Customer success has gained increasing importance for B2B companies, especially software-as-as-service models. This is attributed to the massive success of SaaS delivery vs. traditional software product delivery, which is growing nearly 5 times faster than the software market as a whole. By offering software services through a subscription model (as opposed to a one-time buy), ensuring the happiness and satisfaction of customers trumps company profits. This is because you wouldn't generate any revenue without returning customers.
Customer satisfaction and success is vital to business health.
While some view customer success as a challenge for SaaS, I believe that with the adoption of a new business model comes a new adaptation of internal structure and process. Traditionally companies, especially product-based ones, incorporated a customer service department to advise and help customers.
The only difference today is that customer success teams are composed of "unicorns." These people are individuals who possess an ability to provide remarkable customer support and are well-versed with the product/service, yet are prolific in sales and are comfortable in upselling and expanding accounts.
Satisfied, returning customers not only help to keep monthly recurring revenue consistent, but also will likely refer new business to you. Convinced customer success is important? Then you must implement a plan to incorporate customer success into your organization. That begins with identifying, measuring and analyzing specific metrics.
Just beginning with customer success? Start with these three metrics.
Many VCs will argue that churn is the single most important metric SaaS companies could be measuring. While I'll leave that up to debate, there's no denying the weight of churn on business growth. Churn can be measured in many different ways but at its core, it is the percentage of customers who were able to cancel their subscriptions to your product over a certain period of time and did so.
Traditionally, most companies measure churn as the MRR that cancels in any given month as a percent of the total MRR with which they entered the month. But churn isn't a "one-size-fits-all" metric. Here are the other ways to measure churn:
- By customer
- By number of users/licenses
- By product downgrade
- By net MRR
LTV is the amount of revenue generated per customer on average across your entire client base over its entire lifetime. Essentially, this metric helps in determining what a customer is worth through analysis of capital needed to invest in customer acquisitions successfully, and how profitable that customer will be for the business. By measuring customer LTV, your team will be able to better understand how acquisitions strategies at the top of the funnel effect LTV at the bottom of the funnel. This is a key indicator for growth and success.
Customer Acquisition Cost
CAC helps your overall team understand the investment required to acquire a new customer, which is critical to budgeting and tactical allocation toward the most profitable strategies/channels. CAC is more than a marketing and sales cost, but also a customer success cost. With customer success teams bringing in higher percentages of revenue due to upsells, 25–50 percent of customer success costs need to be added to all marketing and sales expenses.
Take customer acquisition metrics a step further.
Depending on your business, there are many, many more customer success metrics to be measuring and analyzing in order to maintain customer happiness. As a SaaS business, you're focused on solutions and making life easier for your users. To do so you must constantly improve and evolve your product, service and team.
Here's a short video from Totango on measuring customer success from industry experts.