Customer Success generally has a long time span to deal with customers, and in most cases, results are lagging indicators. That’s why it’s essential to set appropriate KPIs so that progress can be visualized step by step.
However, since the goal of customer success is “customer success” itself, the actual approach differs from company to company, and even within a company, from customer to customer. This is because “customer success” is different for each customer.
For this reason, it is difficult to determine the optimal KPIs for your company, and many companies are struggling too.
In this article, we would like to take a look at nine major KPIs used in customer success and provide an overview. By reading this article, you will be able to understand what metrics are commonly used and what is best for your company.
KPI is an abbreviation for Key Performance Indicator. KPIs are quantitative indicators that measure the degree of achievement of the goals to be achieved.
By setting KPIs, it is possible to monitor the status of goal achievement and detect and eliminate deviations in progress, and correct the course. Customer Success and CLV (Customer Lifetime Value)
One of the most important metrics for companies trying to achieve customer success is Customer Lifetime Value (CLV), which is a measure of how much profit a company earns from a customer company over the entire course of their business relationship.
With a CLV perspective, you have to think about the customer marketing costs, i.e., “how much can I spend to keep my customers coming back?”.
In order to achieve customer success, the optimization of actions towards “customer companies”, you need to consider the CLV, an indicator for “your company”. In terms of CLV, customer companies can be categorized into three different models: high touch, low touch, and tech touch.
What’s a KGI?
KGI stands for “Key Goal Indicator.
For example, let’s say you set a goal of “becoming the No. 1 company in the industry.
However, since “by when,” “in what aspect,” and “how much” has not been determined, it is impossible to measure whether or not the goal has actually been achieved.
Therefore, we need to put them into numbers, such as “achieve $1M (how much) in sales (what) in this fiscal year (by when). In this way, we can measure the degree to which we have reached the final goal. It will also make it easier to monitor the progress of the project and eliminate any discrepancies in perception among members.
What’s a KSF (CSF)?
KSF stands for “Key Success Factor”.
KSF is the key element that leads a business to success. Since they are elements, they are often qualitative rather than quantitative.
Similar terms are KFS (Key Factor for Success) and CSF (Critical Success Factor), but they are used in the same way as KSF.
Originally, it was a management term used for the purpose of defining what is needed to achieve a business strategy. However, it often has a broad meaning and has gradually come to be used as a “critical success factor” in business in general.
KGI, KSF(CSF), KPI
KGI is the final goal to be achieved, KSF is the key factor to achieve it, and KPI is the index to quantify the KSF and measure whether it is being met or not.
The process of setting goals and incorporating them into concrete actions is as follows.
(1) Clarify KGI
(2) Organize the process and mechanism to achieve the goal.
(3) Formulate and refine KSF hypotheses.
(4) Quantify the KSF and make it a KPI.
For example, let’s say you want to lose weight successfully.
(1) “I want to lose weight successfully” is not enough to measure whether you have achieved your goal or not, so first you should set a numerical goal such as “-20lbs in 3 months”. This is the KGI.
In order to achieve this goal, you need to find a way to reduce calorie intake while increasing calorie consumption.
In order to reduce calorie consumption, we need to exercise, and in order to reduce calorie intake, we need to restrict our diet. This is the KSF.
4) In order to put this KSF into a form that can be implemented on a daily basis, “walk for 60 minutes every day” and “limit calories to 2000 kcal per day” are assumed. This is the KPI.
KPI is just an intermediate indicator of achieving the goal.
Unless appropriate actions are taken based on the Health Score, it will not lead to any outcomes.
This is not a problem for customers covered by high-touch (one-on-one customer success operations such as phone calls and meetings), but what about cases where high-touch is not cost-effective?
For example, if you have 100 customers with ‘Red lights’, do you make a phone call to all of them to arrange a meeting? The answer should be no.
Also, do we send a one-size-fits-all “How are you doing?” e-mail to the 100 red-light customers? The answer to this question, too, should be no.
Just because a customer’s spend is low does not mean that their expectations for customer success communications are low.
If you do not tailor your communications to each customer, even with a highly accurate Health Score, they will end up with a higher churn rate than the high-tier customers.
Let’s imagine you frequently correspond by letter with 100 friends and you’re too busy to handle them! So, what would you do? Do you start by prioritizing the 100 people you have to deal with? The answer is no. They’re your precious friends! You would first buy a cell phone so that you can communicate with them via SMS, or subscribe to the Internet so that you can communicate with them via email.
Let’s take a look at some of the key KPIs that are often used in customer success.
The churn rate is the percentage of customers who have cancelled their subscriptions.
