Long-lasting customer relationships are essential to ensure success of any business. And when we talk about SaaS businesses, it becomes even more necessary to ensure that your customers are successfully using your product. Because if they are not able to do so, it will directly impact your business.
SaaS is a competitive market that runs through monthly and annual subscriptions, free trials, and the ability to easily switch to any product. This makes it vital to regularly measure customer success and track your Customer Experience in order to ensure continuous and lasting relationships with your customers. The best way is to use Customer Success Metrics to collect SaaS Feedback, measure customer satisfaction, loyalty, retention, churn, and ensure customer happiness.
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In this article, we will explore the key customer success metrics that you should use to track your business growth, measure customer success, and ensure satisfaction. We will take you through what these metrics are, how you can measure them and how they help your business to grow. Let’s get started!
Key SaaS Customer Success Metrics
- Net Promoter Score
- Customer Satisfaction Score
- Customer Effort Score
- Customer Lifetime Value
- Customer Retention Rate
- Customer Churn Rate
- Monthly Recurring Revenue
- Free-to-Paid Conversion Rate
Let’s learn what these metrics are, how they are helpful for your business, and you can measure them.
1. Net Promoter Score
Net Promoter Score was developed by Fred Riecheld, Bain & Company and Satmetrix in 2003.
NPS or Net Promoter Score is one of the most popular Customer success metrics that businesses use to collect Customer Feedback and measure Customer Loyalty. The metric works by measuring the likelihood of your customers to become loyal customers and refer your product to others on a scale of 0 to 10. An NPS Survey is a couple-question survey, the main question which is also known as ‘The Ultimate Question’ is:
How likely are you to recommend our product to your friends and colleagues?
A scale of 0 to 10 is provided to the customers to choose their answer where 10 means ‘Most Likely’ and and 0 means that the customer is ‘Not at all Likely’ to recommend your product.
The survey respondents are divided into three categories, viz., Promoters, Passives, and Detractors based on how they rate your product.
Promoters are those who give a rating of 9 or 10. These are considered the most loyal and satisfied customers who are likely to recommend your products to their friends and known ones too, and will help you bring in more customers.
Passives are those who rated your product 7 or 8. These are usually satisfied customers, however, they have a tendency to switch to other products if they are offered a better deal.
Detractors are those who give a rating from 0 to 6. These customers are considered to be the most unhappy and dissatisfied customers who are most likely to churn. If their experience doesn’t improve, they can even prevent their known ones from investing in your product through their bad word of mouth.
How to Calculate NPS?
Net Promoter Score is calculated by subtracting the percentage of Detractors from that of Promoters. So, first you need to find out the percentage of Promoters and Detractors.
%Promoters = Number of Promoters/Number of Total Respondents x 100
% Detractors = Number of Detractors/Number of Total Respondents x 100
Net Promoter Score is calculated with the following formula.
NPS = %Promoters - %Detractors
For instance, you have 230 customers out of which 200 customers responded to your NPS Survey. Out of them, 100 are Promoters, 50 are Passives, and 50 are Detractors.
So Your NPS would be,
NPS = 100/200 x 100 - 50/200 x 100
= 50 - 25
Net Promoter Score can vary from -100 to 100. More the NPS, the better it is.
2. Customer Satisfaction (CSAT) Score
Customer Satisfaction is another popular metric that you can use to measure Customer Satisfaction with your product or service. With CSAT, you can measure satisfaction with any aspect or feature of the product, and also with the overall product. The main question asked in a CSAT survey is:
How satisfied are you with our product?
A five-point rating scale is given to customers to choose their answer. The answer options can be represented in various forms like self-explanatory emoticons, adjectives from Poor to Excellent, star-rating, and more.
How to Calculate CSAT?
Calculating CSAT is easy. You just need to find out the average of all the responses.
CSAT = Total Score given by respondents/Total Maximum Score x 100
3. Customer Effort Score
Customer Effort Score is a metric that you can use to measure the perceived efforts of customers to get a job done or an issue resolved. This metric can be used to track the performance of your product and service team and find out how much effort your customers have to put in while using your product and interacting with your Customer Success Teams to get a service or support. The main question of a CES Survey is:
To what extent do you agree or disagree with the following statement? “The company made it easy for me to get my work done and handle my issues”
A seven-point rating scale is given to the customers. The rating options are: Strongly Disagree, Disagree, Somewhat Disagree, Neutral, Somewhat Agree, Agree, and Strongly Agree.
The customers can choose any option as per their experience.
How to Calculate CES?
You can easily calculate Customer Effort Score by finding the average of all responses. Here is the simple formula to calculate CES.
