Measuring your business success is easier said than done. What may seem like “working” for you might not be that good in real.
For example, a +100 net promoter score seems rather healthy. But it may not tell you that the company had only a couple of new customers last year with a lifetime value of only $15 each.
To measure your business’s success, you need to consider various perspectives and measure the right things, the right way.
This is where customer success metrics and KPIs make numbers more meaningful.
Selecting the Right Customer Success KPIs
Here’s what you should consider when choosing the right customer success KPIs.
Business Model
Choosing the right KPIs doesn’t have a one-size-fits-all solution. Different business models need to focus on different KPIs.
For example, SaaS companies value customer retention above all. So, they’ll focus on retention KPIs like churn rate, customer lifetime value, and acquisition costs. For example, Netflix has a 2% churn rate, which is considerably lower than all competitors.
Meanwhile, transactional businesses will examine conversion rates, average order values, and repeat purchase rates. Starbucks is a great example, with a repeat purchase rate of 21%.
Customer Lifecycle Stage
You’ll also need to align your KPI choices with the various stages of the customer lifecycle.
In the onboarding and feature adoption stage, businesses can measure the activation rate, user engagement, and time to first value. The referral program activation rate is one such KPI that measures the effectiveness of a brand’s referral program - allowing existing customers to market your product.
Dropbox is a great example of how brands can use activation rate KPI to expand their customer base. The company achieved 3,900% growth with its customer referral program.
The mid-stage of the customer lifecycle focuses on retention and engagement. That’s when you’ll measure the customer retention rate, net promoter score, and customer satisfaction. Groove.co sets an example of the perfect net promoter score at 74.
Finally, the late-stage metrics are about expansion and advocacy. Customer advocacy can be measured with referral rates, testimonials, and social media mentions.
This is also the stage to measure metrics like average revenue per user. Netflix is a good example, earning about $11.64 per user, which is amongst the top three in the industry.
Company Size
The size of your company greatly impacts which KPIs you choose. Smaller companies don’t have the same priorities as large enterprises, so their KPIs will also be different.
As a small business owner, you may focus more on customer acquisition costs since your resource allocation needs to be efficient. When Zoom was still on the rise, it had a CAC of $791 per customer.
Once you’ve expanded your business, you may look at the bigger picture with metrics like the customer lifetime value.
Measuring and Interpreting Key KPIs
Now that you know which KPIs to track, let’s dive into how to measure them.
CSAT (Customer Satisfaction)
The customer satisfaction score (CSAT) determines a customer’s experience with the company. It’s measured using a survey, often triggered after a customer interaction.
These surveys have 1 to 10 ratings, with 6 to 10 being positive scores. To measure CSAT, divide the number of positive scores by the total scores. Then, multiply it by 100.
So, if you got 40 out of 50 scores, you have an 80% CSAT rate.
NPS (Net Promoter Score)
Net promotor score (NPS) is similar to CSAT, except for one difference. It asks about the customer’s likelihood of recommending your business to others. They are measured the same way: via a survey on a scale of 1-10.
The formula for NPS is:
of positive scores / # of total scores x 100 = NPS.
CLV (Customer Lifetime Value)
Customer lifetime value (CLV) is the total revenue a business can expect from a customer during their relationship. The goal is for your CLV to offset your customer acquisition costs (CAC) so your company can turn a profit.
The formula for CLV is:
Average revenue per user (ARPU) / User churn rate = CLV
ARPU = Total revenue / Total number of users
CES (Customer Effort Score)
The ideal business model ensures customers make minimal effort to get help. That’s because 96% of customers who have to put too much effort into a product/service end up being disloyal in the future.
By measuring the customer effort score (CES), businesses can learn how easy it is for customers to get help. A survey, like this quick one from NiceReply, can also help.
It has the same formula as NPS and CSAT.
Churn Rate
Churn is possibly one of the most important metrics to measure for customer success. It measures the percentage of customers quitting your services in a specific period. This period can be a week, month, quarter, or year.
The formula for churn is:
of customers at the end of the period / # of customers at the start of the period x 100 = churn rate
Ideally, your customer churn rate should be 5-7% annually.