It is an indicator that is especially important for SaaS and subscription-based businesses. In these business models, the key to business growth is “how to get people to continue using the service. This is because the cost incurred up to the point of contract cannot be recovered once the service has been introduced.
Therefore, if the churn rate is high, no matter how many new customers you acquire, you will not be able to grow your business. It’s like pouring water into a tub with a hole in the bottom. It is only when you fix the hole that the water starts to accumulate.
There are two main types of churn rates: one is based on the number of customers, and the other is based on revenue.
The reason why there are two types is because there is a difference in revenue between different customers.
For example, if you have revenue from only three companies as shown below, and only A churns, the churn rate is 33% based on the number of customers. On the other hand, if you look at the revenue base, the churn rate will be 70%.
Therefore, in order to properly capture business impact, both metrics need to be measured.
Which one to focus on will depend on the business phase.
In general, we tend to look at customer base in the early stages and revenue base in the middle and later stages.
Customer Churn rate
Customer churn rate is a churn rate based on the number of customers, and is “an indicator of the percentage of customers who have churned within a period of time out of the customers who are under contract as of the beginning of the term.
Customer churn rate = Number of customers who churned during the period / Number of customers at the beginning of the period x 100
Revenue Churn rate
The revenue churn rate is a revenue-based churn rate, which is “a measure of the percentage of revenue generated at a point in time that has decreased (increased) within a certain period of time.
There are two types of revenue churn rates: those that focus only on the decrease in revenue and those that include the increase in revenue.
(1) Gross Revenue Churn Rate
This is an indicator that shows the percentage of losses incurred within a certain period of time, focusing only on factors that reduce returns, such as cancellations and downgrades.
Gross revenue churn rate = Loss during the period / Total revenue during the period x 100
(2) Net Revenue Churn Rate
This is an index that shows the percentage of loss (profit) generated within a certain period of time, including factors such as up-selling and cross-selling as well as factors such as cancellation and downgrading.
Net Revenue Churn Rate = (Loss during the period – Gain during the period) / Total Revenue during the period x 100
Negative Churn
Since the net revenue churn rate takes into account all the fluctuating revenue, it will be negative if there is a final increase in revenue. And this negative state is called negative churn.
In other words, the increase in revenue from up-selling and cross-selling outweighs the decrease in revenue from churn and downgrading.
Negative churn is a state in which the business is growing solely on revenues from existing customers.
Since it is not affected by the acquisition of new customers, it can be said that the business is growing at a fairly stable rate.
In addition, since the revenue from new customers is directly added to the business, the speed of business growth is accelerated.
Retention rate is “the percentage of customers under contract who continue with the service.
It is an index that is the flip side of the churn rate: “Retention Rate = 1 – Churn Rate”.
Retention rate = Number of customers who continued during the period / Number of customers at the beginning of the period x 100
While there were two types of churn rates, one based on the number of customers and the other based on revenue, retention rates are usually based on revenue.
NRR
Net Retention Rate is the percentage of revenue that is retained by customers under contract.
It is a retention rate based on revenue, and is generally calculated on a monthly or yearly basis.
NRR is compared to a certain period in the past.
NRR is an indicator that looks at the current level of sales earned during the same period of the previous year.
Similarly, it is also used to predict how much the current sales will be at the same time next year.
Therefore, it is the same as the revenue churn rate, but while the revenue churn rate is often used to compare changes between the beginning and end of the calculation period, the NRR is often used to compare with a certain period in the past, such as “the previous year” or “the same month of the previous year.
How to Calculate NRR
The calculation formula is as follows. (When one month is used as the calculation unit)
A = MRR of customers acquired and renewed in the same month of the previous year
B = MRR of the same customer as A in the current month
Net Retention Rate = B ÷ A
*MRR (Monthly Recurring Revenue) is a measure of the monthly revenue that is earned every month.
Note that new customers acquired between periods A and B are not included in the count.
For example, in the above figure, if we were to calculate the NRR for November 2021, companies A, B, C, and D would be included in the scope, and company E would not be included. The NRR is just to see how much sales you were getting in the same period last year, and how much you are getting now.
Therefore, the NRR is as follows
NRR = [B] (100 + 120 + 60) / [A] (100 + 100 + 80 + 80) = 78%.
If the calculated value is higher than 100%, it means that the increase in sales, such as up-selling and cross-selling, outweighs the decrease in sales, such as churn and downgrading.
In fact, the higher the growth rate of a company, the higher its NRR tends to be. As a rough guide, the median NRR of listed SaaS companies in the US is 117%.3.Onboarding completion rate
Onboarding is the process of supporting customers until they are able to use the services and products provided by the company.
