Ty Collins, February 27, 2021
The customer experience is about more than just taking support calls and resolving issues. It’s about building long-term relationships and creating positive associations with your company. Focusing on the customer experience gets results.
According to research from Deloitte & Touche, companies that prioritize the customer experience are 60% more profitable than those that don’t. Joining those successful ranks means focusing on key customer success metrics and working to improve them.
Here are 10 customer success metrics that you'll want to track — and act on — to cultivate the kind of customer experience that gets results.
The customer health score is one of the most flexible customer success metrics out there, and that’s part of what makes it so useful for businesses. You can think of it as measuring the strength of the customer relationship, based on a particular outcome that your company values.
Your customer health scores are like thermometers for each customer. They tell you which customers are most in need of attention, helping your support team to work more efficiently.
Here's how to get a score that matters to you.
Step 1: Choose the outcome you want to measure.
This can be a positive outcome like contract renewal or upselling, or it can be an outcome like churn that you want to avoid.
Step 2: Choose your predictive signals.
These will be specific behaviors that relate to your chosen outcome. For example, if you’re using customer health scores to target potential upsells, you can examine factors like features used and feedback quality.
Step 3: Weigh your signals.
Some signals will relate more strongly to your desired outcome; others will be less important. For your customer health score to be as accurate as possible, you need to decide how heavily to weight each behavior. Here’s an example, courtesy of WordStream:
Image source: https://www.wordstream.com/blog/ws/2019/07/02/customer-health-scoring
Step 4: Develop a scoring scale and anchor points.
Scores are only useful if you have a basis for comparison. A score of 92 is great if your maximum is 100, but it’s not so great if you’re scoring out of a possible 500.
Determine your range and select benchmarks within that range. For example, you might decide that any score below 50 indicates that the client “needs attention,” that a 50 to 80 indicates average customer health, and that any score over 80 is excellent.
Step 5: Decide what you’ll do with the data.
Akin to every other customer success metric, your customer health score needs to drive action. Clearly identify which step each score indicates and communicate that to your team.
CMSWire names customer satisfaction score (CSAT) as the second most popular customer success metric, and for good reason. It tells you how customers feel after an interaction with your company. CSAT is straightforward, immediate, and directly useful to your customer service team.
Many companies send out CSAT surveys following customer service touchpoints, such as calls to a helpline or email support tickets. You can also collect scores after a purchase, onboarding call, or any other conversation. It all depends on which customer success practices you intend to track.
You collect CSAT scores by asking customers to rate their satisfaction with their recent experience. How you structure and present that question is up to you.
Some companies request that customers score them on a scale of 0 to 10, 1 to 7, or some other version of a numerical scale. Others use multiple-choice formats, asking people to select whether they’re “very satisfied,” “satisfied,” “somewhat satisfied,” and so on.
More casual brands sometimes even choose an emoji-based scale allowing customers to choose grinning, happy, neutral, or angry faces.
The format you choose might depend on how you send out the survey. It’s often best to use a scale that you can replicate over the phone, possibly with a bit of extra guidance like:
“Rate your interaction on a scale of one to five, with one being the least satisfied and five being the most satisfied.”
The CSAT is useful as both an individual score and an average. If you receive an abnormally high or low score, you or a manager can investigate that interaction and determine what made it stand out.
It’s also useful to calculate and track your average CSAT, looking for trends over time.
Take your overall average and the averages for certain teams or departments into account. This can provide you with plenty of useful information regarding teams that are performing well in terms of customer success, and which might need more guidance.
Net Promoter Score (NPS) is similar to the Customer Satisfaction Score in that it’s a survey-based metric, but NPS centers on whether your customers will recommend you to others. Given that ads are becoming more expensive and less effective, these referrals are critical to your ongoing growth.
Net Promoter Score sorts your customers into three categories:
Detractors: Customers who probably wouldn’t recommend you to others. Detractors are more likely to churn and could hurt your growth by speaking of you negatively to others.
Passives: Customers who are content enough but unenthused. They’re less likely to mention you to others, either positively or negatively. With the right customer care, they could become loyal, but they’re still receptive to a better offer from elsewhere.
Promoters: Customers who are loyal, enthusiastic, and eager to recommend you to others. The more Promoters you have, the more growth you can expect.
The higher your NPS, the more your promoters outweigh your detractors. Tracking NPS can offer you advance warning if customer perception starts to drop or increase, letting you step in proactively.
Also, as with CSAT scores, you can use individual NPS numbers to flag problematic or abnormal interactions.
Create a single-question survey that asks, “How likely are you to recommend our company to a friend or colleague?” Let them choose their answer on a scale of zero to 10.