CES = Sum Total of All Responses/Number of Responses
4. Customer Lifetime Value
Customer Lifetime Value or CLV is the total revenue your customers bring in your business throughout the entire lifetime of the customer relationship. In other words, the total amount of money a customer spends on your product during the entire period of the customer’s relationship with your company.
Businesses use CLV to ascertain the overall financial value a customer can bring into your business. As a customer success metric, you can use CLV to see how valuable your customer relationship is for your company. Finding CLV can help you motivate yourself and your teams to ensure customer success, close the Customer Feedback Loop effectively, and to avoid losing value that the customer can bring in.
How to Calculate CLV?
Customer Lifetime Value is calculated by this formula.
Customer Lifetime Value = Average Purchase Value x Number of Purchases per year x Average Customer Lifetime
So if your customer buys a monthly subscription of $100, which means he makes 12 purchases per year and continues the relationship for 5 years, the CLV will be calculated as:
CLV = Average Purchase x No. of Purchases per year x Customer Lifetime
= 100 x 12 x 5
5. Customer Retention Rate
Whether the customers continue doing business with you or not, depends on how satisfied they are with your product. So what can be better than Customer Retention Rate to know how successful and satisfied your customers are with your product and services!
Customer Retention Rate tells you how many customers you are able to retain over a period of time.
How to Calculate Customer Retention Rate?
For calculating Customer Retention Rate, you need to simply calculate the percentage of customers who stay with you after a year. So you need to know the number of customers at the beginning of the year, number of customers at the end of the year, and the new customer acquired.
Here is the formula for calculating Customer Retention Rate.
Customer Retention Rate = (No. of customers at the end of the year - No. of new customers acquired during the year)/No. Of customers in the beginning of the year x 100
6. Customer Churn Rate
Customer Churn Rate is a metric that is commonly talked about in the SaaS industry. It represents the rate of attrition of the customers, i.e., the customers who stopped using your product or service and didn't resubscribe it.
Churn has become common in the SaaS industry. Now the customers can easily try out new products with free trial signup, and they prefer to switch to those products that better suit their requirements. So it is essential to keep a track on the churn rate to measure and ensure customer success.
How to Calculate Customer Churn Rate?
Calculating Customer Churn Rate is easy. You just need to find out the percentage of the churned customers. Here is the formula to calculate Customer Churn Rate.
Customer Churn Rate = No. of Customers Churned/No. of Customers in the beginning of the year x 100
So if a company has 200 customers at the beginning of the year, out of which 100 customers churned, the Churn rate will be 10/200 x 100 = 5%.
7. Monthly Recurring Revenue
Monthly Recurring Revenue is the total amount of revenue that a business can expect to get on a monthly basis.
Recurring Revenue is the bread and butter of a SaaS company. Most of the recurring revenue comes from the monthly subscriptions to your products and services. Moreover, add-ons like feature addition contribute to this.
How to calculate Monthly Recurring Revenue?
To calculate monthly recurring revenue, you just need to find the sum total of all the calculated revenue you received during the entire month.
Monthly Recurring Revenue = New Subscriptions + Subscriptions + Addons
If your products and services are more of annual subscriptions, you can divide the amount received for annual subscriptions by 12.
8. Free-to-Paid Conversion Rate
Free-to-Paid conversion rate is an important SaaS metric to estimate customer success if you have a free version and a paid version, or you offer a free trial of your product to your customers. It tells you how your product is able to perform and convert your free users into paid customers.
How to Calculate Free-to-Paid Conversion Rate?
For calculating Free-to-paid Conversion Rate, you just need to calculate the percentage of the users who converted as paid customers. Here is the formula to find the metric.
Free-to-Paid-Conversion Rate = No. of Converted Users/No. of Total Users x 100
It is important to collect SaaS Feedback and track customer success and satisfaction in the SaaS industry in order to know how your products and services are performing. Customer Success Metrics are a great way to get a fair idea of how well your business is doing in the market.
These metrics guide you where you need to take actions to improve customer experience, increase customer loyalty, retention, and prevent churn, and thus, run your business successfully.
To find popular and useful metrics like NPS, CSAT, and CES in an easy way, you should use a good SaaS Survey Tool like Zonka Feedback. It helps you create effective metric surveys and share them with your customers at every touchpoint through multiple channels. You can also follow up on your survey responses with this tool and calculate NPS, CES, and CSAT within seconds in a matter of a few clicks.
Not only this, its powerful NPS Dashboard, reporting and analytical capabilities also help you track and view various metric reports like Snapshot report, Trends report, and more.
Zonka Feedback also offers a free trial plan for 7 days. You can Try Zonka Feedback for Free and see how it works for your business.