Onboarding completion rate is “the percentage of customers who have completed the support.
Onboarding is the most important step in customer success.
Onboarding is one of the most important processes in customer success. This is because if onboarding fails, it will be very difficult for customers to use the service or product and realize results.
If the usage and value of the product is not communicated, it will not be actively used anymore. In addition, during the onboarding phase, there are many cases where the customer’s enthusiasm is high right after the introduction of the product, and they tend to respond well to your efforts. If you fail in the onboarding phase, it is unlikely that the customer will actively recover from the failure.
There are many companies and organizations that have had the experience of having customers cancel their subscriptions without much use, and this is often due to onboarding failure.
For this reason, many companies set the onboarding completion rate as an important KPI.
Onboarding is a true indicator of the maturity of a customer success organization.
Onboarding is where the maturity of a customer success organization really shows.
For service providers, onboarding is the most time-consuming phase, but at the same time, it is the phase that can be easily reduced through structuring and automation.
Therefore, “how effective and systematic onboarding is” is a measure of the maturity of a customer success organization.
In particular, the better the service or product, the more customers will flow into this phase, and the more polished onboarding will be required.
Up-selling and cross-selling are both methods of increasing the price per customer, although they are approached in different ways.
Up-selling is the process of getting an existing customer to switch to a higher level service or product.
Cross-selling is the process of getting existing customers to purchase another service or product in addition to the one they are currently contracted with.
The Expansion Rate is a measure of how much up-selling and cross-selling is being done.
The up-sell/cross-sell ratio is an important KPI because it visualizes the degree of sales contribution of the customer success department.
It is important to identify the right timing for up-selling and cross-selling.
Nevertheless, unnecessarily proposing up-selling and cross-selling may lead to a loss of reputation from customers.
The success of up-selling and cross-selling depends on the customer’s satisfaction with the contracted service or product and trust in the company.
Therefore, although it is an activity that should be actively pursued, it is necessary to carefully determine the target and timing.
CLV is “the total amount of profit a customer brings to a company from the start of the transaction to the end of the transaction.
Why CLV is important ?
In recent years, there has been a focus on stabilizing and expanding revenue from existing customers, and CLV is a very important indicator. This is due to factors such as market saturation and changes in values.
Market saturation
When a market is in a growing stage, it is possible to grow the business by attracting new customers. Therefore, it was economically rational to focus on planning and promoting attractive products.
However, as the market becomes saturated, it becomes increasingly difficult to attract new customers. However, as the market becomes saturated, it becomes increasingly difficult to attract new customers because it is not easy to create new demand when the product or service is already widely available.
Therefore, the emphasis is on building long-term relationships with existing customers and generating stable profits.
Changes in value
Another factor is that “use” rather than “ownership” is becoming more common, and retention of existing customers is becoming more important.
With the saturation of the market and the spread of good quality and inexpensive goods, ownership is no longer a status. Therefore, a new option has emerged: Use. As the sharing economy becomes more common, customers no longer necessarily choose to own things. In this way, it becomes increasingly difficult to attract new customers, while companies that provide usage-based services need to retain existing customers.
NPS® (Net Promoter Score) is an index that measures the degree of customer loyalty to a product or service.
The Net Promoter Score (NPS®) is a measure of the degree of customer loyalty to a product or service. The NPS® score can determine whether the respondent is an avid fan of the product or service, satisfied to a certain extent but easily disengaged, or dissatisfied.
Customer Loyalty
Customer loyalty is a measure of the level of trust and attachment of customers to the company itself and its products and services.
Customers with high loyalty have the following characteristics
They purchase and use the company’s products and services many times.
They recommend your products and services to others.
They provide constructive and valuable feedback.
These customers are very valuable to companies. In an increasingly competitive marketplace, many companies want to create customers who will always choose their products and recommend them to others.
Customer loyalty is not the only factor that determines the growth of a company, but it is extremely difficult to achieve and maintain profitable and continuous growth without improving customer loyalty.
How to measure NPS®
2 simple steps.
(1) Ask customers, “How likely is it that you would recommend this product/service to a friend or colleague? and ask them to answer on an 11-point scale from 0 to 10 (0 being not likely to recommend at all and 10 being highly likely to recommend).
Depending on this answer, customers are classified into three segments.
Promoters: 9 to 10 points
→A customer who is a fan of the company and is highly loyal to the company and will actively recommend it to their friends.
Passives: 7 to 8 points
→A customer who is motivated by inertia rather than goodwill or enthusiasm, and who would leave the company for a competitor if given the opportunity.
