How to Measure SaaS Customer Success: A Step-by-Step Guide
To understand if customers are deriving benefit from your product, a SaaS organization should consider including certain engagement and financial metrics in the monitoring process. This is important because subscription-based models depend on customer retention to generate profit, making it crucial to ensure that the customer perceives the value provided by the product or service to be equivalent to the price being charged. This guide details the implementation of core customer success metrics, supporting a proactive approach within the organization and its correlation with customer lifetime value (LTV) and expansion revenue.
Define Strategic Customer Success KPIs and Methodology
The first step in creating a customer success strategy is to identify the key success metrics for your SaaS business. This should be based on the current stage of your business and the lifecycle of your customers. Use a segmentation approach to ensure your efforts are targeted.
|
Journey Stage |
Primary Objective |
Key Customer Success KPI SaaS |
|
Primary Onboarding |
Achieve “Aha! Moment” and Activation. |
Trial to Paid Conversion Rate, Onboarding Engagement Score. |
|
Retention |
Maintain continuous value perception; prevent churn. |
Customer Health Score (CHS), Customer Churn Rate, CSAT. |
|
Expansion |
Drive growth from the existing customer base. |
The best way to measure customer success in a SaaS company is by creating key performance indicators (KPIs) aligned with strategic goals:
- If the strategy is STABILITY (Low Churn) the Customer Churn Rate and the number of Sessions taken per day should be considered first. This is because high churn indicates a failure in providing continuous value and this should be solved before concentrating on growth.
- If the strategy is PRODUCT-MARKET FIT (Early Stage) focus on the Trial to Paid Conversion Rate and Onboarding Engagement Score. These metrics assess whether the initial product experience meets the user’s expectations and guides them to the ‘Aha! Moment’.
- If the strategy is PROFITABILITY (Growth/Scale Stage) then the areas to focus on are Expansion Revenue and the LTV:CAC Ratio. This ratio tells us if the cost of retaining and growing the customer is worth it in terms of the customer’s future revenue.
Free SaaS Customer Success Metrics Checklist
Master customer success and drive retention revenue now.
-
Іteps to set up your CHS model
-
Formulas for LTV, NRR, and Churn Rate
-
Metrics mapped to Onboarding and Expansion stages
-
Risk management techniques
Establish Financial Metrics for Business Health
Financial metrics provide valuable insights into the effectiveness of the Customer Success team and act as a benchmark for organizational performance.
- Customer Churn Rate: The number of customers who leave a business during a certain period. It is calculated by dividing the number of departed customers by the total number of customers at the start of the period. Calculate this metric monthly, distinguishing between lost-to-competitor, lost-to-freemium, and lost-to-closed-business to gain granular insights.
|
Customer Churn Rate = (Number of Customers Lost in Period / Number of Customers at Start of Period) × 100 |
If churn is high, ensure the retention team conducts exit surveys to gather information regarding potential reasons (e.g., feature gaps, support quality).
- Customer Lifetime Value (CLV): the average profit generated by a customer over the entire time they are a customer of that business. Increasing CLV indicates successful retention.
|
Customer Lifetime Value (LTV) = Average Revenue Per User Account / Customer Churn Rate |
Increasing LTV is an effective strategy to enhance a company’s profitability as it encourages spending on acquisition and retention activities.
For example, if a company spends $1,700 on acquisition and delivery of a product or service and the LTV does not exceed $2,000, the company is incurring a loss.
- Expansion Revenue (MRR): This metric measures additional recurring revenue obtained from existing customers through up-sells, cross-sells and add-ons.
Achieving a negative churn (when the company’s Expansion MRR is higher than the Churn MRR) is the ideal situation for a SaaS company, as it proves that there is growth both within the company and among its customers.
Free SaaS Customer Success Metrics Checklist
Master customer success and drive retention revenue now.
-
Іteps to set up your CHS model
-
Formulas for LTV, NRR, and Churn Rate
-
Metrics mapped to Onboarding and Expansion stages
-
Risk management techniques
Track Onboarding and Product Adoption Success
Focus on metrics during the “Primary Onboarding” phase where customers are deciding to stay or leave.
- Trial to Paid Conversion Rate: Measures the percentage of trial users who move to a paid subscription.
If your total conversion rate is 15%, but the analysis shows that the ‘Agencies’ group includes users who convert at 25%, you can consider redistributing the marketing and success resources to focus on attracting and serving the agency group better.
- Onboarding Engagement Score (OES) / Activation: is the measurement of the achievement of certain key steps that lead to the “Aha! Moment”. An in-app guidance tool, such as Userpilot, can be utilized to create a trackable checklist. The customer success team should engage with users encountering challenges while performing a task, for example, ‘Connect 3rd Party API’.
