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A critical guide to selecting metrics to define a data-driven customer success strategy. Here is the table of contents: - Metrics are for Decisions - The Nature of Metrics - Metrics Can Be Difficult - Customer Success Metrics 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
Citation preview
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