Group respondents based on their score:
0 to 6: Detractor
7 or 8: Passive
9 or 10: Promoter
Calculate the percentage of respondents who are Detractors and the percentage who are Promoters. Subtract the Detractor percentage from the Promoter percentage to obtain your Net Promoter Score.
If you’d like to use NPS to flag problem interactions, consider adding a comments field. This can tell you whether the problem was with a certain representative, manager, or some other specific issue.
As the phrase suggests, customer lifetime value (CLV) tells you how much revenue you can expect a single account to generate. A high CLV usually translates to high customer retention rates, which connect directly to profitability.
Having lots of long-haul customers entails that you will spend less on individual acquisitions. If your CLV goes up, this suggests that you’re retaining customers longer and/or getting them to buy more. You’re doing something right, and you’ll want to identify what that is.
If your CLV drops, your churn is probably increasing. Churn is expensive because it can cost up to five times more to acquire a new customer than to retain an existing one. You'll want to figure out why people are disappearing in order to keep your marketing costs down.
Divide your total revenue over a certain period, typically a year, by the number of purchases made in that time. That’s the average value of each purchase.
Take the number of purchases in your chosen period and divide it by the number of customers who bought during that period. That’s your purchase frequency rate.
Multiply your average purchase value by your purchase frequency rate. This is your customer value (Not lifetime value… you’re getting to that.)
Calculate the average of how many years a person remains a customer. That’s your average customer lifespan.
Multiply your customer value by your average lifespan. This — finally! — is your CLV.
Renewal rate is the customer success metric to track if you have a subscription-based business — or if you’re planning to start one. Many business and consumer industries are leaning heavily toward subscription models, with 70% of business leaders advocating for their current and future use.
The subscription model depends on renewal rates for the same reason that traditional pay-for-purchase businesses depend on retention.
If your renewal rate is low or decreasing, this indicates that your customer success could stand to improve. You may want to survey customers to find out what’s lacking. Potential improvement targets could include value, the competitiveness of product quality, service level, or some combination of these.
A high or increasing renewal rate suggests that customers continue to find value in your product or service. If that’s the case, it might still be worth figuring out where you excel and what you can keep doing right.
You can even look specifically at renewal rates for new or returning customers. A low renewal rate for new customers might mean that people are taking advantage of new customer discounts. Dropping renewal rates for existing customers might have more to do with competition.
First, determine a time period to scrutinize. It might be six months, a year, or two years, depending on your subscription period and how narrowly you want to focus.
Then, divide the number of people who renewed their subscription by the number of users who were eligible for renewal. Multiply by 100 and you have a renewal rate percentage.
Churn rate is the flip side of your renewal rate. It tells you what percentage of your customers fails to renew, or actively cancels, during a specified period.
Many different formulas exist for calculating churn rates. Here are two of the most straightforward.
Divide the number of churned customers by the number of customers you had at the beginning of the period, and then multiply by 100.
This is the simplest option to calculate churn, but it can be misleading because it doesn’t account for new customers. It’s best used by well-established companies that have relatively stable growth.
Add the number of customers you had at the start of the month to the number you acquired. Divide the number of churned customers by that sum of new and existing ones. Multiply by 100.
This churn rate calculation is slightly more complex, but it incorporates growth, so it works better for newer and fast-growing businesses.
Churn rate doesn’t have to be a “downer” metric if you use it to improve. One tactic is to investigate which customers churn and what they have in common. If the people who churn have all worked with the same customer success representative or team, you can allocate more training resources toward them.
Another trend to look for is a sudden increase or decrease in churn. That’s when you examine what happened during that time. Did you change your pricing? Did you roll out an update that was received well or poorly? What were your competitors doing?
First contact resolution rate (FCR) focuses specifically on your customer service. It tells you how many calls or support tickets your team can resolve on the first try.
First contact resolution is important for several reasons. Most importantly, it directly improves the customer experience. Statistics show that a lack of effectiveness is the most common cause of customer service frustration, followed by a lack of speed. FCR eliminates both problems.
At the same time, first contact resolution highlights the efficiency of your customer service department. The more touch points it takes to resolve a customer concern, the higher the cost to the company.
First, decide on a period and add up the number of service requests resolved after first contact during that period. Next, divide that number by the total number of service requests fielded over the same time frame.
Some companies have reporting tools that can calculate their first contact resolution rates automatically. Others need to collect data from service ticketing systems, customer relationship management (CRM) records, or scheduling tools. With Calendly, your team can add meeting notes to indicate whether the issue was resolved and whether the interaction was a first contact or follow-up.
