Customer Success Metrics That Matter

Customer Success Metrics
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The best way to justify a hefty budget for Customer Success is to quantify the effects of your CS efforts. The first step is to find a way to track data so that you can calculate the metrics above. This infographic speaks of some of the most important and widely-used KPIs in the CS profession such as:

  • Customer Lifetime value(CLV)
  • Customer Churn
  • Net Promoter Score(NPS)
  • Customer Health Score(CHS)
  • Product Activity Score
  • Customer Acquisition Cost(CAC)

By definition, Customer Lifetime Value is calculated as annual revenue per customer (adjusted for gross margin) related to the churn rate. The greater the customer lifetime length (in months), the greater their value and profitability contribution through their lifetime.

Customer Lifetime Value (CLTV) = {(Average MRR) X (Gross Margin%)} / ($ Churn Rate)

In this equation, “Churn Rate” is the combined outcome of all customer interactions and touchpoints – i.e. onboarding, customer support, product fit, services delivery, relationship management. A dollar invested in Customer Success will thereby impact either the churn rate or the average revenue per customer, depending on the functional area the investment is in – retention or expansion.

Calculating churn can be a simple or a more complicated endeavor, depending on how accurate you want your churn rate to be. Customer churn assesses the number of paying customers lost from a cohort during that period of time. To calculate the Customer Churn Rate, subtract the number of lost customers during a certain time period from the total number of active customers at the beginning of that time period, and divide it by the total number of active customers at the beginning of that time period. Churn management is about identifying the valuable customers, who are likely to churn and proactively taking steps in retaining them by tracking the reasons your customers churn.

Customer Health Score is an important data point. But it is far more useful for the system to analyze changes, highlight the underlying factors causing it, and most importantly, in making recommendations for what can be done well ahead of time. Customer success scorecard can either be a score from 0 to 10 or in color like red, green yellow. It can even give the reason why your customer was unhappy, product usage, their experience at that previous interaction and other details about your customers.

NPS is a customer loyalty metric that asks the question – “How likely are you to recommend Product X to a friend? The answers are a number scale between 1 and 10, with 1 as least likely, and 10 as most likely to recommend the product or service to a friend. Many companies use NPS to measure customer satisfaction.

By monitoring these metrics and other important ones you will be able to make your case to the Executive team, and namely the CFO, who can be your champion.