9 Measurable SaaS Customer Success Metrics & How To Measure Them
??Rohit Mittal??
????Versatile As A Swiss Knife | ENFJ-A | T-Shaped Growth Marketer | PnL Ops Leader | Enterprise Consultative Sales Expert | International Business Development Specialist |9%-13% YoY Business Growth????
DISCLAIMER: -
Copyright ?2021 by Rohit Mittal | [email protected]
All rights are reserved by the creator of the document. Publication Date: September 2021. Rohit Mittal reserves the right to change the contents of this article and the features or scope of the content at any time without the obligation to notify anyone of such changes. The content has been adapted using secondary research from various data points via “Google Search”. Infographics and Images used in the document are the property of the respective owners and have been used for indicative purposes only. The author reserves the right for authorization and usage of the Intellectual Property contained in the document.
Executive Brief: -
Acquiring customers for a SaaS business is like oxygen for surviving. As the business expands and grows it starts to get harder to maintain the growth rate.
Acquiring new customers is not completely enough for a growing SaaS business. It becomes imperative for them to give equal importance to what is available at home – Existing Customers. How to cross-sell and upsell to them successfully is the key.
These metrics help give insights into consumer behaviour and answers to the questions (How and Why). They help to understand how the consumers are engaging with your business and help optimize the overall value proposition.
"Customer Success” is one of those vague terms that seems like it was invented when we needed a buzzword to describe what successful businesses have been doing forever.
But just because it’s a buzzword doesn’t mean that it’s not absolutely critical to focus on. It is.
Almost every successful software company that I can think of has gotten to where they are – or at least to initial traction – on the success of their customers. Alex Turnbull, Groove
1. DAU (Daily Active Users)
It is a simple measure of the number of users that are active on a given day. It is an indicator of the health of any SaaS business. DAUs help to uncover valuable insights about how users interact with your solution, depending on the actions that are chosen to be tracked. It helps a great deal to understand which features are most widely used and how well the solution resonates with the users.?
Some of the important questions that need to be uncovered in the context of what actually should be defined as “Active User”
Depending on the business model and goals there are two important aspects to be kept into consideration:
1.???The action needs to relate to what is the core premise behind the particular App or Business.
2.???How does your business benchmark against the competition??
In the context of a SaaS business, some of the actions that can be considered are
2. MAU (Monthly Active Users)
It indicates the number of unique users of an application that have actively engaged with it at least once a month. The active user could be a “Trial User” or a “Paid User”. A Unique user can be identified by a username, an email, or a user id.
The nature of the application drives the frequency of the usage, the context use, and the role of the user. For example, Supply Chain applications that projecting monthly forecasts and plans.
An aspect that needs a clear understanding is that MAU and Monthly Active Accounts are two different metrics. The users are a subset of accounts, for the majority of SaaS applications. MAU can imply how valuable the application is to multiple unique users of an account as opposed to just the account level engagement.
A further dissection into the definition above and we will understand the pertinent elements of MAU as explained below:
3. NPS (Net Promoter Score)
"The secret to marketing success is no secret at all: Word of Mouth Is What Matters" - Seth Godin
NPS was introduced in 2003 and it is being used by the majority of the SaaS businesses as they strive for incremental customer loyalty. 55% of the businesses across the globe measure customer satisfaction but only a handful of the companies use it apart from bragging about it in corporate meetings.
The most important and basic question in an NPS survey is “How likely are you to recommend [PRODUCT] to a friend or colleague?”
The responses are recorded on a scale from 0 to 10, with 0 being “Not Likely” and 10 being “Very Likely”. Based on the results ?respondents into three different groups:
Promoters: As the name suggests these are the most satisfied customers are most likely to recommend it to other prospective users.
Passives: They are like your friends and relatives who are sitting on the fence. They might like the product but are not passionate about it and for sure do not wish to help you grow as they are afraid of their reputation and your growth.
Detractors are dissatisfied customers and a threat to your business. They will spread -ve feedback.
NPS is calculated as below:
%Promoters – %Detractors = Net Promoter Score
For example:
50% of your respondents answered with 9 or 10.
20% answered 6 or below.
Your NPS is then 50 – 20 = 30
According to Retently a good NPS is 30 for SaaS companies anything above that means the company is doing fine.
