By Abby Hammer, Chief Customer Officer, ChurnZero
Did you know that reducing customer churn by 5% can increase profits from anywhere between 25% to 125%?
B2B SaaS companies that prioritize their customers’ health and wellness – and not just their acquisition – build their business’s endurance and strengthen its long-term valuation.
But “good” customer health isn’t achieved through a passive pledge and sedentary behavior. It takes a firm commitment to show up for your customers at every touchpoint – not only when there’s a support issue or an at-risk renewal.
Each interaction your customer has with your business – even the seemingly inconsequential ones – shapes its perceived value and your customer’s loyalty.
So, how do you measure the trust and affinity earned by your product and engagements? Track these top customer-centric metrics to make sure your business isn’t just talking a big “customer-first” game without having the figures to back it up.
Net Revenue Retention (NRR)
NRR = (Monthly Recurring Revenue (MRR) at Start of Month + Expansions + Upsells) – (Churn + Contractions)
NRR calculates total revenue (including expansion) minus revenue churn (contract expirations, cancelations, or downgrades). NRR provides the most accurate measure of your customers’ success. It’s not enough to only retain your customers, you need them to grow – especially if your product directly impacts their business metrics. But customer growth isn’t only assessed by expansion velocity – faster is not always superior. An example of moderate, yet healthy growth would be if your product increases an account’s productivity without a need to add headcount.
Also remember that NRR can hide issues with logo retention. A substantial disparity between these metrics is a warning sign, so make sure to regularly compare them to avoid false positives.
Customer Lifetime Value (CLTV)
CLTV = [Average Revenue Per User or Unit (ARPU) X Gross Margin] X Customer Lifetime
CLTV is the gross profit a customer delivers to your business in their lifetime. It’s the amount of revenue your business will make from a customer over their average lifetime as a customer. The CLTV/CAC (Customer Acquisition Cost) ratio compares a customer’s profitability over their lifetime against their sales/marketing acquisition cost to forecast financial sustainability and valuation.
You also must consider the time it takes to increase customer profit in relation to their acquisition date. If customers typically churn at the one-year mark of being acquired, then spending a year’s budget to acquire and retain them is an unhealthy balance. CLTV growth depends on your expansion pathways.
Customer Health Score
Customer health scoring is the process of evaluating a customer’s overall engagement and satisfaction with your company in a simple score. It’s used to gauge renewal likelihood. Companies score in many ways, including assigning points, implementing rankings (A, B, C, D), or using a color-coding system (green, yellow, or red), to indicate good, average, or poor health. To create a dynamic health score, make sure to include both quantitative factors (product usage, support history, service usage, customer loyalty) and qualitive factors (relationship quality, team feedback, satisfaction, risk rating).
Every employee influences a customer’s health score and renewal decision – from marketing generating content and sales closing the deal to customer success managing daily operations and product shaping the customer’s in-app experience. Health scores captured early in a customer relationship show marketing and sales impact while the health score of a tenured customer is driven by customer success.
Customer Satisfaction Scores
Customer satisfaction surveys gauge customer sentiment, satisfaction, and feedback to improve the customer experience and loyalty. The three most popular survey types include:
- Net Promoter Score® (NPS) measures a customer’s likelihood to recommend you to a friend or colleague and indicates a customer’s loyalty. Based on a customer’s ranking, they’re categorized as either a Promoter (those who answer 9 or 10), Passive (those who answer 7 or 8), or Detractor (those who answer 0 to 6). Scores fall within a range of -100 to +100. Scores of 0 or above are considered good, 50 or above are excellent, and 70 or above are leading.
- NPS = % Promoters – % Detractors
- CSAT (Customer Satisfaction Score) measures customer satisfaction – most often directly following a specific interaction – by asking customers how satisfied they were with their experience. The rating scale is not standard but an example of a simple 3-point scale would be: Dissatisfied, Neutral, and Satisfied. For score benchmarks by industry, sector, and company, check the American Customer Satisfaction Index (ACSI).
- CSAT % = # of “Satisfied” responses / # of total responses x 100
- CES (Customer Effort Score) measures the ease or difficulty of an experience and signifies the likelihood of adoption and renewal. The rating scale is not standard, but typically uses a 7-point scale that ranges from “very difficult” to “very easy.” You want to aim for a CES benchmark that falls within the “easy” range – the higher the score, the better.
- CES = Sum of individual ratings / # of total responses
The customer satisfaction survey type you use matters less than your consistency with surveying customers, following up to their responses, and creating practical applications for the survey data. So, make sure to always follow up with a customer after they submit a survey. Customers will start to ignore your feedback requests if they feel like their efforts are unheard, unappreciated, and purposeless.
Also, consider segmenting by your customer’s role type since responses from executive sponsors and decision-makers have a stronger correlation to renewal and expansion likelihood than everyday users.
Hold yourself accountable to reach customer goals
They say that (customer) success is the sum of small efforts repeated day in and day out. To remain consistent in your efforts to become a customer-first organization, you need a long-term Customer Success strategy to maximize customer satisfaction, decrease customer churn, and expand existing accounts. And of course, a steadfast adherence to customer-centric metrics that prioritize the customer experience – leading to stronger loyalty and more predictable growth.
Looking to master more SaaS metrics?
Check out ChurnZero’s Churnopedia, a glossary of the SaaS definitions, metrics, and formulas that every Customer Success professional needs to know. Each definition entry is accompanied by a detailed example to illustrate its real-world application.