Proactive, trackable onboarding led by Success agents is more effective than reactive support. Ensure the onboarding flow reflects the unique journey for different user segments.
Free SaaS Customer Success Metrics Checklist
Master customer success and drive retention revenue now.
-
Іteps to set up your CHS model
-
Formulas for LTV, NRR, and Churn Rate
-
Metrics mapped to Onboarding and Expansion stages
-
Risk management techniques
Implement the Proactive Customer Health Score (CHS)
The CHS presents a comprehensive perspective on a customer’s risk or potential, informing CSM intervention before issues become significant.
- Create a weighted scoring model using 4-6 input metrics (e.g., Product Usage 40%, NPS 10%, Support Tickets 20%, Billing Status 30%).
-
- Calculation: The total action value for a user is (Impact Score) $\times$ (Action Frequency). Sum these values to get the CHS.
- Scale Definition: Define clear, action-oriented ranges:
- Red (0-40, Sick/High Risk): Immediate high-touch CSM intervention required. Trigger a notification to the CSM for an account review.
- Yellow (41-70, Somewhat Healthy): Automated email/in-app guidance targeting known knowledge gaps.
- Green (71-100, Very Healthy): Low-touch monitoring.
- Thriving (100+, Power User): Flag for Expansion Revenue opportunities.
A B2B customer has 3$ support tickets in this month (Red in Support), but the product is actively used (Green in Usage). Their CHS is Yellow. The CSM is informed about the ticket themes; if all the tickets are integration-related, the CSM schedules a call to explain the integration and avoid irritation-based churn.
Free SaaS Customer Success Metrics Checklist
Master customer success and drive retention revenue now.
-
Іteps to set up your CHS model
-
Formulas for LTV, NRR, and Churn Rate
-
Metrics mapped to Onboarding and Expansion stages
-
Risk management techniques
Gather and Act on Customer Experience and Retention Metrics
These metrics inform ongoing adjustments and affect long-term loyalty and revenue outcomes.
- Net Promoter Score (NPS): Measures sentiment and advocacy.
|
NPS = (% of Promoters) – (% of Detractors) |
Upon receiving a score, the CSM must follow up based on the category:
-
- Detractors (0-6): High-priority call within 24 hours to address the issue and prevent churn.
- Passives (7-8): Offer targeted value (e.g., a tutorial on a complex feature) to push them toward the “Promoter” category.
- Promoters (9-10): Ask for referrals or case study participation, converting loyalty into word-of-mouth marketing.
- Customer Retention Cost (CRC): Measures the financial investment needed to keep a customer.
If the LTV:CRC ratio is low (e.g., 2:1), the company is spending too much on retention relative to the revenue gained. Look for cost efficiencies like deploying a self-serve knowledge base to reduce support costs.
- Account Expansion and Contraction. If a Contraction occurs (cancellation of an add-on), the CSM should check in immediately. Demonstrating the complete functionality of the feature may allow the CSM to address a potential decrease in usage and explore expansion options.
Conclusion
The key to measuring customer success in SaaS is to define and measure customer success metrics related to revenue, account health, and customer experience using appropriate weights and formulas. These metrics enable companies to observe potential issues and areas for expansion.
By regularly collecting information on important SaaS customer success metric variables like NRR, CHS, and Churn Rate, companies can identify potential problems, or growth opportunities. Incorporating these customer success KPIs and acting on the collected information changes into a living document that grows revenue, improves customer retention, and gets the product and customer experience optimized constantly.
FAQ
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The most important operational metric is the Customer Churn Rate, since this is the CC team’s main job to keep people from leaving and eliminate the reasons for people leaving. This rate is directly dependent on the effectiveness of the retention strategies and the ability of the organization to stay stable.
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Churn Rate is a management metric that measures the extent of customer turnover based on a particular time period. NRR is a growth metric that measures the percentage of revenue retained and grown from existing customers, factoring in both losses and expansion/upsells.
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To achieve an NRR of more than 100% is favorable and ensures there is positive growth in customer revenue. This implies that the revenue increase from existing customers (upsells) offsets the revenue decrease resulting from churn and downgrades (negative churn).
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The CHS is derived from a mathematical operation that incorporates various customer information. Examples of inputs are the number of times a product is used, the number of support tickets raised, and customer sentiment (NPS/CSAT).
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NPS measures customer loyalty and the willingness to recommend a product or service, both of which directly influence a company’s growth and word-of-mouth marketing. CS teams use Detractor feedback (score 0-6) to address complaints and improve the relationship over the long term.
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