It is a truth universally acknowledged that a happy online business means a happy customer. Customer feedback is key for subscription businesses. Not only it determines whether the customers will be willing to pay for their services, but also because it is in people’s nature to recommend others services or products they are satisfied with and be even more vocal if they are unhappy with them. That is the best marketing you can get. To make sure of it is the purpose of the existence of Customer Success.
The goal of measuring the customer satisfaction is to provide them with the best customer service possible and, through that – to gain their loyalty and ultimately – increase their numbers. Customer success metrics were developed for that purpose.
Why should you use customer success metrics?
Customer success metrics allow tracking various aspects of customer service to evaluate its progress. No metric would provide the full information on the successful customer service; however, a number of them allow to see a bigger picture. Observing the patterns and trends in those metrics makes it possible to estimate what works, what can be improved and what can be introduced to fulfill customer demands.
Below there are 9 customer success metrics that are worth taking into account when measuring customer satisfaction level and its possible outcomes:
1. CUSTOMER SATISFACTION SCORE (CSAT)
This is a customer success metric used to measure how satisfied the customers are with the service, expressed as a percentage. It is possible to measure it with one YES/NO question which would give a clear indication of satisfaction level:
Were you satisfied with our service today?
The other way is to use a scale, usually a 1-5 scale:
On the scale from 1 to 5, what is the level of your satisfaction with our service today?
1 = very unsatisfied
2 = unsatisfied
3 = neutral
4 = satisfied
5 = very satisfied
CSAT would be the % of the users that choose the options 4 & 5.
This scale could be also reduced to 3 responses:
1 = unsatisfied
2 = neutral
3 = satisfied
Then this customer success metric would be based on the % of users who chose option 3.
A great idea is not only to check the CSAT score in itself but also give the respondents the possibility to express their concerns and issues if their CSAT level is inadequate. Survicate’s sample survey allows customizing the screens to include the text answer from the customer.
Read more about possible solutions that help to track this metric.
2. NET PROMOTER SCORE (NPS)
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In his book, The Ultimate Question: driving good profits and true growth, Frederick Reichheld defined the customer success metric that is Net Promoter Score (NPS) as “based on the fundamental perspective that every company’s customers can be divided into three categories. Promoters are loyal enthusiasts who keep buying from a company and urge their friends to do the same. Passives are satisfied but unenthusiastic customers who can be easily wooed by the competition. And Detractors are unhappy customers trapped in a bad relationship.”
In other words, NPS is the indicator of the customers’ loyalty and whether it is likely or not for them to recommend a product or service to other people.
This metric requires asking the customers specific, scale-based questions.
A good example would be: “How likely are you to recommend (company/product/service) to a friend?”
As presented on below NPS is calculated based on the % of customers who would, on the 0-10 scale, choose options 9-10 or, on the scale 1-5, would choose option 5.
What is important, the above question should be followed with another that would allow the customer to express their sentiments, whether in text or using single/multiple choice question. It enables responding to customers’ needs more efficiently and estimating what should be improved in the customer service.
Survicate app allows to create NPS surveys for various platforms and to design them to best suit the user’s needs. What is great is that it enables to add the option for the respondents to give their reasoning for the given score.
Read more on NPS and best practices of using this metric.
3. CUSTOMER EFFORT SCORE (CES)
Image source: Heart of the Customer.com
This customer success metric is most useful for measuring the “amount of friction” the customers experience while performing tasks/solving their problems on your app or website.
The question recommended by experts to use for measuring CES is:
To what extent do you agree or disagree with the following statement: the company made it easy for me to handle my issue.
The respondents should be able to pick one from 7 options:
Strongly disagree – Disagree – Somewhat disagree – Neither agree nor disagree – Somewhat agree – Agree – Strongly agree
It is easy to gather that, after aggregating all the results, the average high scores indicate that your company is providing smoother and more comfortable solutions for the customers. Low numbers mean that customers are required to put too much effort to use your products. In other words, things should be straightened out. Effective customer service should be able to remove friction and make the experience as user-friendly as possible.
4. CUSTOMER LIFETIME VALUE (CLV or LTV)
The authors of the textbook Marketing Metrics: the definitive guide to measuring marketing performance define Customer Lifetime Value (CLV): “Customer lifetime value is the dollar value of a customer relationship based on the present value of the projected future cash flows from the relationship.”
What does it mean in practice? CLV metric reports the profit/loss that is expected from an individual customer over time.
Why is it useful for the business? CLV determines the value of the customer and allows to segment the customer base. It is crucial for creating the customer persona and optimizing the marketing and customer service to their satisfaction.
The greatest benefit of CLV is that it helps to decide where it is worth it to spend more resources and to improve the relevance of the products and services to the customer’s needs.
How to calculate CLV? There are various ways to calculate this metric. A good example of a basic CLV/LTV formula is the one provided by ChartMogul team:
- ARPA: Average Revenue Per Account (The average MRR across all of your active customers)
- Gross Margin: The difference between revenue and COGS (Cost Of Goods Sold). This is typically extremely high in SaaS (>80%)
- Customer Churn Rate: The rate at which your customers are canceling their subscriptions.
This formula is a great start for more complicated calculations; however, it is only a rough estimate and should be treated as such.
