8 Customer Success Metrics for SaaS you must track
by Ramesh Panuganty, Founder & CEO
8 Customer Success Metrics for SaaS you must track
by Ramesh Panuganty, Founder & CEO
What do customers want? Why do their preferences change? How to retain them? These are some million dollar questions that customer success metrics can answer. Customer success metrics are powerful indicators based on which organizations can track their performance and revisit their strategies from periodically to adapt to the changing business scenarios. They also provide insights on understanding the preferences and behavior of their customers. Empowered with these metrics, organizations can learn how to convert free trial customers into paid subscribers, keep them engaged with the brand, and ensure repeat purchases.
Let’s understand the 8 most important customer success metrics, how to calculate them, and how to analyze them easily with a natural search interface:
1. Net Promoter Score (NPS)
Net Promoter Score is a popular metric for finding out whether customers are likely to recommend an organization’s product or service to others. It relies on direct customer feedback and reflects the customer’s feelings towards your organizations. Customer responses are collected through a 1-question survey, typically with a 10-point scale.
How to calculate NPS?
To calculate net promoter score, gather survey results for the question “On a scale of 1 to 10, how likely are you to recommend this product or service to others?” and group the responses into following categories:
- Detractors: Those who respond with ratings from 0 to 6 indicate that they are not satisfied with the product or service.
- Passives: Those who respond with ratings 7 or 8 indicate that they are satisfied but would not necessarily commit every time.
- Promoters: Those who respond with ratings from 8 to 10 indicate that they are very happy with the product or service
Once you have these values, use the following formula to find the net promoter score:
Net Promoter Score = Percentage of promoters / Percentage of detractors
2. Net Dollar Retention (NDR)
Net Dollar Retention, also called Net Revenue Retention (NRR), indicates the change in recurring revenue (growth or decline) over a time period (annual or monthly) due to factors such as expansion, downgrades or churn. It not only indicates customer retention status but also helps understand the overall business performance and engagement with customers.
How to calculate NDR?
To calculate the net dollar retention, consider either the Annual Recurring Revenue (ARR) or the Monthly Recurring Revenue (MRR) and find out:
- What was the ARR or MRR at the beginning of the time period? It is the sum of recurring revenue for the month or year.
- How much was the expansion value? It includes upgrades from free trial plans to paid or higher value plans, paid add-ons purchases, and reactivation of canceled subscriptions.
- How much was the negative churn?
- How much was the downgrade value?
Once you have these values, use the following formula to calculate the net dollar retention:
Net Dollar Retention = [ (ARR or MRR at the beginning of the time period + Expansion – Churn – Downgrades) / ARR or MRR at the beginning of the time period ] * 100
3. Churn Rate
Churn Rate measures the percentage of customers that an organization loses over a period of time. Churn can happen due to multiple reasons such as discontinuing services, not renewing subscriptions, or closing accounts. Acquiring new customers can be more difficult and expensive than retaining existing ones. That’s why organizations need to keep a close watch on their customer churn rate.
How to calculate Churn Rate
To calculate the churn rate, first choose a time period like a month, and then find out:
- How many customers did you have at the beginning of the month?
- How many customers did you lose during that month? It is calculated as customers at the beginning of the month – customers at the end of the month.
Once you have these values, use the following formula to find the churn rate:
Churn Rate = (Number of customers lost in a given time period / Number of customers at the beginning of the time period) * 100
Ideal churn rates can vary based on product or industry. The higher the churn rate, the more customers your organization is losing as compared to gaining new ones and retaining existing ones.
4. Upgrade and Downgrade MRR
Upgrade and Downgrade monthly recurring revenue (MRR)provide insights on how to create optimum subscription plans and set effective pricing strategies.
Upgrade MRR measures the increase in monthly recurring revenue due to customers upgrading their subscriptions from current plans to higher value plans. It indicates that organizations are providing the right value-added features that meet customers’ needs and encourage them to upgrade.
Downgrade MRR measures the decrease in monthly recurring revenue due to customers downgrading their subscriptions from current plans to lower value plans. It indicates that organizations are not providing enough value at the current price which forces customers to opt for lower plans.
How to calculate Upgrade and Downgrade ratios?
To calculate upgrade and downgrade MRR, find out:
- How much was the MRR last month?
