THE CUSTOMER SUCCESS METRICS THAT MATTER

A guide to selecting the metrics that drive your data-driven customer

success strategy

eBookAugust 15, 2014

Table of Contents

Metrics are for Decisions

The Nature of Metrics

Metrics Can Be Difficult

Build Your Metrics Map

Customer Lifetime Value

(CLV)

Customer Churn Rate

Net Promoter Score (NPS)

Customer Health Score

Support Ticket Volume

Customer Log-in Counts

Customer Acquisition Cost

(CAC)

Product Activity Score

CSM Subjective Score

Customer Newsletter CTR

Background Signals

DISCUSSIONS METRICS

Metrics Are For Decisions

For each metric in this eBook, these icons describe the types of decisions the metric

informs.

Strategic Metrics • Metrics that are measured/reviewed over a longer time

frame• Inform top level measures your execs and Board care

about

Performance Metrics • Monthly or weekly metrics that tell you if you’re on

pace

Tactical Metrics • Give insight into whether the piece parts are all

working well

TacticalStrategic Performance

The Nature of Metrics

For each metric, this key describes what the metrics actually are.

Predictive Metrics• Tell what’s about to happen so you can take

preemptive action

Descriptive Metrics • Provide you with context about what is happening and

trends

Signal Metrics • These are an input/subset of predictive/descriptive

metrics

Predictive SignalDescriptive

Metrics Can Be Difficult

2+2

Easy

E=MC

Hard

2 X

Kinda Hard

In this eBook, this key describes how difficult it is it to measure each metric.

Metrics may be rated as “Hard” for a number of reasons: • You need special software or code to capture the raw

data• You have to account for a lot of assumptions• How you calculate some metrics may differ as you

apply them across products, segments, plan types, etc.

E=MC

Hard

2

Strategic

Customer Lifetime Value (CLV)

CALCULATIONCLV = Margin % * Average MRR / Monthly Churn %

WHY WE “RECOMMEND” ITIt’s the foundation of your strategic decisions such as how much you can profitably spend on customer acquisition.

DOWNSIDEIt can get complicated:• You first need to calculate churn, MRR and margin

% • Likely varies by product, acquisition channel, etc. • Outside variables can affect it (e.g., will margin

and churn % change over time?), so you’ll need to make assumptions – or risk high complexity

Descriptive

Recommended

LEARN MORE

Customer Churn Rate

CALCULATION

WHY WE “RECOMMED” ITYou have to measure churn. Most already do but there’s not always internal alignment on the “right” churn calculation.

DOWNSIDELike CLV, churn rate gets complex when you start splitting by product, monthly vs. annual plans, etc. There are several ways to calculate churn depending on your business model.

Descriptive

Recommended

X

Kinda Hard

$50,000 Revenue Lost

$500,000 Total Revenue at Start of Period= 10% Churn

Strategic

LEARN MORE

Net Promoter Score (NPS)

CALCULATION

WHY WE THINK IT’S A “GOOD IDEA”Definitely measure NPS and monitor the trend on this metric over time to see if you’re “moving the needle”.

DOWNSIDENPS is kind of a victim of its own success. It’s truly great for what it is, but if you try and apply NPS for purposes other than what was intended (i.e., to determine if a customer would recommend you) you may find unexpected results.

Descriptive

Good Idea

2+2

Easy

Performance

# Promoters (9-10)

# Total Responders

= NPS-# Detractors (0-

6)# Total Responders

LEARN MORE

E=MC

Hard

2

Customer Health Score

CALCULATIONCalculation typically executed by software from a sophisticated roll-up and analysis of many signals

WHY WE “RECOMMEND” ITThe toughest metric you’ll ever love. Done properly, a data-driven customer health score can be the best predictor of churn risk, up-sell potential and conversion to purchase.

DOWNSIDECollecting and analyzing all the data needed to make predictions is no small matter. And not all health scores are created equal. Lighter weight ones are just “Descriptive” while more robust analysis yields a “Predictive” health score.

Recommended

Performance

Predictive

E=MC

Hard

2

Support Ticket Volume

CALCULATIONAdd up the volume of tickets for a given period.

