What are customer success metrics?

Customer success metrics are those that quantify customer success and which help a business ensure that customers reach a desired outcome from using its products and services.  Customer success metrics determine what sort of customer experience the business is delivering. In other words, is the product or service having a positive impact on the customer? Are they recommending it to their friends and family? These metrics help the business reach a point where recurring revenue and customer lifetime value are being created consistently. When used effectively, they deliver important insights across key areas such as customer churn, adaptation rate, and production satisfaction.

Net promoter score 

net-promoter-score
The Net Promoter Score (NPS) is a measure of the ability of a product or service to attract word of mouth advertising. NPS is a crucial part of any marketing strategy, since attracting and then retaining customers means they are more likely to recommend a business to others.

Net promoter score (NPS) is derived from asking consumers one simple question: “On a scale of 1 to 10, how likely are you to recommend this product or service?”

Ratings can be considered thusly: 

  • Detractors – scores between 0 and 6 denote unsatisfied consumers who tend to discourage others from purchasing the product or service.
  • Passives – a score of 7 or 8 is likely to be given by a consumer who is satisfied but not so satisfied that they’re willing to tell others.
  • Promoters – a score of 9 or 10 is the most desirable. These are loyal and passionate consumers who recommend products and services to friends and family.

After rating their experience, the customer is asked to explain their decision. In this way, the NPS provides both qualitative and quantitative customer success data. 

Customer lifetime value

customer-lifetime-value
One of the first mentions of customer lifetime value was in the 1988 book Database Marketing: Strategy and Implementation written by Robert Shaw and Merlin Stone. Customer lifetime value (CLV) represents the value of a customer to a company over a period of time. It represents a critical business metric, especially for SaaS or recurring revenue-based businesses.

Customer lifetime value (CLV) measures the total value a customer is likely to generate over the course of their entire relationship with the business. When CLV increases, the business knows its products and services are contributing to customer success.

Customer lifetime value can be calculated by multiplying the average purchase frequency rate by the average purchase value. The resultant number should then be multiplied by the average customer lifespan.

Customer acquisition cost

Customer acquisition cost (CAC) is an important metric since it determines how much it costs the business to acquire a new customer. CAC helps the business better direct its resources and maximize return on investment. When used with customer lifetime value, CAC tells the business whether it is likely to profit from acquiring new customers over the long term.

To calculate customer acquisition cost, add the costs associated with sales and marketing and then divide that sum by the number of new customers acquired.

Customer churn rate

Customer churn rate captures the percentage of customers who cease using a product or service for whatever reason. This may encompass closed accounts, canceled subscriptions, and the loss of recurring value, business, or contracts.

Customer churn rate can be determined by dividing the total number of churned customers by the total number of all customers.

Average revenue per user

facebook-arpu
ARPU or average revenue per user is a critical measure to assess Facebook ability to monetize its users. ARPU is given by total revenue in a given geography during a given quarter, divided by the average of the number of monthly active users in the geography at the beginning and end of the quarter.

Average revenue per user (ARPU) – also known as average revenue per unit – is the average revenue the business receives from a customer over a specific period. 

ARPU is a customer success metric commonly used by social media, telecommunications, and SaaS companies to better understand profit potential and their customers. It also can be used to make financial forecasts and compare products and services to those offered by a competitor.

ARPU is calculated by determining the total revenue and dividing that figure by the average number of users over a given period. For most businesses, this will be monthly.

Monthly recurring revenue 

Monthly recurring revenue (MRR) is, perhaps unsurprisingly, a customer success metric favored by SaaS and other subscription-based companies. 

MRR is a normalized calculation of predictable monthly revenue and is used to measure financial growth and momentum, among other things.

To calculate MRR, simply multiply the average revenue per user by the total number of monthly users.

Key takeaways:

  • Customer success metrics are those that quantify customer success and which help a business ensure that customers reach a desired outcome from using its products and services. 
  • Customer success metrics include Net Promoter Score, a quantitative and qualitative measurement of how likely a product or service will be recommended to others. Customer acquisition cost is another metric that determines how much it costs the business to acquire a new customer and whether it will be profitable.
  • Customer churn rate measures the percentage of customers who cease using a product or service, while average revenue per user (ARPU) is often used in conjunction with monthly recurring revenue (MRR) to make financial forecasts and determine profit potential.

Connected Business Concepts

What is SaaS

what-is-saas
Software as a service (SaaS) is a model where a third-party provider hosts the infrastructure and applications and makes them available through the Internet. This model leverages web-based software and on-demand applications that run centrally on the server of the provider, while the company purchasing the service will use those applications based on need and without the upfront cost. SaaS is a subcategory of a broader phenomenon and industry, based on cloud services. This also comprises other models like IaaS (infrastructure as a service) and PaaS (platform as a service).

Net Promoter Score

net-promoter-score
The Net Promoter Score (NPS) is a measure of the ability of a product or service to attract word-of-mouth advertising. NPS is a crucial part of any marketing strategy since attracting and then retaining customers means they are more likely to recommend a business to others.

Customer Journey

customer-journey
The customer journey – sometimes called the buyer or user journey – tells the customer experience with a business, brand, product, or service. A customer journey is an alternative approach to other linear models like the sales funnel which hypothesizes that most customers follow the same path.

Competitor Analysis

competitor-analysis
It’s possible to identify the key players that overlap with a company’s business model with a competitor analysis. This overlapping can be analyzed in terms of key customers, technologies, distribution, and financial models. When all those elements are analyzed, it is possible to map all the facets of competition for a tech business model to understand better where a business stands in the marketplace and its possible future developments.

Customer Experience Map

customer-experience-map
Customer experience maps are visual representations of every encounter a customer has with a brand. On a customer experience map, interactions called touchpoints visually denote each interaction that a business has with its consumers. Typically, these include every interaction from the first contact to marketing, branding, sales, and customer support.

User Experience Design

user-experience-design
The term “user experience” was coined by researcher Dr. Donald Norman who said that “no product is an island. A product is more than the product. It is a cohesive, integrated set of experiences. Think through all of the stages of a product or service – from initial intentions through final reflections, from first usage to help, service, and maintenance. Make them all work together seamlessly.” User experience design is a process that design teams use to create products that are useful and relevant to consumers.

Gamification

gamification
Gamification borrows key concepts from the gaming industry to encourages user engagement and experience. Some of those concepts include competitiveness, mastery, sociability, achievement, and status. The application of game principles to the business context, companies can design products that are more enjoyable to users and customers.

Bundling Bias

bundling-bias
The bundling bias is a cognitive bias in e-commerce where a consumer tends not to use all of the products bought as a group, or bundle. Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.

Gap Analysis

gap-analysis
A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.

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