A survey from the Temkin Group shows that bad news isn’t the only thing that travels fast. They found that 77% of customers would recommend and provide a referral to a company to a friend with whom they’ve had a great experience.
In the dynamic landscape of customer-centric business models, achieving success is not merely about attracting customers but, more importantly, retaining and satisfying them. This is where the realm of Customer Success KPIs comes into play. But how do we measure success in customer satisfaction and retention?
Enter Customer Success KPIs with MeltingSpot – the key to unlocking insights and ensuring the long-term prosperity of your business. Before we explore the intricacies of the Customer Success KPIs, let's break down the jargon.
Customer Success
Customer Success is a business strategy and practice that ensures customers achieve their desired outcomes and derive maximum value from a product or service. It involves proactive engagement, support, and collaboration to enhance customer satisfaction, loyalty, and long-term success.
According to McKinsey, up to 50% of a company's growth is based on customer success.
KPIs (Key Performance Indicators)
KPIs (Key Performance Indicators) are quantifiable metrics that measure the success of an organization in achieving its goals.
Customer Success KPIs (CS KPI)
A set of metrics that provide a holistic view of how well a company is serving its customers. And who's responsible for overseeing this?
KPI Customer Success Management
The Chief Customer Officer (also known as CCO) or the Head of Customer Success is the custodian of customer satisfaction and loyalty in an organization and obviously manages the CS KPIs.
It involves a great knowledge of the Customer Success Key Performance Indicators (CS KPI) process, overseeing the implementation of KPI, interpreting data insights, and coordinating initiatives to enhance customer experiences.
Most Important Customer Success KPIs Benchmark
Benchmarking KPI involves systematically measuring and assessing a business's performance against established benchmarks or industry best practices. Through this evaluative process, companies can glean valuable insights into their standing within their industry, pinpoint areas for enhancement, and establish pragmatic targets for their KPIs.
Let's look at the most important KPIs with MeltingSpot.
Churn Rate
It is the percentage of customers who have stopped using a product/service within a given period, indicating customer attrition.
Formula to calculate churn rate
Churn rate = (No. of customers canceling / total No. of customers) x 100
For example, if 1,200 customers out of 100,000 total canceled last month, your churn rate = 1.20%.
Studies reveal that a subscription company's average annual churn rate is between 5-7%, and a 3% monthly churn rate is good.
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) in SaaS is the total amount of money a company expects to earn from its subscription-based customers each month.
Formula to calculate Monthly Recurring Revenue (MRR)
MRR = (total accounts for the month) x (rate per account)
For example, you run a software company that charges $10 per month for each user. If you have 100 customers using your software, your MRR would be $1,000 ($10 × 100) for that month.
Average Revenue per Account (ARPA)
The Average Revenue per Account (ARPA) in SaaS is the average amount of money a company earns from each customer or account.
Formula to calculate Average Revenue per Account (ARPA)
ARPA = MRR / No. of accounts
Let's say your SaaS company has 50 customers, and your monthly revenue is $5,000. Your ARPA would be $100 ($5,000 divided by 50). This means, on average, each customer contributes $100 to your monthly revenue. ARPA helps businesses understand the average value they receive from each customer relationship.
Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV) is the total amount of money a company expects to earn from a customer throughout their entire relationship. Churn rate significantly influences this metric, especially when averaging the performance of various customers.
Formula to calculate Customer Lifetime Value (CLV)
CLV = (1/churn rate) x ARPA
Suppose a company boasts a monthly churn rate of 8%, and its Average Revenue per Account (ARPA) is $30. To calculate the Customer Lifetime Value (CLV), we use the formula CLV = 1/Churn Rate x ARPA. In this case, CLV = 1/8% x $30 = $375 for customers with monthly subscriptions.
It is reported that It is a good range if a company can achieve a CLV that falls between 3-5 times the cost of customer acquisition.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) in SaaS is the total amount of money a company spends to acquire a new customer.
Formula to calculate Customer Acquisition Cost (CAC)
CAC = (total cost of sales and marketing) / (No. of new customers)
Imagine a SaaS company investing $500 in marketing and sales efforts monthly. During that month, they acquire 10 new customers. The CAC would be $50 ($500 divided by 10). This means it costs the company an average of $50 to acquire each new customer.
