Now, there are two types of churn that you should measure: customer churn rate and revenue churn rate.

Customer Churn Rate: This metric measures the percentage of customers who  unsubscribe from your SaaS service.

To calculate customer churn rate, divide the number of customer churns in a given period by the total number of customer subscriptions at the beginning of that same period.

For example, let’s say you have 100 customers at the start of the month. If 5 of them cancel their subscriptions, your churn rate for that month would be 5%.

 

Customer Churn Rate Formula

 

Revenue Churn Rate: This metric measures how much revenue is lost due to customer churn.

To calculate revenue churn rate, divide the amount of revenue lost in a given period by the total amount of recurring revenue at the beginning of that same period.

For example, let’s say you have $10,000 in recurring revenue at the start of the month. If customer churn leads to a $500 loss in revenue, then your revenue churn rate for that month would be 5%.

Measuring customer churn rate and revenue churn rate will help you monitor customer success levels and identify opportunities where customer success can be improved.

Now, note that customer success isn’t the only factor that affects customer retention rate and churn rate. Poor customer service, bad product design, a lack of features, or even acquiring the wrong audience can also lead to customer churn.

Therefore, customer retention rate should be monitored in tandem with customer success metrics we are discussing all throughout this article.

 

Revenue Churn Rate

 

8) Average Revenue Per User (ARPU)

 

Average Revenue Per User (ARPU) measures the amount of revenue generated from each customer during a certain period.

This customer success metric can give you insight into customer loyalty and how satisfied customers are with your SaaS solution.

A higher ARPU indicates that customers are more likely to stick with your SaaS product for a longer period of time, which may be thanks to your customer success efforts.

To calculate ARPU, divide total revenue by the number of active users over a specific period of time.

For example, let’s say you have 100 customers in April who paid a total of $3,000 in subscription fees that month, then your ARPU for April would be $30.

 

ARPU formula

 

9) Expansion Revenue

 

Expansion revenue measures customer success in terms of customer upsells and cross-sells.

Upselling in SaaS is when existing customers upgrade to a more expensive subscription.

While cross-selling is when they buy an additional SaaS product under your brand.

For example, let’s say your main SaaS solution is a CRM system but you also offer an integrated social media management tool. If you get a CRM user to also purchase a subscription to your social media management platform, that’s called SaaS cross-selling.

Now, customer success can play a huge role in the effectiveness of your upselling and cross-selling efforts.

You see, when your customer success team is effective in helping customers reach their goals with your SaaS product, they will be more likely to want to upgrade or buy additional products from you.

Even better, they may even need the upgrade if your SaaS product has helped their own business grow so much that their current subscription plan can no longer accommodate their growing needs.

To measure expansion revenue, track the additional monthly recurring revenue (MRR) you receive from customer upsells and cross-sells.

For example, imagine you have a customer who spends $50 per month on your SaaS solution. If they decide to upgrade to a more expensive plan or purchase an additional product, the amount of revenue that customer generates will increase.

Let’s say this customer ends up spending $80 per month on your SaaS products after your upselling and cross-selling efforts. The difference between their old subscription fee ($50) and their new one ($80) is your expansion revenue for that customer ($30).

 

10) Net Revenue Retention (NRR) Rate

 

Net Revenue Retention (NRR) rate measures customer success in terms of the recurring revenue you retain and receive from your existing customers.

It considers the following additions and deductions to your revenue:

  • Starting MRR: Your MRR at the start of the month.
  • Expansion MRR: As we just discussed above, this is the additional MRR you get from upsells and cross-sells.
  • Churn MRR: The recurring revenue you lose due to churn.
  • Contraction MRR: The MRR you lose you lose due to downgrades.

To calculate your NRR rate, add your starting MRR and expansion MRR, then subtract your churn MRR and contraction MRR. Then divide the resulting number by your starting MRR.

 

Net revenue retention formula

 

For example, let’s say your initial MRR at the start of a month is $10,000. After customer upsells and cross-sells, you have an additional MRR of $5,000. However, your customer churn and downgrades cost you $2,000 in recurring revenue that same month.

Your NRR rate will be ($10,000 + $5,000 – $2000) / 10,000 = 130%

This customer success metric can give you an idea of how effective your customer success team is in keeping customer churn low and increasing your recurring revenue from existing customers. A higher NRR rate may indicate that your customer success efforts are paying off.

 

11) Customer Lifetime Value (CLV)

 

Customer Lifetime Value (CLV) measures customer success in terms of customer profitability. It shows you the total amount of money a customer spends with your company over their lifetime (or their whole time subscribed to your SaaS product).

