Do you know what Customer Success metrics race through a Chief Customer Officer’s (CCO’s) mind all day long?
With a dizzying number of SaaS metrics—from acquisition costs and account expansion to customer churn and satisfaction—all vying for headspace, CCOs must focus on the measurements that really matter. Taking metrics out of context, paying attention to irrelevant metrics, and relying on flawed metrics that don’t tell the full story, sends your business down a dangerous path. A road riddled with misinformed decisions, hidden problems, and embellished performance.
To avoid these perilous potholes and hone your focus, we asked ChurnZero’s CCO Abby Hammer about the Customer Success metrics she cares most about and why. Read on to find out what Abby had to say.
Net Revenue Retention
Net Revenue Retention (NRR) calculates total revenue (including expansion) minus revenue churn (contract expirations, cancelations, or downgrades).
Why it matters:
As CCO, NRR is the single most important metric to me. I track this metric most closely with my team, and it has the heaviest impact on their compensation. NRR provides the truest assessment of success with our customers.
You want to retain your customers, of course. But more importantly, you want to grow with them. Mutual growth is the sign of a successful relationship. A complacent relationship is not healthy, especially for ChurnZero since we directly impact business metrics. If our customers aren’t growing alongside of us, we aren’t doing our job.
Keep in mind that customer growth is measured by more than expansion velocity. Faster does not necessarily equate to better. There are many reasons why a healthy customer may grow at a moderate pace. For instance, ChurnZero can help Customer Success slow their hiring rate by increasing the bandwidth of their existing team. For that reason, it’s important to draw the distinction between speed and efficiency.
To add a needed layer of context, you should compare NRR against logo retention. You want to ensure that strong revenue retention isn’t masking an underlying issue with logo retention. A massive imbalance between these metrics is a red flag. Looking at gross revenue retention, if 50% of your customers churn, but you have 90% logo retention, consider the amount of work that’ll be required to maintain or increase revenue.
Customer Lifetime Value
Customer Lifetime Value (CLTV) is the gross profit a customer delivers to your business in their lifetime. It’s the amount of revenue your business will make from a customer over their average lifetime as a customer.
Why it matters:
Your ratio of CLTV to customer acquisition cost (CAC) tells you how profitable a customer will be over their lifetime compared against the marketing and sales costs spent to acquire them. It’s used to forecast the financial sustainability and trajectory of SaaS businesses, and therefore their valuation.
You also want to strike a balance between the amount of time it takes to increase customer profit and when you acquired them. For example, spending a year’s worth of budget to acquire and retain a customer for their first year when you historically have a high churn rate at a customer’s one-year mark is not a healthy balance. How aggressively you accelerate CLTV depends on your expansion pathways. You ideally want a decent acceleration rate.
Customer Health Score
Customer health scoring is the process of evaluating a customer’s overall engagement and satisfaction with your company in a simple score. It is used to gauge renewal likelihood. Companies score in many ways, including assigning points, implementing rankings (A, B, C, D), or using a color-coding system (green, yellow, or red), to indicate good, average, or poor health.
Why it matters:
There is often a misguided belief that a customer’s renewal decision is solely dependent upon Customer Success. But the truth is every employee influences a customer’s health score and ultimately their decision to renew. It begins the first time a customer interacts with your brand. Marketing usually creates the first touchpoint when a customer sees a paid ad or visits the company’s website. Next, the customer interacts with Sales to confirm a match and close the deal. By the time Customer Success owns the relationship, the customer has already formed a brand and product perception independent of their experience with Customer Success. Even after they establish a trusted relationship, Product and Support still play a major role in shaping the customer’s experience.
To get granular, you can break down health scores to see where specific teams are making the greatest impact. For instance, health scores early in a customer relationship are indicative of Marketing and Sales while the health score of a tenured customer is the result of Customer Success.
Net Promoter Score®
Net Promoter Score® (NPS) is a customer satisfaction benchmark that measures how likely your customers are to recommend you to a friend or colleague.
Why it matters:
It matters less which customer satisfaction metric you use—whether its NPS, CSAT (Customer Satisfaction Score), or CES (Customer Effort Score)—and more that you are consistent with how you survey and respond to customers.
Segment by role to separate the sentiments of everyday users from executive sponsors. Survey results from business decision-makers have a stronger correlation to renewal and expansion likelihood than others.
For the full definition and formula, see Churnopedia entry: Net Promoter Score®.
To learn tips on when to survey customers, follow-up survey actions, and NPS best practices, check out our NPS Cheat Sheet.
More Essential Customer Success Metrics
If you’re looking to master more metrics, check out ChurnZero’s Churnopedia. Use this essential resource (filled with realistic examples) to learn the SaaS definitions, metrics, and formulas that every Customer Success professional needs to know.
Customer Success Around the Web
- Attract. Convert. Retain. Master Lifecycle Marketing Today.– Learn how to prevent customer churn as part of the lifecycle.
- How to Ensure Your Customer Success Initiative Thrives – Check out this article to see why most CS initiatives fail at first and how you can prevent that from happening at your organization.
- Learning New Skills for the Post-COVID Economy– See how CSMs can position themselves ahead of the curve and learn some new skills.
Fighting Churn is a newsletter of inspiration, ideas and news on customer success, churn, renewal and other stuff and is curated by ChurnZero.