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While customer success is much more than simply a set of measurements and gauges to predict customer health, it’s vital to have a set of metrics to guide the journey. In fact, without a tried and true set of metrics, your organization could be operating blindly and may be relying on gut feels or false positives that may be misleading.
For today’s SaaS organizations, most use a subscription-based model which means customers (those subscribing) typically pay a yearly, quarterly, or monthly fee for the use of the product. And for SaaS companies, this new subscription-based model has changed the way business is done across the entire company. In today’s SaaS businesses, the sale has to be won many times over in the form of renewals and even upsells of additional products or services. The “one and done” approach has officially been laid to rest.
In order to truly drive customer success and the customer journey by using more than just gut instinct, there are many metrics any SaaS organization could and should take into consideration, but these 4 rise to the top:
1. Churn / Retention Rate
The first metric that is critical for organizations—especially SaaS companies—are both churn and retention rates. While it may seem obvious, it’s critical that SaaS companies track not only how many customers they churn out year over year, but how many customers and what value they retain year over year, as well as the triggers that may be associated with both.
Far too many SaaS organizations overlook these numbers in favor of more sophisticated metrics, but can be a big mistake, according to a recent Openview blog. At the end of the day, there is nothing more important to a SaaS company than its ability to acquire new customers—without losing valuable customers in the meantime.
2. Annual Recurring Revenue (ARR) / Monthly Recurring Revenue (MRR)
Often times, rapidly growing SaaS companies like to concentrate on overall revenue numbers or even valuation of the company. But one of the most important aspects of SaaS companies is the continual subscription-based revenue that’s added at an incremental basis, such as each month, each quarter, and each year.
Calculating how much compound subscription revenue is added to the overall revenue each month (MRR) and each year (ARR) are simple but powerful metrics that track new sales, upsells, renewals, and even churn on a regular and easy-to-compare basis.
3. Customer Lifetime Value (CLTV)
Customer lifetime value (CLTV) is a more advanced way to look at a SaaS company’s economics, and is essentially the metric that determines how much a customer could and should be worth over the entire customer journey with your organization. An Openview blog explains that if customer lifetime value is greater than the cost to acquire that customer (explained below), then you’re on steady ground. Over time, SaaS companies should strive to create an economic model in which the net cash they bring in from customers relative to the cash they spend to acquire and manage them is positive and grows over a long period of time.
Customer success managers play a huge role in helping to expand revenue, drive end user adoption, reduce churn rates and identify advocates for businesses using the SaaS platform. As SaaS organizations continue to grow in number, so does the role of a CSM. SaaS expert Jason M. Lemkin suggests that hiring a CSM as soon as you can is advisable. According to Lemkin, “each sale is worth about 6x the initial ACV over its lifetime.” With this logic, hiring someone to manage this relationship early on is a low-risk way to maximize value over scale.
4. Customer Acquisition Cost (CAC)
While the customer acquisition cost (CAC) isn’t exclusive to SaaS companies, it is absolutely critical to monitor. This metric takes into account the cash that a SaaS business burns in order to acquire new customers, and indicates how long it will take a company to recapture the initial investment used to bring in those customers. Consequently, SaaS companies can use this metric to determine whether they can afford to boost sales and marketing expenditures or add team members. Alternatively, the metric also helps them gauge when they should be cutting back on spending.
For more information on customer success and best practices, check out these recent ClientSuccess resources:
Learn more about how ClientSuccess can help your company develop a strong customer success methodology and strategy with easy-to-use customer success software by requesting a 30-minute demo.