- How much is the MRR for this month?
Once you have these values, use the following formula to find the upgrade and downgrade MRR:
Upgrade MRR = MRR after upgrade this month – MRR before upgrade last month
Downgrade MRR = MRR before downgrade last month – MRR after downgrade this month
5. Renewal Rate
Renewal Rate measures the percentage of customers who renew their contracts at the end of their subscription. It is a key indicator of success, especially for SaaS businesses. Renewal rate is different from retention rate in the following ways:
- Renewal focuses on a specific moment in time (end of subscription), whereas retention is an ongoing long-term customer management ensuring customers don’t cancel anytime.
- Renewal rate measures how many customers actively chose to renew their subscriptions, whereas retention rate measures how many customers chose not to cancel even when they had the option.
How to calculate the Renewal Rate?
To calculate renewal rate, find out:
- How many customers renewed their contract?
- How many customers were due to renew their contract?
Once you have these values, use the following formula to find the renewal rate:
Renewal Rate = Number of customers who renewed their contract / Number of customers who had a chance to renew their contracts
6. Customer Lifetime Value (CLTV)
Customer Lifetime Value represents the total value or revenue that an organization can expect to earn from a single customer. This metric indicates how beneficial a particular customer relationship is for your organization. This way, you can target profitable customer segments, plan strategies to boost loyalty and retention, reduce customer acquisition costs, and increase revenue over time.
How to calculate the CLTV?
To calculate customer lifetime value, find out:
- How much is the average purchase value? It is calculated as total revenue / total number of purchases.
- What is the average purchase frequency? It is calculated as the number of purchases / number of unique customers.
- How much is the average customer lifespan? It is calculated as the sum of customer lifespans / number of customers.
- What is your gross margin? It is calculated as total revenue – cost of goods sold.
Once you have these values, use the following formula to find the customer lifetime value:
Customer Lifetime Value = Average purchase value * Average purchase frequency * Average customer lifespan * Gross margin
The higher the score, the more value and profits your customers bring to your organization.
7. Customer Satisfaction Score (CSAT)
Customer Satisfaction Score measures the satisfaction level that your customers have towards your organization’s products or services. Satisfaction feedback is collected through surveys or ratings at every key interaction, such as purchase process, onboarding process, support calls, or ticket resolution. It helps to evaluate your interactions and spot areas of improvement. This customer success metric provides a satisfaction score based on the immediate reaction towards a specific interaction, and not necessarily at a brand experience level.
How to calculate CSAT Score?
To calculate customer satisfaction score, gather survey results for questions like “How satisfied are you with our service?” and find out:
- How many positive responses have you got? Usually the two highest options of highly satisfied and satisfied are considered.
Once you have this value, use the following formula to find the customer satisfaction score:
Customer Satisfaction Score = (Number of positive responses / Total number of responses) * 100
The higher the score, the more satisfied your customers are with your products or services.
8. Average Revenue Per User (ARPU)
Average Revenue Per User measures the amount of revenue generated from an individual user or customer. This profitability measure is useful for subscription-based businesses. It can help compare your organization’s performance with that of your competitors, segment users into different categories, plan customer acquisition strategies, and forecast revenue.
How to calculate ARPU?
To calculate ARPU, decide on a time period like a month or year and find out:
- How much was the total revenue in that month or year?
- How many users did you have in that selected time period?
Once you have these values, use the following formula to find the ARPU:
Average Revenue Per User = Total revenue / Number of users
How to Keep track of all the customer success metrics?
Organizations are already generating vast amounts of customer and sales data on a daily basis. This data can be effectively employed to generate and track the customer success metrics. However, these metrics can be effective only when they are tracked in real-time, easily accessible to business decision makers, and are acted upon immediately.
MachEye’s decision intelligence platform makes extracting and tracking customer success metrics easy and fast with its powerful automated data catalog, machine learning models, and AI. MachEye generates actionable insights from real-time data and presents it as headlines and interactive audio-visual stories, ensuring that you don’t miss any opportunities. With its intelligent search, you can ask questions about these metrics in simple English, without having to learn complex formulas or syntax. MachEye also provides you the flexibility to define and track your business-specific metrics and calculate computed attributes. Start tracking your customer success metrics with MachEye to get a better pulse of your business.Start Your Free Trial