There are two ways you can calculate your CLV.

If you have considerable historical data about how long your customer typically stays with your SaaS product, you can compute the mean value to get your average customer lifespan.

With this method, you can calculate your CLV by simply multiplying your average customer lifetime and ARPU.

 

CLV Formula

 

For example, if the average customer lifetime is 5 years and your monthly ARPU is $50, then your customer’s CLV will be ($50 x 72 months) = $3,600.

If you don’t have enough historical data to have an average customer lifespan, you can estimate it by dividing 1 by your customer churn rate. Then you can multiply that figure with your ARPU.

If you want a short-hand solution, though, you can simply divide your ARPU by your churn rate.

 

 

For example,  if your monthly ARPU is $50 and customer churn rate is 1%, then your customer’s CLV will be ($50 / 0.01) = $5,000.

Measuring customer lifetime value can help you make better decisions when it comes to customer retention and customer success initiatives.

It gives you a clearer picture of how much customer loyalty is worth and what customer success metrics are necessary to achieve positive customer profitability.

 

12) Customer Satisfaction (CSAT) Score

 

Customer Satisfaction (CSAT) score measures customer success by gauging customer’s level of satisfaction with your product or service.

It typically involves sending customers a survey and asking them to rate their customer experience on a scale from 1 to 5, with 1 being very unsatisfied, 3 being neutral and 5 being very satisfied.

Now, your CSAT score will only count how many respondents answered with a 4 or 5, since they are the only ones who are satisfied with your SaaS product and other services.

To calculate your CSAT score, add all the number of customers who answered 4 or 5 then divide it  by the total number of respondents.

 

Sample customer satisfaction score survey and calculation

 

For example, if you had a customer satisfaction survey with 100 respondents and 75 of them chose 4 or 5, then your customer satisfaction score will be (75/100) = 75%.

High customer satisfaction scores indicate that customer success efforts are working. This customer success metric is crucial in understanding customer loyalty and customer retention.

What’s more, you can also add follow-up questions in your surveys. These will help you get more specific answers and insights into what you’re doing well and what you need to improve.

 

13) Net Promoter Score (NPS)

 

The Net Promoter Score (NPS) is another survey-based metric that is gaining a lot of popularity among the SaaS industry and other business models that rely on customer retention and loyalty.

It measures customer success by gauging customer loyalty to your SaaS.

With it, you send a survey with the question, “How likely are you to recommend our product or service to a friend or colleague?”

Respondents can answer on a scale of 1 to 10, with 1 being very unlikely and 10 being very likely.

You will then group your respondents into three:

  • Promoters: Those who answered 9 to 10.
  • Passives: Those who answered 7 to 8.
  • Detractors: Those who answered 1 to 6.

To calculate your NPS rating, subtract the percentage of Detractors from the percentage of Promoters.

 

Net promoter score survey and calculation

 

For example, let’s say you had a customer survey with 100 respondents. Twenty-five answered 1 to 6 (Detractors), 20 answered 7 to 8  (Passives), and 55 answered 9 to 10 (Promoters), then your Net Promoter Score will be calculated as follows:

55% – 20% = 35%.

In the SaaS industry, an NPS score of around 30 to 50 is considered good. A score of 50 or above is excellent.

Like with the CSAT survey, you can also add follow-up questions to your NPS survey. This will help you get more customer success insights that can be used to further improve customer loyalty and even advocacy.

 

14) Customer Effort Score

 

The customer effort score is another customer success KPI that’s used to measure customer satisfaction. It measures how easy or difficult it was for customers to have their needs met.

It typically involves asking each customer who gets help from your customer support team, “How much effort did you personally have to put in to handle your request?”

Respondents can answer on a scale from one to five, with one being very little effort and five being very high effort.

To calculate your customer effort score, simply get the average score of all customer responses.

For example, if you had a customer effort survey with 100 respondents and the average score was 3 (on a scale from 1 to five), then your customer effort score will be 3/5 = 60%.

A customer effort score that is higher than 80 percent is considered excellent. A customer effort score lower than 50% can indicate customer dissatisfaction and possible customer churn. 

 

15) First Contact Resolution (FCR) Rate

 

The first contact resolution (FCR) rate measures the efficiency of your customer support team. It counts how often they can resolve a support inquiry on the first contact.

A high FCR rate shows that your customer support team can handle issues well. So it can indicate customer satisfaction with your customer service department.

To calculate your customer effort score, divide the number of customer inquiries resolved on the first attempt by the total number of customer inquiries received.

