Storm Ventures

Measuring Customer Success

Arun Penmetsa
July 23, 2020
1 min read

The rise of Software as a Service (SaaS) and the pay as you go subscription model has placed a particular emphasis on customer success. While Vendors are able to increase and stabilize their revenues through recurring payments, the SaaS model also offers customers the ability to use and leave the service much more easily than before. Therefore, keeping customers consistently happy throughout the entire lifecycle of the relationship becomes more important than ever.

Customer happiness and success are critical for a number of reasons, including:

The absolute last thing you want is to show up at the renewal time and get a no. As a result, customer success is a core product requirement today. Companies have to be customer-centric and laser-focused on understanding and measuring how they are keeping customers happy. This is even more important given COVID and the dramatic shifts we are seeing in the economy. Sound customer support, success, and retention strategy can be the difference between going out of business and thriving.

High-level Metrics

The first step to a sound strategy is measurement. The first tier of metrics is the top-line financial and customer satisfaction scores. Typically, these are easier to measure and track, and most founders have an idea of which direction they are going:

Logo Retention : A simple count of how many of your customers that were up for renewal are resubscribing every year. A good retention rate depends on the market, type of customer you are selling to, revenue model, purchase frequency, and where you are in the GTM fit journey, but generally anything above 80% is good.

Net Retention : A better measure that takes into account expansions and downgrades is net retention. This is how much a cohort of companies pays in a given time period compared to the previous one. The compounding effect of a good net retention number is incredible. The average net retention is around 106%, while the great companies have a net retention of at least 120%.

Customer Satisfaction score (CSAT): CSAT scores are usually determined via surveys through email, phone, or the product itself. One example of such a score is NPS, which basically asks “How likely are you to recommend to a friend or colleague”. The formula for the overall score is (% of Promoters — % of Detractors). CSAT or NPS scores give a mix of overall customer satisfaction and even young startups can benefit from running frequent surveys, especially when the product is evolving rapidly. The numbers vary, but an NPS around 50 is good.

More Precise Metrics

The logo and net retention are important high-level metrics, but there are also more granular ways to think about your customer base. Consider this graph below, which shows how one theoretical SaaS company’s renewing contracts are shaping up for the upcoming year:

This is a high-level dashboard that indicates trends in the customer success strategy. It splits the company’s customers into the following buckets:

In the ideal world, everything would be blue. Seeing more yellow and red as we move to the right means more customers are at risk.

At this point, the second-order question we need to answer involves breaking down the cohort of customers who are at risk of churn. Is there an issue with:

How do you put your customers in these buckets? This is where the next tier of customer success metrics comes into play:

Usage

One of the most common issues is that your customer might not be the right one for your product, which means your product doesn’t solve an urgent pain point for them. Or maybe your customer is having trouble with the product experience. Usage metrics like the number of transactions per day or user actions within a certain time frame can give you hints on whether your users are having issues like this. Fortunately, there are a number of products on the market that can help you measure usage and engagement, like Gainsight or Pendo.

Relationship strength

Another important area to track is the strength of your relationship with your customers. Typically, there’s a champion somewhere within each of your customer organizations who likes your product and its value proposition, and has championed adoption; this person might be (but isn’t necessarily) your end user. Building relationships with all stakeholders within an organization — including the person who has the authority to ultimately purchase your product — is critical, which means systematically mapping out each of your customer organizations should be a high priority. One of the most common reasons for churn is that your champion left the company and you didn’t build a relationship with the next person in line, so they only hear from you when renewals come up. That doesn’t typically bode well for success.

Customer Support

The support and success processes within your organization can have a huge impact on the potential for renewal and upsell. When there are issues that come up:

Having an efficient and responsive support organization can overcome a lot of customer complaints and concerns, turning at-risk customers into happy ones. This point repeatedly comes up in customer references and is critical for a startup trying to make its mark. Here’s an example of a dashboard that tracks multiple customer support metrics:

Onboarding Speed

An often overlooked aspect is customer onboarding. This is often the first experience that a customer has with the solution (besides a demo or a trial) and it is important to avoid delays there. An important metric here is ‘time to first value’. The shorter and more compelling that is, the more sticky the product will be. More complex products with higher contract values can take a while to deploy and it is important to demonstrate enough value before renewal.

Customer References & Community Engagement

Customers play a vital role in building a company’s brand and demonstrating the value of the product. Engaged and passionate customers can have a huge impact on brand, growth, and retention. As part of surveys or check-ins, it is important to determine if customers are willing to be ambassadors and advocate on your behalf. This can be simple — from writing an online review to serving as a reference. For startups that have built robust communities, customer participation is crucial for the community to thrive. Happy customers engage in these activities often — while the lack of enthusiasm can be an early warning signal.

Customer lifetime value (CLV) and customer retention cost (CRC)

One of the most critical aspects of running a business is aligning the business model with your customer base. While it’s essential to support customers and ensure that the right experience and value are delivered, the support strategy also has to be cost-effective:

Providing 24-hour support for a small customer might be important in the early days when you’re still figuring out the value proposition and building your brand. Another strategy is to build a passionate user community capable of addressing a portion of customer requests and concerns. But even then, tracking the customer lifetime value with the cost of acquiring customers is important. New product introductions, pricing tiers, and a supportive customer base can swing these metrics significantly.

Finally, it is also important to appropriately compensate and measure the performance of the customer success team based on these metrics. There can be team-wide and individual customer success reps goals, but the more ingrained and disciplined the team is about measuring the efficacy of the customer success processes, the easier it is to improve them.

The Coronavirus Situation

The COVID situation presents unique challenges to customer success teams. Almost every company is impacted, some positively and some negatively. In such an environment, the standard playbooks might not be enough and teams have to try new approaches to support customers through difficult times. The primary goal here is to share the burden and limit churn. Avoid being too strict with contracts while customers are in trouble but also reaffirm the value of your product by not giving it away for free.

Customer success and support are vital functions for any business. Prioritizing customer needs, measuring and tracking the relevant metrics, and adapting to the changing environment can make the difference between thriving and failure.

The condensed version of this article was originally published in the Startups Magazine _.