Net Promoter Score (NPS)
NPS measures the likelihood of customers recommending your product or service, serving as a powerful indicator of customer advocacy and brand loyalty.
A single-question survey asks customers: "How likely are you to recommend [Brand/Product/Service] to a friend or family?"
To respond, customers use a 1-10 scale of how likely they are to recommend that business or its offerings:
0-6: These are detractors or unhappy customers who are most likely to discourage people they know from engaging with that brand, product, or service.
7-8: These are the passive audience. They are satisfied with their experiences, but not so much that they would give high praise or promotion.
9-10: These are the promoters. These customers are the most loyal, enthusiastic about the products or services, and most likely to recommend the brand to others.
Formula to calculate Net Promoter Score (NPS)
NPS = (No. of promoters / total No. of survey respondents x 100) - (No. of detractors / total No. of survey respondents x 100)
It's important to benchmark these KPIs against industry standards to assess the effectiveness of your Customer Success initiatives and identify areas for improvement.
Other CS KPIs Benchmarks
Annual Run Rate (ARR)
In SaaS, the Annual Run Rate is the yearly version of MRR or Monthly Recurring Revenue.
You can easily calculate ARR by multiplying MRR by 12.
Formula to calculate Annual Run Rate
ARR= MRR×12
For example, a SaaS company that charges $30 monthly for its software subscription. If they have 1,000 subscribers, the Monthly Run Rate (MRR) would be $30,000 ($30 × 1,000).
To calculate ARR, you multiply the MRR by 12 (for the number of months in a year). In this case, the ARR would be $360,000 ($30,000 × 12), indicating the anticipated annual revenue based on the current subscription model.
Viral Growth
In SaaS, Viral Growth KPI refers to the rate at which a product's user base expands through word-of-mouth referrals and organic sharing. It measures the ability of a SaaS product to attract new users through existing users recommending it to others.
Formula to calculate Viral growth
Viral growth = (No. of invitations sent) x Conversion Rate
For instance, with 200 customers, your SaaS company sees each customer generating an average of five referrals. If 150 referrals convert into customers, the viral growth would be 75%.
Net Burn Rate
The Net Burn Rate in SaaS represents the rate at which a company consumes or generates cash. It specifically focuses on the monthly net cash outflow, considering both revenue and expenses.
Formula to calculate Net Burn Rate
Net Burn Rate = Monthly Expenses − Monthly Revenue
Suppose a SaaS company has monthly expenses of $50,000 and generates $30,000 in monthly revenue. The Net Burn Rate would be $20,000, indicating the cash the company is burning each month.
Net Revenue Retention
The Net Revenue Retention in SaaS aggregates retained, contracted, and expanded revenue over a defined period, usually a month or a year. It is computed by subtracting revenue churn (resulting from contract expirations, cancellations, or downgrades) from total revenue, including expansion revenue. NRR serves as a metric to assess the capacity to retain and expand customer relationships, offering valuable insights into the overall health of a SaaS or subscription-oriented business.
Formula to calculate Net Revenue Retention
Net Revenue Retention = MRR at Start of Month + Expansions + Upsells – Churn – Contractions / MRR at Start of Month
In the realm of SaaS and subscription-driven enterprises, a net revenue retention rate surpassing 100% is deemed favorable, signifying growth through a stable customer base and minimal churn. When monitored in conjunction with gross revenue retention, NRR offers a snapshot of a business's overall profitability.
As per a 2022 study by ChurnZero, teams utilizing a dedicated Customer Success platform revealed a net revenue retention (NRR) exceeding 100% in 57% of cases, in contrast to slightly over 46% for teams lacking a CS platform.
Accelerate SaaS Business with MeltingSpot
To take your Customer Success and SaaS businesses to the next level, consider integrating MeltingSpot, our powerful customer education platform to your product. MeltingSpot seamlessly integrates with your existing systems, offering a comprehensive solution for onboarding, training, and engaging your customers. So, Start Your Journey NOW!
Conclusion
Customer Success KPIs is not a one-size-fits-all solution. It's a dynamic and evolving process that requires a deep understanding of your customers and a commitment to continuous improvement. By embracing and mastering these metrics, businesses can cultivate lasting customer relationships and pave the way for sustained success in an ever-changing market.
