Measuring Customer Success

The rise of Software as a Service (SaaS) and the pay as you go subscription model has placed a particular emphasis on customer success. While Vendors are able to increase and stabilize their revenues through recurring payments, the SaaS model also offers customers the ability to use and leave the service much more easily than before. Therefore, keeping customers consistently happy throughout the entire lifecycle of the relationship becomes more important than ever.

Customer happiness and success are critical for a number of reasons, including:

• Renewal: A huge portion of the lifetime value of a customer is realized after the initial contract period. To realize this value, it is essential that customers keep renewing.
• Upsell: Expansion through increased price points and newer products or features can drive a lot of revenue. The best SaaS companies are able to generate incredible expansion and the compounding effect can boost revenue significantly.
• Brand value: Happy customers are a great source of leads and have a massive impact on a company’s brand

The absolute last thing you want is to show up at the renewal time and get a no. As a result, customer success is a core product requirement today. Companies have to be customer-centric and laser-focused on understanding and measuring how they are keeping customers happy. This is even more important given COVID and the dramatic shifts we are seeing in the economy. Sound customer support, success, and retention strategy can be the difference between going out of business and thriving.

High-level Metrics

The first step to a sound strategy is measurement. The first tier of metrics is the top-line financial and customer satisfaction scores. Typically, these are easier to measure and track, and most founders have an idea of which direction they are going:

Logo Retention: A simple count of how many of your customers that were up for renewal are resubscribing every year. A good retention rate depends on the market, type of customer you are selling to, revenue model, purchase frequency, and where you are in the GTM fit journey, but generally anything above 80% is good.

Net Retention: A better measure that takes into account expansions and downgrades is net retention. This is how much a cohort of companies pays in a given time period compared to the previous one. The compounding effect of a good net retention number is incredible. The average net retention is around 106%, while the great companies have a net retention of at least 120%.

Customer Satisfaction score (CSAT): CSAT scores are usually determined via surveys through email, phone, or the product itself. One example of such a score is NPS, which basically asks “How likely are you to recommend to a friend or colleague”. The formula for the overall score is (% of Promoters — % of Detractors). CSAT or NPS scores give a mix of overall customer satisfaction and even young startups can benefit from running frequent surveys, especially when the product is evolving rapidly. The numbers vary, but an NPS around 50 is good.

More Precise Metrics

The logo and net retention are important high-level metrics, but there are also more granular ways to think about your customer base. Consider this graph below, which shows how one theoretical SaaS company’s renewing contracts are shaping up for the upcoming year:

This is a high-level dashboard that indicates trends in the customer success strategy. It splits the company’s customers into the following buckets:

• Expected to Win (blue)
• At-Risk (yellow)
• Lost/On Fire (red)

In the ideal world, everything would be blue. Seeing more yellow and red as we move to the right means more customers are at risk.

At this point, the second-order question we need to answer involves breaking down the cohort of customers who are at risk of churn. Is there an issue with:

• Our product?
• The use case not being a fit for a customer?
• Our processes around customer success?
• The way we communicate?
• Our brand itself?
• A customer itself is outside of our control?

How do you put your customers in these buckets? This is where the next tier of customer success metrics comes into play:

Usage

One of the most common issues is that your customer might not be the right one for your product, which means your product doesn’t solve an urgent pain point for them. Or maybe your customer is having trouble with the product experience. Usage metrics like the number of transactions per day or user actions within a certain time frame can give you hints on whether your users are having issues like this. Fortunately, there are a number of products on the market that can help you measure usage and engagement, like Gainsight or Pendo.

Relationship strength

Another important area to track is the strength of your relationship with your customers. Typically, there’s a champion somewhere within each of your customer organizations who likes your product and its value proposition, and has championed adoption; this person might be (but isn’t necessarily) your end user. Building relationships with all stakeholders within an organization — including the person who has the authority to ultimately purchase your product — is critical, which means systematically mapping out each of your customer organizations should be a high priority. One of the most common reasons for churn is that your champion left the company and you didn’t build a relationship with the next person in line, so they only hear from you when renewals come up. That doesn’t typically bode well for success.

