Ask anyone in sales or customer support regarding important customer success metrics, and almost always, churn is mentioned. Churn is short for ‘churn rate’ and refers to the percentage rate of customer loss or customer defection. And while this is an indicative customer metrics that we should all monitor, it is incomplete.
Guy Nirpaz, co-founder and CEO of Totango, says: “Churn is very important, but this is the outcome…. Churn, renewal, upsell, these are all the outcomes. In order to impact the outcome, [you need] to look at the leading indicators.”
So, when it comes to important customer success metrics, where should you look? We broke it down to two categories for you: customer health score and the other conventionally important customer success metrics.
Customer Success Metrics: Customer Health Score
Your customer health score reflects the key attributes of a successful customer. Score high; and you likely have a highly engaged and happy customer base. Low scores indicate that there are aspects of your product/ service and operations which need tweaking.
Customer health score tops our list because it brings relationships into metrics. We’re still looking at numbers here, of course. Yet, we also get a good idea of how involved customers are with you and your products.
✔ Are they exploring your product’s different features?
✔ Do they engage with you through your website, support channels and social media channels?
✔ Do they regularly login and use your service?
✔ Are they active customers with updated billing histories?
✔ Are they positive about you when asked via survey?
✔ Would they recommend you to their friends? (Also referred to as Net Promoter Score or NPS)
The weights of these attributes differ per industry/ per business. For instance, there are businesses where the NPS is more important than the level of user interaction or feature usage. Another common example is having a high volume of support tickets which, in some cases, isn’t really a bad thing. It is up to you to assess your operations and your customer engagements to get to the impact of these attributes to your true customer health score.
The end goal is to be able to identify crucial segments of your customer base: those who are likely to churn and those who can be approached with up-sell and cross-sell opportunities. You can then take action in response to these possibilities/ opportunities.
Other Important Customer Success Metrics
It is still important to keep your eye on a few more customer success metrics that have conventionally been regarded as important.
Customer Lifetime Value
Customer lifetime value (or LTV), defined simply, refers to the revenue earned from a customer over a period of time. Keep in mind that this is actually a complex concept. You also have to consider the cost of acquiring a new customer, churn rate and value of up-sells, cross-sells and referrals to get to your real LTV.
It’s been found that LTV can predict success for subscription-based businesses. According to research conducted by Shopify’s RJMetrics, the top 25% of these companies have revenues of more than $600 thousand per month. They get 3.5 times more new clients, and are able to retain these clients for at least a few months. In these few months, 20% of their monthly revenues would come from repeat business. Trends point to the ability of these top 25% companies to retain these clients for around three years, increasing the value of their LTV.
Net Promoter Score (NPS)
We mentioned the Net Promoter Score (NPS) earlier, under Customer Health Score. We are adding it here again because it pays to look at this customer success metric separately. Your NPS refers to the likelihood of your customers referring you to their friends. It not only gives you an idea on your referral, up-sell and cross-sell opportunities – or lack of. It also gives you deep insight on how happy or unhappy your customers truly are.
Take it from the man who started an entertainment empire with a mouse, Walt Disney: “Do what you do so well that they will want to see it again and bring their friends.”
Because, the reality is that your unhappy customers may not end up churning. But, will they help you bring in new clients? Are they willing to buy again from you? Probably not.
Churn is still an important metric to track. However, don’t just settle for the number. It does not benefit you to only know how many people leave your fold. When you consider your churn rate, make sure to also look at “red flag” indicators, such as total number of logins, length of sessions, and time spent on individual tasks. Crucial indicators differ per industry/ per business. So, assess your business operations to pinpoint your “red flags.”
Customer Acquisition Cost (CAC)
Your CAC is the sum of several customer metrics, such as research and development costs, manufacturing costs and marketing costs, divided by your total number of new customers.
Is your customer acquisition cost higher than your LTV? If yes, then your business is in trouble; and you need to look at lowering your CAC and improving your customer retention rate.
Customer Success Potential
Over time, through customer metrics and your notes, you can gather enough data for accurate customer segmentation. Here, you can see which are best-fit and bad-fit customers. Bad-fit customers are those who are likely to have trouble with your product or service. They might take longer doing common tasks. They also engage your customer support often. This segment is likely to churn and it might be best to just let them go. What should alarm you more is if you find your best-fit clients churning.
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