CAC (Customer Acquisition Cost)
The customer acquisition cost (CAC) is the average amount of money it takes to acquire one customer. It helps you ensure your spending is in control and that you eventually turn a profit. Your CLV should offset your CAC to generate a profit.
The formula for CAC is:
(Cost of sales + cost of marketing) / # of customers acquired = CAC
MRR (Monthly Recurring Revenue)
Your monthly recurring revenue (MRR) helps you see how much your customers’ spending has grown over time. You’ll be able to track how much money your customers are spending on your product/service every month.
Here’s the formula for MRR:
of active monthly users x ARPU = MRR
FCR (First Contact Resolution Rate)
An ideal business model values a customer’s time above all. Customers want their issues resolved rapidly – they don’t want to wait for your customer support team to make a decision.
In this context, the first contact resolution rate (FCR) is the percentage of customer support issues that are resolved in the first interaction. The higher, the better.
The formula for FCR is:
(Total cases resolved - total cases reopened) / total cases x 100 = FCR.
Tracking Tools for Customer Success KPIs
Automation is crucial for efficient KPI tracking. Here are three types of tools you can use to measure your customer success.
- Survey Platforms: Survey platforms like SurveyMonkey, Google Forms, and Typeform can help you track CSAT, NPS, and CES.
- CRM Systems: CRM systems like Hubspot and Salesforce can help you check on customer behavior, preferences, and feedback, as well as key metrics.
- Analytics Software: Mixpanel, Google Analytics, and Heap will provide behavioral insights and user engagement metrics.
Leveraging KPIs to Enhance Customer Success Strategies
Customer success doesn’t end with measuring KPIs – they should be part of bigger customer strategies. Here are some best practices to include in your strategy.
Driving Strategy Refinement
Using KPIs to refine your customer success strategy relies on identifying pain points and success factors.
KPIs like CES, NPS, and CSAT will help you see where your business model is failing. The same metrics, with higher scores and ratings, will show you which features or actions lead to success.
Let’s look at Amazon, which has a world-class NPS of 74. There are three things driving this amazing score: retention, revenue growth, and word-of-mouth marketing.
According to this CIRP research, Amazon retains 73% of its customers after a free trial, and 91% of them even renew for the next year. That’s mainly thanks to the seamless customer experience, personalized recommendations, and social proof via reviews. As a result, they’ve also had a 28% increase in their revenue growth.
Most importantly, tracking their NPS also helps Amazon maximize their organic customer growth. Beyond the NPS survey, the company incentivizes customers to recommend their service by offering discounts and bonuses.
Integrating Customer Feedback
Customer feedback is liquid gold for companies, regardless of their business mode. The best way to know what your customers are thinking? Send them a survey.
Admittedly, getting customers to fill out your surveys is not easy. The trick is to keep it simple, asking them to rate you on a scale of 1 to 10 or even a simple yes or no. That’s where you’ll track metrics like CES, NPS, and CSAT.
Another trick is to avoid redirecting them to other pages.
For example, Turum-burum used a pop-up survey with embedded responses. The survey was triggered when customers were leaving the checkout page. It asked a simple question: Why would you like to stop placing the order?
The survey found that 48.6% of customers couldn’t finish the checkout form. So, they performed AB testing to see how different checkout forms would perform. The better one had a few distinct features:
- Time-saving autofill
- Webpages split into blocks.
- Fewer form fields
As a result, they were able to increase their ARPU by 11.6% and decrease the checkout bounce rate by 13.35%.
Cultivating a Customer-Centric Culture
By focusing on customer-centric KPIs, companies can create a customer-centric culture in all aspects of the business. It needs to go beyond your marketing department.
According to Slideshare, 80% of customers are more willing to do business with companies that offer personalization. KPI tracking makes that possible by letting you know what the customer needs.
For example, airline companies are known for having bad customer service. By tracking metrics like CAC, FCR, and CSAT, Southwest Airlines was able to remove itself from the typical airline reputation. At the same time, they were able to cut overhead costs.
Instead of adding bigger seats and fancier meals, they cut down their pricing and removed baggage fees. Now, they’re leading the airline industry in terms of customer satisfaction.
Summary
No matter your business type, tracking KPIs for customer success will always be crucial. All successful businesses depend on customer satisfaction, so use the metrics we’ve outlined with the help of SimplePlaybooks. Sign up for a free trial today.