For example, if you had 100 customer inquiries and 65 of them were resolved on the first attempt, then your FCR rate will be calculated as follows: 65/100 = 65%.

For SaaS and tech support, an FCR rate above 65% is considered excellent. However, there are a lot of factors that  can affect customer service efficiency, such as the purpose of the support concern and the level of technicality of the issue.

 

16) Customer Health Score

 

The customer health score is a very holistic and versatile metric that can measure your relationship with each of your customers.

However, calculating your customer health score can get tricky. It involves a few steps and requires close monitoring of each customer’s activity on your SaaS platform.

Here’s how you can calculate each customer’s health score:

Define customer actions that affect their health score: Every SaaS product is different. And each SaaS solution can have different types of engagement that indicate customer health.

These customer actions can include:

  • Number of sessions or log-ins in a day
  • Number of users per customer login in a day
  • Engagement with in-app survey
  • Engagement with customer success team
  • Number of features used from your product

Assign a score to each action: Once you have identified the customer actions that affect customer health, assign each action a score. It can be any number, but it should reflect how impactful that action is to customer health.

What’s more, you can even track actions that negatively affect each customer’s health and assign a negative score to it.

For example, let’s say one customer log-in could be worth a score of 5. Engagement with your customer success team could be worth a score of 20, since it shows that the customer is looking for ways to improve their use of your product.

And let’s say you’re also counting the number of unresolved support tickets, which deduct 20 points for each instance.

Multiply each action’s score by its frequency then add all scores: Now, you can multiply the customer’s frequency of each customer action by its score to get an overall customer health score.

For example, let’s say a customer logged in five times a day. With a score of 5 for each log-in, the total score for log-ins for that particular customer would be 5 x 5 = 25.

Imagine that same customer having 3 engagements with your customer success team. That would give them a total score of 60 for that particular action.

And let’s say that that customer has 1 unresolved support concern. That would lead to a score of -20.

Adding all of the scores together, you get an overall customer health score of 65.

Create a customer health scale: You have to build a system that tells you and your customer success team what the different customer health scores mean.

For example, you can define following scales for customer health score:

  • Below 0: Code red (customer has high risk of churning)
  • 20 – 40: Needs improvement (customer is not fully engaged)
  • 50 – 80: Satisfied, (customer is satisfied with the SaaS product and services)
  • Above 80: Loyal (customer has a high chance of recommending your solution to others).

Once you have calculated customer health scores, it’s important that you take immediate action for customers who are at risk.

This could include proactively reaching out to them and offering personalized help or customer education. Doing so can help mitigate customer churn and ensure customer success.

What’s more, this metric can also help you identify loyal customers who can potentially bring you referrals. Or at least improve your brand reputation by giving positive reviews and testimonials.

 

17) Customer Retention Cost (CRC)

 

Customer retention cost (CRC) is another customer success metric that measures how much money your business spends to retain one existing customer.

This includes the following expenses:

  • Payroll for customer support team, customer success team, account managers, and implementation team, etc.
  • License fees for customer support software, survey software, etc.
  • Costs for marketing campaigns directed at existing customers
  • Customer loyalty program costs
  • Training and onboarding costs

To calculate your CRC, you need to add up all expenses related to customer retention and divide it by the total number of active customers you have.

 

Customer retention cost

 

For example, if your customer retention expense for the year is $5,000 and you have a total of 50 active customers, then your CRC would be $100.

CRC serves as an indicator of customer loyalty and allows you to make sure that you are investing in customer success activities that can bring positive returns on customer loyalty dividends.

 

18) CRC Ratio

 

On its own, the CRC metric doesn’t tell the full customer retention story.

To get a better understanding of customer retention, you can look at another customer success metric called CRC ratio.

The CRC ratio compares your CRC with your overall annual recurring revenue (ARR). This ratio will give you an idea of how much of your revenue is spent for customer retention.

 

CRC Ratio Formula

 

For example, if your customer retention cost is $2,000 per month and your ARR for the year is $50,000 then you have a CRC ratio of 4%.

This means that for every dollar you make in revenue, you spend four cents on customer retention. This helps you understand customer loyalty better and provides an indication whether customer support expenses are worth it or not.

 

Final Thoughts About SaaS Customer Success Metrics

 

Measuring customer success is an important part of running a successful SaaS business.

By understanding your performance with various customer success metrics, you can track customer loyalty and make sure that customer retention activities are worth the cost.

It is also important to note that customer success metrics are not static and need to be monitored regularly. As customer needs evolve, customer success metrics should also be adjusted accordingly.

Looking for more guides to take your SaaS business to the next level? Check out our blog here.

 

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Ken Moo
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