Detractors: 0 to 6 points
→A customer who feels dissatisfied or dissatisfied, and is likely to send negative information to those close to him/her.
(2) Subtract the percentage of ” Detractors” from the percentage of ” Promoters”.
This score becomes the NPS® score.
If we surveyed 100 people, and 40 customers were classified as “promoters” and 30 customers were classified as “detractors,” the ratio of each would be 40% ” promoters” and 30% ” detractors,” so the NPS® score would be
NPS®=40-30=10
As you can see from the method of calculation, the NPS® score falls somewhere between -100 for having only “detractors” and +100 for having only “promoters,” and the more “promoters” and fewer “detractors,” the higher the score.
NPS® scores are highly linked to business performance
Of all the indicators that measure customer loyalty, NPS® is the one that has been observed to have the strongest correlation with business growth. The reasons for this can be summarized in the following two categories.
1) It asks about future behavior.
The first is that it asks about future behavior.
In the case of customer satisfaction surveys, questions are basically asked about the “past” experience and the “present” feelings associated with it, such as “Are you satisfied?
Therefore, even if a respondent is “satisfied,” it does not necessarily lead to “future” behavior (continued purchase or recommendation to others).
However, the NPS® asks for “future” behavior such as “Would you recommend the product to a close friend? Therefore, it is possible to obtain answers that better reflect the actual behavior of customers in the future.
2) Asking about stressful behavior
The second point is that we are asking about stressful behaviors.
It takes a lot of courage to recommend something to someone close to you, because it affects your relationship with that person in no small way.
Even if you ask them about the same future action, it may be more stressful than asking them about an action that they can complete by themselves, such as “Will you buy it again?
That is why customers who score 9-10 on the NPS® are more likely to actually recommend the product to their close ones.7. CSAT
CSAT is a metric that measures satisfaction with a company or product.It is sometimes called an emotional score because it focuses on the emotions of the customer.
How to measure CSAT
In fact, there is no fixed measurement method for CSAT. The content, means, and timing of the questions are also optional. Therefore, it is best to choose a method that is appropriate for your company.
The most common questions are those that ask for a five-point scale, such as “very dissatisfied,” “dissatisfied,” “normal,” “satisfied,” and “very satisfied.
Alternatively, the support page may ask, “Was the problem resolved? to focus on whether a particular action worked or not.
Surveys
A widely used method of asking questions is through surveys, which can be requested in a variety of ways, such as setting up a survey form on a website, or having people fill out a survey form after an in-person orientation or contract. In recent years, there are also ways to use social networking sites and apps.
Interviews
If you want to investigate in more detail than a questionnaire, an interview is a good way to measure. It is easier to get specific information since you can change the questions flexibly according to the situation, rather than just asking people to answer a set of questions like in a survey.
Telephone survey
If you are not able to spend as much as an interview, a telephone survey is a good option. It is probably more flexible than a questionnaire. However, since you cannot use visual elements, you are limited to a question format that can be understood verbally.
Difference between CSAT and NPS®
The difference between CSAT and NPS® can be seen in the questions.
In CSAT, the question is “Are you satisfied with the service/product?
The target of considering whether a customer is feeling satisfied is often specific and can be short-term and limited.
On the other hand, The NPS® asks “How likely are you to recommend this service/product to a friend or colleague? “
The target of considering whether customers feel satisfied or not is not specific, but long-term and holistic.
Therefore, CSAT is a better match when you want to know the evaluation of a new service launch or product improvement, and NPS® is a better match when you want to know how much customers switch to another company’s product when a competitor launches a new product.8. Word of mouth
Customer Success is an activity designed to maximize revenue from existing customers. However, strengthening relationships with existing customers can also lead to the acquisition of new customers as a result.
If you want to acquire new customers through customer success, the number of word-of-mouth and referral inquiries is an appropriate metric to measure the results.
There are also some marketing techniques that can help you reach out to existing customers and acquire new ones.
Advocate marketing
The term “advocate marketing” refers to a marketing method that encourages fans of a company’s service or product to promote it.
Since advocates use the product on a regular basis, they can tell you how they feel about it, what they think of it, and how attractive it is from a customer perspective.
They also have a sense of trust and persuasiveness because they are based on goodwill and enthusiasm. In this way, words from a single customer can easily move the consumer’s heart and is a very effective promotional measure.
Community marketing
Community marketing, as the name suggests, is a marketing technique that utilizes user communities.
When the interactions between users in a community, or between users and companies, can become attractive content that attracts unsuspecting customers, the community content can function as an asset with media value.
