A decade ago, customer success was a term that did not quite exist. Customer support and customer care ruled the roost. It was only during the past decade when SaaS rose to power as the uncrowned king of business models, did customer success become mainstream. In a way, it is the growth of the SaaS business model that has put customer success in the spotlight.
Even the C-suite members have started to realize the strategic importance of customer success in the long-term growth of a SaaS product. According to Totango, 83% of Customer Success (CS) teams saw growth in team size in 2018.
Customer success helps achieve three major objectives:
Improve customer happiness.
Reduce customer churn.
Lincoln Murphy, the customer success expert describes customer success as thus:
So, customer success is also about ensuring customers achieve their Desired Outcome. Now, how can a SaaS business measure how effective it is in helping customers achieve their desired outcome? The following customer success metrics help with that.
Customer Success Metrics That Every SaaS Business Must Track
Guesswork will never help a business grow. Looking at real numbers or metrics is what helps a business scale. The success of a SaaS business can be measured with these metrics.
Table of Contents
Average Revenue Per Account (ARPA)
Customer Lifetime Value (LTV)
Customer Retention Cost (CRC)
1. Average Revenue Per Account (ARPA)
It helps evaluate the revenue generation capacity of the business. ARPA shows how much revenue each customer or account yielded during a definite period of time.
2. Customer Lifetime Value (LTV)
Customer lifetime value is an approximate measure of the net profit that the business would make with over the life of the customer. In SaaS, CLV should ideally be more than the cost of acquisition. CAC is the cost incurred to achieve a new customer or account.
3. LTV/CAC ratio
The LTV/CAC ratio shows how much revenue is yielded for every dollar (or any other currency) spent on customer acquisition. An LTV/CAC ratio, like 3:1, indicates that for every one dollar spent on customer acquisition, there is a yield rate of three times — which is a healthy number.
4. Churn Rate
Churn is the number of customers who cancel their SaaS subscription during a given period of time. Churn rate can also be calculated based on the number of customers (customer churn) and revenue lost due to churn (revenue churn).
5. Customer Retention Cost (CRC)
Customers need constant support, both technically and non-technically to stay onboard. Customer retention cost measures that cost incurred to retain the customer’s subscription.
Does measuring metrics help customer success teams slay it at work? Not entirely. If you are part of a customer success team, you must know what the rest of the world is doing to keep their metrics in good health.
You must have a pulse of the emerging trends in SaaS customer success, some of which are discussed below.
Emerging Trends in SaaS Customer Success
Here are some happening trends that are shaping up the present and the future of customer success.
1. Customer-Centricity as a Culture
One of the trends that are commonplace in customer success is the adoption of customer-centricity as an organization-wide culture. If you think about it, customer success is a practice of empathy. It is everything about understanding the pain points of customers, what their needs are and how the SaaS product can solve it.
Organizations have been quick to understand that SaaS customer success teams also need to embrace an organizational culture where customer happiness is the first priority. The fact that 86% of customers will pay more for a product or service if they receive a better customer experience also makes customer-centricity a key trend to note for customer success teams.
Slack is one company that has understood the importance of customer-centricity early on. The company is also active on social media, listening to customer feedback and complaints.
They have incorporated feedback collection into its product strategy from day one. The company has also set a great example for SaaS companies by focusing on customer-centric metrics like NPS and CES more than app usage figures.
2. Real-Time Support Everywhere
The rise of the omni-channel era has definitely influenced customer support as well. Customers of today want instant answers to their queries. A day is too long, an hour is an impatient wait. What works is instant replies through a live chat software or a chatbot.
Customer success teams also need some sort of automation to reduce the incoming torrent of customer queries. Live chat interface helps tackle that challenge in a productive way without compromising on the quality of service. Live chat software provides real-time support along with rich media content which resolves customer queries faster.
3. Revenue Growth Over Churn Reduction
Churn is a nightmare for any SaaS business. Until yesterday, customer success teams were driven by the purpose of preventing customer churn and ultimately keeping the subscription alive. However, that landscape has started to evolve lately.
Today, customer success managers and teams also don the hat of product evangelists who can upsell and cross-sell to existing customers. In other words, customer success revenue growth has become a top priority while churn reduction has taken a backseat.
4. Customer Life Cycle Optimization
Customer life cycle maps the customer’s journey from the beginning until the end. Customer support has a vital role in elongating the customer life cycle as much as possible. It is a continual process that touches base with the customer frequently to provide support and collects feedback instead of acting as a one-time event was only support is provided.
Customer lifecycle optimization begins with the lifecycle optimization, data discovery about customer preferences, predictive groundwork about possible roadblocks in the customer journey and finally offering guided outreach to maximize the customer lifecycle.
The end result of customer life cycle optimization is that customers stay longer, which reduces the combined cost of customer acquisition.
5. Augmented Customer Advocacy
Customer success is no longer about creating happy customers. It is also about making those happy customers spread the word about their business because word of mouth still remains the best marketing medium; even in today’s digital age.
It has become a trend for customer success managers to ask for product reviews, testimonials, and star ratings from customers on product review forums and communities. This is essentially augmented customer advocacy where happy customers are used as ambassadors to win new customers.
The good news is that customer advocacy has a multiplier effect, especially with the content distribution power of social media. A single positive review can have a snowball effect wherein multiple customers submit reviews. It also persuades prospects who are sitting on the fence to make a purchase decision.
Customer success is more or less building a relationship with customers. It is a continual process that spans years, and not a transactional event that terminates within a day. Measuring customer success requires managers to keep track of key metrics that indicate the overall health of the SaaS business. Alongside metrics, customer success managers must also keep a tab of emerging trends that will characterize the present and future of customer success.
Sawaram Suthar is CMO at Acquire, and also a founder of Jagat Media, a digital marketing agency. A digital marketing consultant, he has experience in things including branding, promotions and page optimization, along with research and strategy. He has an MBA from the University of Pune. Anyone can find him on @sawarams.