Customer success metrics that actually matter to investors

The customer success sector is essential for any growing business. Research by Deloitte has shown that customer-centric companies are 60% more profitable than those that don't prioritize their long-term partners. With numbers like that, it's easy to understand why customer success metrics are such hot numbers for investors today. 

Follow this article to understand how to implement these KPIs in your business.

What is the Customer Success sector, and what do they do?

The SaaS business environment is currently dominated by recurring revenue (MRR) subscription-based plans. This has essentially redefined how companies approach customer retention and customer lifetime value. For this purpose, we now have professionals like Customer Success Managers. 

After closing a deal, the goals immediately shift to ensuring these new customers find value in your product or service as soon as possible, and see results on an ongoing basis. That said, smart companies don't leave customer success to chance. Instead, they invest in a successful strategy to:

• Better understand customers' business and objectives 

• Deeper relationship with customers

• Work with customers to ensure they use your product successfully

• Data-driven insights about when and how customers are using your solution.

The cost of acquiring a new customer can be 5 to 25 times that of retaining one. So the risk of losing customers in a highly competitive market is too big to leave customers on their own.

Therefore, the Customer Success sector has a methodology whose mission is to help customers adopt the company's products and services and use them to achieve their goals. Rather than closing a sale and letting the customer adopt your solution unattended, the CS is the direct contact who will respond ASAP to any questions the customer may have during the partnership and proactively find new ways for the customer to evolve their revenue and routine. 

That said, the Customer Success professional becomes the customer advocate and voice within your company. On the other hand, he will also represent the company when dealing with the customer.

How the SaaS business model highlighted the Customer Success position

High churn rates have always been a concern for companies, even before they were named like this. But something intensified when SaaS products began to dominate the B2B sales market.

The main business model of SaaS companies is based on subscription plans, which means customers can leave with a month of service without fines or aggravation, for the most part. Is no longer interesting to hold a client on a one-year contract (depending on your industry) after a sale. The model has now become recurring revenue (MRR), driven by good products and services that keep customers in your house. This reinforces the importance of reducing churn, and, as a result, the Customer Success industry was born.

5 Customer Success Metrics Investors Need to See

Without a doubt, establishing positive relationships with your customers is vital. From onboarding and implementation to adoption and support, every touchpoint can impact that customer's retention over time. Measuring customer success and setting goals around these KPIs is critical to growing your business.

That said, we've identified below the types of Customer Success metrics that are important to investors:

1. Churn rate and retention

Churn can happen for many reasons, but as one of the most important metrics of your business's health, you need to understand why it happens. As your business expands and the size of your customer base grows, revenue lost can also increase, requiring new customers to replace lost ones, which can be a significant drag on your business's stability. Below is a commonly used formula for calculating churn:

Number of customers who canceled at the end of the period ÷ Total customers at the beginning of the period = Churn

A high churn rate usually indicates that your product is not meeting the customer's needs. With insights into the factors that drive churn, however, you can take action like improving customer engagement and onboarding or making product adjustments that can improve customer retention.

Investors pay close attention to churn because customer retention typically accounts for more than 95% of your revenue.

High retention and renewal rates are key drivers of value, and investors focus heavily on these metrics during the due diligence period.

2. Cross-sell and Upsell

Generating more revenue from existing customers is a good indicator of whether these customers see the value of your business and want to expand the partnership. Expansion revenue includes customers who upgrade to a more robust plan or those who pay for additional features or services.

When expansion revenue exceeds lost revenue from existing customers, you will reach a negative net churn rate. At this point, your recurring revenue is expanding without adding new customers, which will be quite positive.

That's because it takes much more time and resources to acquire and onboard a new customer than it does to retain and sell to existing ones.

Investors look closely at expansion revenue metrics (upsell and cross-sell) and place high value on businesses that can grow organically by expanding their existing customer relationships.

3. Cohort analysis

Cohort analysis is a methodology that allows you to organize customer data and understand the pros and cons of their behavior. It allows you to make precise business decisions about each customer type, rather than lumping all your customers under a single assumption. Because customers are critical to your business, you'll probably want to be aware of every possible opportunity to increase retention, increase Lifetime Value (LTV), and reduce churn.

For example, if a large number of customers are leaving in the first month or two, you may need to address your onboarding process and work with the tech team to improve that point.

Analyzing customer behavior across multiple cohorts provides valuable insights into how different customer segments interact with your product, sales, and marketing teams.

Customers have different needs, and understanding those needs across all groups can help improve customer relationships, anticipate upsell/expansion opportunities, and combat churn.

4. Monthly Recurring Revenue (MRR)

MRR is the total amount of predictable revenue your business can expect to receive on a monthly basis. For SaaS companies, the volume of MRR from monthly subscriptions.

However, you can get more technical with this metric by checking MRR in five basic ways:

• New MRR: MRR of new sales

• Expansion: MRR of existing customers who choose to upgrade their service (new plan, additional licenses, add-on features, etc.)

• Reactivation: MRR from previous customers who returned

• Downgrade: Loss of MRR for customers who opted for a cheaper plan

• Churn: Loss of MRR from customers leaving your company.

Measuring the five points above will help you understand the customer lifecycle.

5. Customer Lifetime Value (LTV)

LTV estimates how much money you can expect on average from a single customer. That is, it is the monetary value of your customer relationship.

If you're looking for a metric to accurately measure how much a single customer is worth, this is it. And, as already mentioned, retaining customers is much more cost-effective than acquiring new ones, so increasing this metric is critical to long-term success.

The calculation is quite simple:

Average Ticket x Average Customer Lifetime = LTV

Combined with other metrics on this list, LTV can also serve as a strong indicator of when customers may be nearing the end of their contract, allowing you to create retention strategies to further extend your customer partnership. 

Do you need a Customer Success strategy?

Whenever there is a risk of frequent customer churn, and the problem is not with your product or service, a CS strategy will help you tremendously.

That said, each company should have its own approach. Some may have a separate department dedicated to Customer Success, while others combine the sector with another function, such as sales and support. This will depend on how your solution and sales cycle work.

Although the concept of Customer Success is not new, strategies and the use of technological tools are. That's why any company can make changes and improve its Customer Success methodology to better manage customer relationships through data and technology (and no investor will miss this opportunity).