Another option is to survey the customer, as you would if you were gathering data for CSAT or Net Promoter Scores. You may even be able to ask two or more questions at once:
How satisfied were you with this interaction?
Was this your first time talking with us about the issue?
How likely are you to recommend us to a friend or colleague?
Monthly recurring revenue (MRR) is the total income that your company can count upon every month. It’s most relevant for businesses that have subscription or contract customers who reliably pay a set amount monthly.
MRR is important because it allows a company to budget for the future. If you know that you’ll bring in $10,000 each month, then, with some flexibility allowed for churn and new subscriptions, you’ll be able to budget for expenses and model growth.
It’s also important to consider MRR as a trend. If your MRR is increasing, it’s a good sign that you’re doing well in terms of retention, upsells, and customer acquisition. If it’s decreasing, then your customers need more help to succeed with your products or services.
The simple way to calculate monthly recurring revenue is to add up the revenues from each contracted customer.
Another option is to calculate MRR based on average revenue per user (ARPU). Divide your total revenue by your average number of monthly subscribers to obtain your ARPU. Next, multiply your ARPU by how many active customers you have.
This value will probably be close to the simple MRR value. It’s usually only worth the trouble if you already monitor or have an easy way to track ARPU.
Expansion MRR is an additional metric that tells you how much revenue your subscribers and/or contracted customers generate, outside of their subscription costs. That includes upgrades, cross-sells, and add-on purchases.
To calculate expansion MRR, calculate the sum of all premium or additional purchases by contracted customers. You can examine the trend over several months or focus on months when your offerings changed in order to identify how people responded.
Digital marketing guru Neil Patel calls customer acquisition cost (CAC) “the one metric that can determine your company’s fate.” CAC is the amount that you pay to compel someone to buy your product or service.
CAC is a simple metric, but it indicates how well your company is performing across the board:
Profitability: The less you have to pay to secure a customer, the more profit you’ll gain from each customer and from your total customer base.
Retention needs: The more you spend to acquire a customer, the longer you must retain that customer in order that they “pay for themselves.”
Sales and marketing efficiency: Lower CAC means that marketing is spending less to acquire more customers and sales teams are nurturing the right leads.
Quality of the customer experience: Happy and loyal customers are more likely to refer others. This is the foundation beneath the Net Promoter Score, but it also affects CAC. If your CAC is low and you’re seeing strong growth, then your team is cultivating strong customer success.
To calculate CAC, you need to divide the cost of sales and marketing for a particular period by the number of new customers acquired.
For example, if you spent $600,000 on sales and $400,000 on marketing for a total of $1 million and brought in 1,400 new customers, your CAC would be just over $714.
You can increase your CAC in two ways: by decreasing your sales and marketing expenses, or by increasing the number of customers that you acquire through referrals. Naturally, you’ll see results faster when you can do both.
Just as monthly recurring revenue can help you to budget for the future, so can customer retention cost (CRC) assist you to develop a smart customer experience budget. CRC indicates whether the money you spend on service and support pays off, in addition to whether recent investments in these areas have been worthwhile.
Tracking customer retention cost is facilitated by detailed accounting records. You’ll usually need the amounts that your company has spent on:
Customer success and service payroll and staff training
Customer onboarding programs
Outreach to existing customers
To calculate your customer retention cost, you add up all of these values and then divide that sum by your total number of customers.
CRC isn’t a precise metric. Some people will stay on board because they genuinely love your product or service, but you can't quantify feelings.
That said, if you’ve invested in retention efforts and want to justify them, or if you want to track whether upcoming retention efforts work, then CRC is irreplaceable.
Each of these customer success metrics will provide you with important information regarding your customer experience, but that doesn’t mean you have to track all of them. Start with one or two, or perhaps a few more if you already track certain figures.
Privilege the information that’s most relevant to your type of business. Subscription businesses will learn the most from metrics like monthly recurring revenue and renewal rate, while non-subscription businesses benefit more from metrics such as customer health score and customer satisfaction score.
Furthermore, no matter which customer success metrics you choose to track, be sure to link each one to an action step. The "so what” is the most important aspect of analysis.
Take into account which strategies you can use and what tools you can adopt to improve key metrics. For instance, if your customer satisfaction score or first contact resolution rate is low, search out ways to create more effective interactions.
Calendly is an excellent tool that allows your service teams to set aside enough time for interactions. All you have to do is give each team member a schedule and delegate them the authority to share their schedule links. Customers or prospects can then schedule appointments for the slots that they want.
With the right responses, you can improve almost every metric and become more successful… on your terms.
Ty is the head of digital acquisition and content at Calendly.
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