▼Check out this article for the detail
https://www.commmune.com/blog/community-marketing-definition-and-impacts
For example, BASE FOOD Co., Ltd. uses Commmune to run “BASE FOOD Labo,” a community where users can interact and create new projects.
(Japanese only)
Part of this community is open to the public so that anyone can view it, and it serves as an opportunity for those who have not yet tried BASE FOOD to become interested in it.
CSQL stands for Customer Success Qualified Lead, which is a lead that has been generated through customer success activities and has passed certain criteria.
CSQLs are the customer success version of MQLs (Marketing Qualified Leads).
Why CSQL’s winning rate is so high ?
Customer Success provides companionship and support to customers. This allows you to understand your customers in a way that is not possible in the marketing and sales phases, and can generate very promising leads.
For example, you will be able to understand the following information
The origins and history of the client organization
Who they are (especially their relationships with key stakeholders and decision makers)
How the product/service is used and usage data
Very specific issues
Best timing for proposals
This deep understanding of the customer and the trusting relationships that have been built up over the years can generate leads with a high sense of temperature.
If you are involved in customer success, you have probably heard of the term “health score”.
A health score is set to determine whether a customer will continue to use your service in the future.
When you go for a health checkup, you get results such as, “My body temperature and heart rate are normal,” “I don’t have any serious blood problems, but my cholesterol level is a little high,” or “I am 10lbs heavier than my ideal weight,” which gives you an idea of your health status.
In the example of a health checkup, you would use indicators such as body temperature, heart rate, and weight to determine your health status. These indicators are collectively called health score.
With a well-designed health score, you can understand the health status of your customers and determine how long their life expectancy is = how long their contract will last.
Benefits of designing a health score
1. Effective in preventing churns
By designing a health score, you can catch the signs of churn so you can take action in advance.
If there is no health score, changes in customer behavior will become a black box, and customers will be happy or sad when they open the box at the time of contract renewal, making it impossible to prevent churn, understand the causes, and take action in the future.
It is only because we can catch the signs that we can move to fix them.
2. Reduce customer success workload.
In order to make the best use of the limited resources of customer success representatives, it is essential to respond efficiently.
By designing a health score, it is possible to determine which customers should be prioritized and which customers should be supported less frequently.
In addition, since the health score functions as a common language, it can also reduce the burden in terms of internal communication.
How to design a health score
The health score really varies from company to company. Some say that the number and frequency of logins is enough, while others break it down into as many as 20 categories. Some may only use the qualitative judgment of Customer Success Managers.
However, the difference in the specific indicators is not really a big issue.
In any case, what is important is not “what” you decide, but “how” you decide.
Objective: Work backwards from “Identify customers who are likely to churn.
The purpose of a health score is to identify at-risk customers who are likely to churn. A health score that can achieve this objective is an excellent health score, and even if the required check items differ from company to company, it is natural considering the different services and customers that are handled.
Working backwards from this objective, the most effective design method is to identify and quantify the characteristics common to customers who have actually churned. In other words, think of the customer’s unhealthy state as a starting point.
In many things, failure is easier to science than success, and the same is true for customer success. The definition of health, or the ideal state, can be taken broadly.
In contrast, if the state is unhealthy, the goal of churn is clear, so it is easier to identify common characteristics.
Qualitative information from the Customer Success Manager is also important.
One thing that should not be ignored is the qualitative information of the Customer Success Manager. Most of them have intuitive indicators such as “these customers are prone to churn” or “alert me when a rep starts to lag behind.
By applying this sensory knowledge to health scores, it is possible to notice the slightest signs of customers that would otherwise be missed by numerical values alone.
It is the same with the human body. The human body is not so simple that everything can be judged by the numerical values of test results.
That is why doctors who can make comprehensive judgments based on the patient’s complaints and condition as well as the combination of numerical values, including those that do not appear in numerical values, are highly valued.
The inclusion of qualitative information also helps to create a sense of agreement among members regarding the health score.
After all, no one will chase metrics they don’t believe in.
When customer success managers match the indicators with the sensations they get from dealing with customers, the health score will be trustworthy without deviating from the sensations.
“Strategy is about deciding what metrics to follow”
Once you have a set of indicators, you will start to think about how to achieve them on a daily basis. In other words, the indicators determine where you are going.
If inappropriate indicators are set, no matter how hard you try, you will not reach your goal. That’s why it’s important to set appropriate KPIs.
There are many indicators used in customer success, but it is best to work backwards from the KGI you want to achieve in the end and incorporate them into KPIs.
