If your customer success team had to quantify their impact today, could they? As the amount of data that a CS team can collect increases, so too does the need to turn the information into data-driven insights. Here are eight critical calculations to understand and impact customer success.
Customer Churn Rate
Customer Churn Rate = (customers at the beginning of the month – customers at the end of the month) / customers at the beginning of the month
Could there be any other calculation at the top of this list other than customer churn rate? This calculation shows you how good your company is at retaining customers, one of the most critical KPIs of customer success teams.
How to use it: Churn can be caused by a variety of factors, but many of them can be impacted by the Customer Success team. Aligning a customer’s experience with their goals increases retention, while Customer Success teams can also help offset customer churn through referrals. Use our Churn Calculator here to see how churn could affect your revenue and ROI over the next three years.
Revenue Retention Rate
Revenue Retention Rate = Monthly revenue of churned customers / total monthly revenue
Whereas the Customer Churn Rate looks at how many users are leaving your service each month, Revenue Retention Rate analyzes how well you’re retaining revenue month over month. Looking at your Revenue Retention Rate can give a more accurate depiction of the financial consequences of churn since the RRR is weighted for each customer’s revenue.
How to use it: Aside from the financial forecasting benefits of calculating RRR, this metric can highlight problems with particular customer segments. For example, you could have a low churn rate but also a low Revenue Retention Rate. If you just look at churn rate alone it may seem nothing is wrong but your RRR could be showing you that your most premium subscribers are less likely to stick around.
Customer Lifetime Value
Customer Lifetime Value = [Average Contract Value (ARR)] / (1 – [churn rate])
While churn rates and revenue retention rates are measured on a monthly or yearly basis, Customer Lifetime Value (CLTV) takes the longest view possible. This metric represents, on average, how much revenue a single customer will generate over their entire relationship with your company.
How to use it: One obvious value of understanding CLTV is knowing how much investment should go into acquiring and maintaining a user while still turning a profit. Why does it matter for Customer Success teams, though? CS teams can use this information to help users reach WOW moments faster, keep renewing month after month, incentivize upsells to grow the account value, and encourage advocacy that leads to new deals.
NPS Score & CSAT
NPS Score = percentage of promoters – percentage of detractors
CSAT Score = sum of customer scores / number of respondents
Your Net Promoter Score (NPS) and Customer Satisfaction Score (CSAT) tell you how pleased users are with your product. The CSAT is measured by asking customers how satisfied they are on a scale of 1-3, 1-5, or 1-7. A Net Promoter Score gauges how likely a person is to spread the word about you on a scale of 1-10, with 0-6 being “detractors”, 7-8 being “passive”, and 9-10 being “promoters.”
How to use it: NPS and CSAT scores are perfect for prioritizing the work of Customer Success teams. Users with low scores may need additional support, while customers with high scores are contenders for referral programs.
Net Renewal Rate & Gross Renewal Rate
Net Renewal Rate = (Renewed MRR + Upsell – Churn) / (MRR Available to Renew)
Gross Renewal Rate = (Renewed MRR) / (MRR Available to Renew)
Your Gross Renewal Rate lets you know at what rate users are renewing their subscription, while the Net Renewal Rate also takes expansion (such as upsells) into consideration. While the best Net Renewal Rate is above 100%, the Gross Renewal Rate can’t exceed 100%.
How to use it: Renewal Rates acts as a leading indicator for your customer success efforts. A Gross Renewal Rate that goes up month-over-month means that retention is on the rise. If you want to understand how all of your customer success tactics are working, including retention and upsells, look for an increasing NRR.
Customer Engagement Rate
Customer Engagement Rate = (actions taken / messages shown) x 100
The Customer Engagement Rate is used to understand the effectiveness of engagement tools, such as in-app messages. The desired outcomes of these in-app alerts can range from a user clicking a button, to watching a video, or completing a survey.
How to use it: Customer Engagement Rates tell CS managers how each user and segment is interacting with the tool. By calculating how effective your message was in eliciting the action you know where to focus on improvements.
Expansion Growth Rate
Expansion Growth Rate = (MRR / Monthly Expansion Revenue) x 100
Want to know how well your upsell and cross-sell efforts have been? The Expansion Growth Rate tells you just that. By looking only at expansion, you can remove the “noise” of churn when analyzing monthly or annual revenue.
How to use it: Use this calculation to gauge how successful upsell tactics have been. As you help customers grow, they may need to upgrade their plan. It’s also helpful to pinpoint the types of accounts with the highest EGR so that you can find and replicate key actions to boost expansion across all accounts.
Customer Success calculations come in all shapes and sizes. Some are useful for understanding success from a high level, such as your Churn Rate or Revenue Retention Rate. On the other hand, some metrics are helpful in gauging the effectiveness of specific campaigns or growth signs, such as your Customer Engagement Rate or Expansion Growth Rate.
Want to learn how all of these metrics come together to form your complete customer success strategy? Check out our in-depth Introduction to Customer Success.