January 16, 2020

How Should Customer Success Teams be Measured?

4 min read

Written by: Taylor Forest  |  Share:

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Customer success and customer experience go hand-in-hand. One handles the reactive events that arise unscheduled. The other works to ensure your customers receive the best customer service and are excited about every interaction. 

But how those functions are managed will vary depending on each company’s structure and how its product or service is leveraged by its customers.

Regardless of how the team is structured, the overall goal of customer success teams is generally customer retention. But how do you translate that into a method for measuring your team’s performance?

Research from Totango found that 50% of customer success teams are responsible for revenue targets. That responsibility is further reflected in their compensation with 52% getting bonuses based on renewals and 30% getting bonuses based on upsells. 

But contribution to revenue isn’t the only way to measure customer success teams’ performance.

Ways You Can Measure Customer Success Teams

NPS

NPS (Net Promoter Score) is a scale measuring how loyal a customer is. This is determined by asking the question “How likely are you to recommend [company, product or service] to a friend or colleague?”. 

Net Promoter, Net Promoter Score and NPS were developed by, and are registered trademarks of, Bain & Company, Inc., Satmetrix Systems, Inc. and Fred Reichheld.

NPS is a leading indicator of renewals. If you’re receiving high scores from all the customers you work with, that indicates that your customers are happy enough to want to renew.

NPS tells you wholistically how accounts are feeling about their engagement with your company. It can be used to understand sentiment trends over time with specific accounts or your aggregate portfolio of accounts.

On the other hand, NPS can be volatile due to occurrences around when the survey is sent. Human nature makes people more likely to react negatively in the moment without taking into account the overall experience. One fluke can skew your NPS score from an individual customer. 

Sending these surveys at a consistent, periodic basis (that doesn’t overlap with when a customer is up for renewal) can reduce your odds of getting skewed results, but that still won’t completely eliminate volatility.

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Retention/Churn

Retention and churn correlate most closely with the goal of customer success teams. However, if you have multiple products or services or those offerings aren’t sold as retainers or subscriptions, this can be hard to measure.

In cases where you sell fixed-fee or one-off products or services, the ability to use retention as a metric will come down to how you define retention. For example, if a customer buys a new project once their current engagement concludes, your company is retaining them. But, if the new project is from a different portion of your business than the original work they purchased, that can be hard to track.

You can measure retention at a high-level by just looking at how many clients you started with versus how many clients you currently have, but that doesn’t account for the natural churn of accounts and the addition of new clients starting. Company growth from customer acquisition can artificially inflate your metrics if you look at retention at such a high level.

A better way to measure customer retention would be to conduct a cohort analysis, whereby you track customers in groups based on when they started working with you and see how many are still customers after a certain period of time. That can still be difficult to track, though, if customers switch services or product lines. 

However, if your business is set up in a way that allows you to easily measure retention and churn, retaining your customers month-over-month is a clear indicator of your company’s health.

Bookings

Bookings, or revenue contribution, is also an indicator of actual retention. 

This is a simple way to track how clients are progressing and being retained. Plus, it can accommodate multiple product or service lines since fixed fee and retainer offerings can both be translated into dollar amounts.

The downside of using bookings as a measurement for customer success is that it can lead to client sentiment being overlooked in favor of a focus on upsells and renewals in an effort to meet a revenue goal. 

Customer Lifetime Value

Customer lifetime value (CLV) is one of the most accurate ways to measure customer success because it tells you what a customer is worth to your company. Unfortunately, it’s complicated to calculate because it requires multiple systems capturing data that spans the entire customer lifecycle from first touch to the end of service delivery. 

For a subscription model, you find CLV by multiplying subscription cost by how long a customer is retained. Then to get more granular, you can take customer acquisition cost (CAC) into account. However, if you have multiple one-off sales, determining how much is spent by each customer isn’t as clear cut. 

Qualtrics sums up how to determine CLV with the formula “Customer revenue minus the costs of acquiring and serving the customer = CLV,” adding that “functions can be added to this simple formula to reflect multiple purchases, behavior patterns and engagement to predict CLV.”

In order to use this as a measurement for your customer success team, you need to identify the right data points to use for your company. 

Takeaway:

At New Breed, we build our client success managers’ goals around bookings because it can capture the various services a client might be using and can provide visibility into that data on a monthly basis.

We still use NPS, retention and CLV to measure customer success as a whole, but the individuals on the team are not compensated on these metrics.

To determine what metric works best for measuring success at your company, you need to evaluate the information you have at hand and determine what data you can obtain for your desired timeframe. The way your measurement system ties into incentive programs will need to be taken into account when determining the timeframe you’re looking at as well.

The final factor to consider when determining what system works best for you is the size of your team and the capacity they have to influence the metric they’re measured on. For example, if you have a small team that manages a large number of accounts, bookings might not be an effective goal. If they’re handling general support and reporting for numerous accounts, they might not have the capacity to work proactively toward a booking goal so retention or NPS might be more suited to measure the work they’re doing.

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Topics: Reporting & ROI, Revenue Operations

About The Author

Taylor is COO and Director of Customer Success at New Breed. He is dedicated to providing excellent service to our wonderful customers.

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