WHY WE THINK IT’S A “GOOD IDEA”Support ticket volume provides interesting context for how your customer is interacting with your product. You should always know how often customers are reaching out.

DOWNSIDESupport ticket volume is typically not a consistent indicator of customer health. High ticket volume may mean a customer is struggling, or it could mean the customer is so engaged they are continually pushing into new areas of the product – how do you know?

Good Idea

Tactical

Signal

Customer Log-in Counts

CALCULATIONTypically performed by software that pulls from log files or by firing a script upon successful log-in.

WHY WE THINK IT’S A “BAD IDEA”Counting customer log-ins is a good first step to measure customer engagement. But by itself it’s of limited value because there’s no visibility into what’s happening within your app, what the background signals look like, etc.

DOWNSIDEA rules-based approach to determine how many log-ins constitute good or bad health can inject uncertainty into an already troublesome metric.

Bad Idea

2+2

Easy

Signal

Performance

LEARN MORE

Customer Acquisition Cost (CAC)

CALCULATION

WHY WE “RECOMMEND” CACWith so many voices in the market, it can be expensive to stand out from the noise. CAC helps you stay focused on acquiring customers at a sustainable cost.

DOWNSIDECustomer Acquisition Cost can be a little confusing if you don’t define it clearly. Be sure everyone knows the exact sales and marketing expenses you are including.

Descriptive

Sum of all Sales & Marketing Expenses

# of New Customers Added

= CAC

Recommended

X

Kinda Hard

Strategic

Product Activity Score

CALCULATIONRoll-up all customer activity in your product. Typically executed by software monitoring customer activity.

WHY WE “RECOMMEND” ITIt’s similar to Customer Health Score, just more focused and perhaps a bit easier to understand. And it’s predictive which means we love it.

DOWNSIDEAs with Customer Health Score, collecting and analyzing product activity data is no small matter. Be sure to look at the data on an individual customer basis as you likely have many levels of different activity across customer use cases.

RecommendedE=M

C

Hard

2

Performance

Predictive

CSM Subjective Score

CALCULATIONHave your customer success managers review each account and assign a score (e.g., 1-5) based on “how healthy” they think they are.

WHY WE THINK IT’S A “GOOD IDEA”Having CSMs critically evaluate each account forces them to think critically about each account. It also provides a counter-balance to objective measures so you can identify and discuss any discrepancies.

DOWNSIDEIt’s totally subjective (of course).

Descriptive

Good Idea

2+2

Easy

Performance

Customer Newsletter CTR

CALCULATIONAny email or marketing automation platform that you use should be able to tell you the Click Through Rate (CTR).

WHY WE “RECOMMEND” ITMonitoring Click Through Rate of customer emails is a first step in measuring customer engagement outside of your app. Don’t underestimate the importance of the monthly customer newsletter in building brand loyalty.

DOWNSIDEIt can be impacted by external factors such as day the email was sent, its design, subject line, etc. Monitor CTR over the long-term and experiment to see what customers like best.

Descriptive

Recommended

2+2

Easy

Tactical

LEARN MORE

E=MC

Hard

2

Background Signals

CALCULATIONBackground signals measure the activity of your customer’s customers. If you sell an email platform, background signals are the response activity (e.g., open rates, click-thrus) of the emails your customer sends.

WHY WE “RECOMMEND” ITBackground signals are an ideal complement to activity scores and health score. All three are predictive, and together pack a potent predictive punch.

DOWNSIDEIt’s somewhat complex to gather and analyze on your own. So, you’ll likely need special software.

Recommended

Performance

Predictive

Build Your Metrics Map

Tactical

Strategic

Performance

CLV Churn Rate

Customer Newsletter

CTR

Customer Health Score

Customer Acquisition

Cost

Net Promoter

Score

Focus is an essential ingredient to a data-driven customer success strategy. Select the essential metrics that matter and craft a plan to move the needle on each. Below is a simple framework for a metrics map.

Product Activity Score

Support Ticket

Volume

Background Signals