4. CSAT (Customer Satisfaction) Scores
This score is to measures the individual interaction a consumer or a prospective user has with the company. This is a popular metric for measuring Customer Success. Once an interaction (For Example - Customer Support Conversation), the customer is asked a simple question:
Once the responses have been recorded cumulative CSAT scores are then calculated by averaging out the responses using the below formula:
Once the SaaS business starts growing, monitoring customer interactions becomes daunting and pertinent. CSATs provides a simple window into the type of service being offered. It also complements the NPS scores.
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5. Up-Sell & Cross-Sell Rates
Once the SaaS business grows, one of the major tactics to survive is Upselling and Cross-Selling to existing customers.
“The probability of selling to a new prospect is 5-20%. The probability of selling to an existing customer is 60-70%.” ~Marketing Metrics
Upselling accelerates the profitability of a SaaS company. The Upsell rate can be calculated using the following formula:
For example, if we generated $10,000 in Annualised Contract Value over a single month, and $2,500 of that revenue can from upselling, the upsell rate would be 25%.
The identical formula applies to cross-selling, to work out the proportional revenue generated by encouraging existing customers to take up complimentary services (like purchasing an invoicing product to work alongside their recurring billing tool):
6. Viral Coefficient
The viral coefficient is a measure that determines the number of new users created by customers' references. The metric is just an estimate of the virality of a company that describes the exponential transfer cycle. In SaaS parlance, solutions with more than a count of 1 are considered viral. Viral products encourage the exponential growth of the consumer base of a company.
Usually, the viral coefficient is examined alongside the viral cycle time. The time required for the viral cycle is that a current client transfers the product or service of an enterprise to other people so that the customer is referred to and then begins to refer products to other people. A shorter viral cycle time leads to more rapid growth for the company.
How is it computed?
The viral coefficient can be computed by dividing by the total number of customers produced by references from current customers. It can be stated mathematically using the following formula:
Another simplified version of the above formula is as below:
Why is it so important?
The viral coefficient represents an important measure of the growth of a firm and its attempts to enhance its client base. A high coefficient demonstrates the company's exponential expansion. Companies with high viral coefficients can theoretically achieve remarkable growth.
The main reason is that companies may exploit the virality of their products to greatly expand the number of their users. Moreover, the traction through referrals of new consumers is a highly economical technique as the company does not have to incur high customer acquisition costs.
The viral coefficient represents the quality of the products or services of a corporation. In other words, high-quality products tend to have a high coefficient.
At the same time, it should be noted that the viral metric is generally unpredictable - subject to considerable volatility. In addition, over-reliance on the measure might be counterproductive as it is practically hard to achieve exponential growth in the real world simply through customer referrals. In particular, for organisations operating under the business-to-business model (B2B), which is characterised by sluggish transfer procedures, it is exceedingly difficult to achieve.
7. Revenue Generated From Referral Programs
This simply refers to the revenue generated from successful customer referrals. Like any other referral program, this is a reference programme primarily designed for software-as-a-service models.
SaaS, which is cloud-based and usually on demand, can conduct referral programmes online. A SaaS user can join a reference programme, distribute their unique reference code via social media and direct mail and redeem their income in only a few clicks.
As with any other customer referral campaign, SaaS referral programmes involve existing consumers and reward them for sharing the service.
A referral programme saves client acquisition costs (particularly expensive when you are a B2B SaaS) and enhances customer loyalty in the long term. And if you use the correct referral tool, it is easy to set up and run a successful programme automatically. The key benefits of SaaS referral programs are
8. ROI From Referral Programs
This can be calculated from the following formula:
To exemplify, Let’s suppose that an average customer is paying $1500 per month for a lifetime of three years, so the LTV will be
LTV = $1500 x 36 = $54.000
The referral program costs are 15% on the MRR (Includes both the referrals and referrers)
= .15 x $1500 x 2 = $450
Hence for 12 months, the costs will be $5400
So in our example, the Referral ROI will be
$54000 - $5400/$5400 = $9
*The program is generating an LTV of $9 for every dollar spent.*
9. Viral Referral ROI
It is very critical to note that customer referral programmes do boost LTV. As a result of the customers' ongoing revenue contributions, those customers have an indirect role in raising the overall revenue of their company.
By accounting for referral rewards, a SaaS business can improve our return on investment. To achieve this modification, the LTV (the term for a company's lifetime value) is increased with our new variable called our Viral Coefficient, which is the rate at which the company gets clients from existing customers through recommendations.
For Example If the referral efforts of every 10 existing customers, we get a viral coefficient of 0.5 with the following data points
LTV = $30.000
1+.5 = 1.5
Referral Incentive = $3000
=($30.000x(1.5)) - $3000/$3000
Viral Referral ROI in this case is 14