Blog post by Pauline Daremark, Operations at Monterro
Delivering truly great customer success in the B2B Software As a Service (SaaS) world requires a totally different mindset from the On-Premises alternative.
When you sign up a new customer to your SaaS platform you don’t get that “big bang” transaction – it takes time to recoup the cost of every sale. You create an ongoing customer relationship that depends on continuous value to become profitable. Renewal is a prerequisite of recovering your costs (let alone turning a profit).
That means you need a rock solid framework to measure, maintain and grow the value you provide to customers – as well as anticipate churn risk and highlight upsell and cross-sell opportunities.
Customer success is by far the best indicator of value delivered. But knowing which customer success metrics to employ and how to calculate them is still a challenge for many B2B SaaS companies.
I’ve assembled eight metrics we recommend to help you build truly great B2B SaaS customer success – the kind that keeps renewals high, churn low, and spend growing.
If you’re looking for tips on how to build a high-flying customer success department around these metrics, I’d strongly recommend reading our blog on that very subject first.
Otherwise, let’s dive in.
Net Promoter Score (NPS)
This measures how likely a customer is to recommend your product to another prospect.
To calculate NPS, take the percentage of promoters and subtract the total number of detractors (those who actively dislike your product). The percentage of neutrals or ‘passives’ are not used in the formula. For example, if 10% of respondents are detractors, 20% are passives and 70% are promoters, your NPS score would be 70-10 = 60.
NPS is a great indicator of how loyal a customer is to your product, so a high score is a great indicator of an upsell or cross-sell opportunity.
And since the NPS shows you how satisfied your customers are, it can also be used to predict your business growth if used correctly. For example, by measuring short-term changes in the NPS, you can predict business growth in the next month or quarter. This makes it a great early indicator of potential issues, too.
Annual Contract Value (ACV) – per customer
This measures the annual revenue per customer contract. The basic formula is quite simple: the total contract value (excluding any one-time fees) divided by the total number of years in the contract.
There can be a tendency with new B2B SaaS customer success departments to try and help every customer equally. But to make your customer success wins scalable, you’ll need to segment your customers by the value they bring into the business.
Once you understand your Annual Contract Value per customer, you can start to prioritize your customer success and focus on where it’ll have the biggest impact.
Net Revenue Retention (NRR)
NRR is one of your most important metrics as it indicates whether your product has value to your existing customers, and if they’re happy with your support, reliability, and pricing etc.
It measures what would happen to your company if all sales to new customers came to a full stop, which makes it a particularly crucial metric for SaaS companies when it comes to scalability.
To calculate NRR, add Monthly Recurring Revenue and Expansion Revenue together (this gives you the total revenue for the month). Then subtract the month’s revenue lost (those that relate to unsubscribers or downgraders). Finally, divide by the original Monthly Recurring Revenue number.
Your NRR should ideally be above 100%, since it suggests predictable and scalable business growth.
Customer Renewal Rate
This is the percentage of customers that renew their subscriptions.
To calculate this, take the number of customers who renew, divide by the total number of customers who could renew, and multiply by 100.
A strong renewal rate means you’re consistently meeting your customers’ needs. And as the opposite side of the coin to churn, giving your teams visibility on renewal rate helps them focus on the right upsell and cross-sell opportunities.
ACV or ARR Gross Churn
This measures the Annual Contract Value (ACV) or Annual Recurring Revenue (ARR) of customers that churned during the period, divided by the total ACV or ARR of the full customer base at the beginning of the period.
In addition to upsell and cross-sell, a low churn rate is a key component of high net revenue retention.
This is where your customer success team can make a huge difference. But to do that, they need to have clear visibility into your churn rate.
Upsell & Cross-sell Quota
This measures your sales quota (upsell and cross-sell) per sales representative and per customer success manager.
By linking this with both renewal rate and NPS, it can help keep your upsell and cross-sell goals on track.
Customer Health Score – your key metric
Last but not least, you need a customer health score. It’s the backbone of your customer success program.
The exact parameters of your customer health score will be specific to your company (depending on what’s important to you). But every health score has the same objective – to assess whether customers are likely to renew or churn.
A customer health score has a lot of potential inputs. First, it will include a combination of the above metrics. But it can also include anything from product usage to customer feedback, engagement with marketing and customer support cases. Internal feedback sessions can be a hugely useful resource too – if a team member gets a gut feeling about a churn risk, your workflows need to allow for that.
Of course, the health score isn’t an abstract measurement – you should use it to guide decisions that change outcomes. It’s vital that if it falls below a certain threshold, you should take practical action to address the underlying causes.
And that’s it.
If you want to get the full checklist of SaaS customer success metrics (including how to stop your customers taking up too much support time during a year) I strongly recommend reading our field guide to customer success for SaaS companies.
It’s also packed full with expert tips on how to build a great customer success department in the first place, and how to avoid the workflow pitfalls you might encounter on the way.