5. CUSTOMER CHURN RATE
This is a customer success metric that is important because it shows the customer retention level. It indicates the % of customers who canceled or did not renew their subscriptions within a specified period.
It is worth to track the number of non-active customers as they may also churn in the future. The CS team, taking into account various metrics, has the possibility of predicting, for example, that if the users did not log into the app for two weeks using a monthly plan, it is very probable that they would churn within a month.
Customer churn rate is essential as its high level indicates the failure in achieving customer success. It is a metric that would be best to improve in the first place.
Even more important than tracking the customer churn rate is determining the reasons customers are leaving. Some may cause involuntary churn (e.g., a customer goes out of business), but the other type is voluntary churn, that is most probably caused by customer dissatisfaction with a product, service, or the company. It is especially important to mitigate the latter, as it is directly connected to the service provider.
Survicate uses a customer questionnaire with a blank space for the user to provide the reason for churning. This information is gold because it helps to improve the app and customer service to improve on the indicated issues.
6. CUSTOMER HEALTH SCORE (CHS)
It is a customer success metric related directly to the customer churn rate. This metric enables to determine whether the customers are likely to stay or churn.
Customer health score may be expressed in various scales and forms, and it takes into account different aspects of the customer information.
Usually, calculating the CHS is based mostly on the level of activity of the customer, their NPS, products purchased and any additional feedback they could give.
The results of estimating CHS may be also expressed in various scales. The example below uses smiley face scale.
7. MONTHLY RECURRING REVENUE (MRR) and ANNUAL RUN RATE (ARR)Image source: Graphicsbuzz.com
These two metrics form one part of this article because they are very closely connected. In general, MRR is the basis to calculate ARR, but we will get back to that later.
MRR (Monthly Recurring Revenue) measures the parts of the subscription business that are recurring and predictable. It usually does not take into consideration the one-time and variable fees; it reports the normalized monthly revenue.
Calculating MRR depends on the plans offered by a company. In Survicate’s case, there are monthly plans; therefore, MRR is the price that users pay each month for the subscription. If there are any plans for a more extended period, MRR would be calculated by dividing the amount paid by the number of months included.
With ten users using $10 monthly plan, the MRR would be $100. If four new customers were using a more expensive, $20 monthly plan, the MRR would then increase to $180/month.
What is very important is that MRR is not only that single number to be taken into account. There are various components of MRR. A company may calculate different MRR from sales, upgrades, renewals, losses or individual campaigns.
It is worth to note that MRR may seem like “revenue,” but in fact, it should not be treated as such. It calculates the expected income from the subscriptions and serves as a basis for further analysis. By changes in MRR many other metrics may be predicted, and it allows to see if the new changes and innovations to the business translate into more money from subscriptions.
Annualized Run Rate (ARR)
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Annualized Run Rate (ARR) in general, is a report of a full year of MRR.
Calculating ARR is easy:
As with MRR, a company may calculate a general ARR for the company, but also for its various components, new users, VIP users, losses, particular campaigns, per target user group, per salesperson, etc.
With MRR per a target user group equaling $200 and not changing (due to, for example, using the annual or six-month plans), the ARR would be $2400.
What is the purpose of ARR analysis? It reports on the size of the business. It may seem unrealistic, as it does not take into account possible churn, new customers or plan expansions from the existing customers, but this metric is very helpful to visualize the annual growth.
What may be the issue in calculating ARR? In seasonal businesses, some month’s MRR may be much different from the other. That is why it is then worth to calculate ARR on a quarterly basis (calculating the whole MRR per quarter x 4, not 12).
8. FIRST RESPONSE TIME
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This metric is also called First Reply Time. This means the average amount of time it takes to respond to a case after it’s submitted. Customers require responses to their issues promptly. It is one of many excellent business practices to respond quickly. Response time is crucial, as no one likes to wait and the longer it takes for the company to reach the customer, the more their satisfaction is likely to decrease.
Contrary to popular belief that the perfect response is usually less satisfactory to the customer than a quick one. According to Jamie Edwards, COO and Co-founder of Kayako: “First reply time is more important than overall reply times because it’s an acknowledgment to the customer that their issue is being looked into.”
At Survicate, we check the First Response Time in our responses via Intercom reports. There we have proof that it directly affects the Customer Satisfaction score:
9. CUSTOMER ENGAGEMENT
Image source: MyCustomer.com
This metric is not described in a strict manner, as it may include various sub-metrics. The general idea is that some sub-metrics and data gives us the indication whether the customer is active or not. In our company, we measure it with the % of new users who actually used our app and came back for more.
What we take into account is the number of surveys the users created, what is their response rate and when was the last time the user logged into the system.
This metric is very significant for our CS team, as it allows us to calculate other metrics or their probability, like Churn rate and Customer Health Score.
Measure Your Customer Success Metrics!
There are many metrics that should be taken into account in customer success. What is good to remember is that any steps taken to improving customer satisfaction are beneficial, as the customer focus should be the main goal of subscription-based businesses. Observation of trends and patterns and quick response to negative feedback are some of the possible actions to take in that direction.
To be able to act, it is necessary to have tools to analyze the information and feedback provided. It is vital to reach to the customers for their opinion, as their satisfaction or dissatisfaction eventually decides on the success of the business.