Customer Support

The support and success processes within your organization can have a huge impact on the potential for renewal and upsell. When there are issues that come up:

• How quickly do you respond?
• Do you provide good access to documentation and support?
• How reactive you are to their needs?
• How often do they reach out to you? Number of tickets is a good indicator

Having an efficient and responsive support organization can overcome a lot of customer complaints and concerns, turning at-risk customers into happy ones. This point repeatedly comes up in customer references and is critical for a startup trying to make its mark. Here’s an example of a dashboard that tracks multiple customer support metrics:

Onboarding Speed

An often overlooked aspect is customer onboarding. This is often the first experience that a customer has with the solution (besides a demo or a trial) and it is important to avoid delays there. An important metric here is ‘time to first value’. The shorter and more compelling that is, the more sticky the product will be. More complex products with higher contract values can take a while to deploy and it is important to demonstrate enough value before renewal.

Customer References & Community Engagement

Customers play a vital role in building a company’s brand and demonstrating the value of the product. Engaged and passionate customers can have a huge impact on brand, growth, and retention. As part of surveys or check-ins, it is important to determine if customers are willing to be ambassadors and advocate on your behalf. This can be simple — from writing an online review to serving as a reference. For startups that have built robust communities, customer participation is crucial for the community to thrive. Happy customers engage in these activities often — while the lack of enthusiasm can be an early warning signal.

Customer lifetime value (CLV) and customer retention cost (CRC)

One of the most critical aspects of running a business is aligning the business model with your customer base. While it’s essential to support customers and ensure that the right experience and value are delivered, the support strategy also has to be cost-effective:

• SMBs with small account values will not be able to sustain a full-time support staff
• Enterprise-level customers with 6 figure contracts will require 24/7 support

Providing 24-hour support for a small customer might be important in the early days when you’re still figuring out the value proposition and building your brand. Another strategy is to build a passionate user community capable of addressing a portion of customer requests and concerns. But even then, tracking the customer lifetime value with the cost of acquiring customers is important. New product introductions, pricing tiers, and a supportive customer base can swing these metrics significantly.

Finally, it is also important to appropriately compensate and measure the performance of the customer success team based on these metrics. There can be team-wide and individual customer success reps goals, but the more ingrained and disciplined the team is about measuring the efficacy of the customer success processes, the easier it is to improve them.

The Coronavirus Situation

The COVID situation presents unique challenges to customer success teams. Almost every company is impacted, some positively and some negatively. In such an environment, the standard playbooks might not be enough and teams have to try new approaches to support customers through difficult times. The primary goal here is to share the burden and limit churn. Avoid being too strict with contracts while customers are in trouble but also reaffirm the value of your product by not giving it away for free.

• One option is to give short term relief to customers in the form of delayed payments or free months to help in lean times. If your pricing is tied to usage, this will naturally happen, but empathy at a time like this can build a loyal customer base
• Adapt the messaging and value proposition of the product to highlight benefits in the current situation. Some solutions are well suited to the distributed and remote environments and if the product can provide value there, customers are more likely to stay and expand.
• Discounts for adopting new product lines, expansion within a customer or longer-term contracts can provide stability for both parties.
• Regular events and outreach to support the company’s brand and community can play an important role in mitigating churn and accelerating recovery.
• The Go-to-Market will also need to evolve since customers and prospects are trying to preserve cash. Free trials and a more product-led GTM can help build the pipeline and sustain growth.
• Finally, it is important to keep the customer success teams motivated in such times when even the best efforts might not bear fruit. Flexibility with service level agreements (SLAs) can help avoid burnout in the organization.

Customer success and support are vital functions for any business. Prioritizing customer needs, measuring and tracking the relevant metrics, and adapting to the changing environment can make the difference between thriving and failure.

The condensed version of this article was originally published in the Startups Magazine.