How To Interpret The Mission-Critical KPIs For Customer Success Teams
If you’re looking for the most acronym-dense field on the planet, congratulations—you’ve found it! KPIs for customer success are the clear winner. New key performance indicators (KPIs) pop up every day, and it’s not easy to tell them apart. Should you measure customer retention rate (CRR) or churn rate? How about average resolution time (ART) or first contact resolution rate (FCR)?
But despite being a minefield of acronyms, KPIs are supremely helpful. A study by Aberdeen surveyed 350 companies and found that those using KPIs had 9% higher profitability and 9% higher customer satisfaction. They also made faster, better decisions.
Fortunately, KPIs don’t have to be complicated. A decade ago, Joe Connolly of the Wall Street Journal said, “Retention is the new acquisition and customer service is the new marketing.” Years later, it’s still true.
You don’t have to measure every KPI out there. Just pick the ones that are mission-critical for your business. And even if you choose a range of KPIs, you’ll want to pick one of them—a single “north star metric”—to guide you and your whole team.
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How Should Your Team Use Customer Success KPIs?
Keep two things in mind when using KPIs:
- “What gets measured gets managed,” as the old saying goes.
- Because of this, be careful about what you measure.
If you haven’t evaluated your customer success KPIs in a while, it’s possible you and your team are either diluting your focus—or focusing on the wrong things.
For example, let’s say your goal is to increase profit while making customers happier. (Join the club!) To boost profit, you might track churn rate and customer lifetime value. For happier customers, you might track your customer satisfaction score and net promoter score.
These are excellent “overview KPIs,” but it’s worth your time to go deeper. Unhappy customers lead to churn, which reduces profit—which means your goals are connected. It’s quite possible there are one or two tactical metrics that will track the root of your problem.
Let me explain.
Pick a North Star Metric—then get granular
The best way to choose customer success KPIs is to pick a “north star metric”—the single most important metric for your customers’ success—and make sure any other metric you track is one that helps you improve that north star metric.
Let’s say your north star metric is monthly active users. After looking at customer surveys, you determine customers are leaving because:
- They aren’t getting value from your product.
- They are unhappy with your customer support.
(These are both leading causes of churn at many companies).
In a case like this, you’d want to track more granular metrics like time to value, customer effort score, and average resolution time. Each of these improves the issues customers are raising in surveys (product value and customer support) which will in turn have a positive impact on your north star metric (monthly active users).
Remember that what’s important for one company isn’t always important for another. LinkedIn and Facebook track monthly active users, Airbnb monitors the number of nights booked, and Spotify focuses on time spent listening.
Below, I’ll take you on a journey through some of the most important customer success KPIs, along with recommendations on the best way to think about each one:
- Net Promoter Score
- Customer Retention Rate
- Churn Rate
- Customer Lifetime Value
- Customer Acquisition Cost
- Customer Satisfaction Score
- Customer Effort Score
- First Contact Resolution Rate
- Customer Health Score
- Time to Value
- Qualitative Customer Feedback
Related read: Best Customer Satisfaction Software
11 Essential KPIs for Customer Success
1. Net Promoter Score
We start, as every KPI list must, with the net promoter score (NPS). NPS tracks customer loyalty and is a commonly used metric among customer success teams.
NPS surveys have gained steam in part because of their simplicity and high response rate—a one-question survey asks customers “How likely are you to recommend our product/service?” Respondents answer on a scale of 1 to 10 or 1 to 100, and are sorted into “detractor” or “promoter” buckets based on their responses.
Studies show that your NPS score really does correlate to success—for example, in the airline industry, promoters are 4.3 times more likely to be repeat customers and 6.3 times more likely to forgive the airline if it makes a mistake, according to Qualtrics.
But because NPS is such an industry standard for benchmarking your customer success strategy, there’s a fascination with this KPI that can be counterproductive. Think of NPS as an overall summary of your customer success initiatives. To make NPS go up, you have to track other, more granular metrics that focus on specific ways to improve the customer experience.
2. Customer Retention Rate
Customer retention rate (CRR) is the lesser-known cousin of churn rate, a metric that has long obsessed subscription-based businesses. Think of it as a more “positive” framing of churn rate—instead of measuring the percentage of customers who leave, you measure the ones who stay.
Calculating CRR looks like this:
- Let’s say your total number of customers was 100 at the start of the month.
- By the end of the month, 20 of those customers quit. 80 remained. (To make sure your numbers are correct, you’ll have to account for new customers gained).
- Divide the remaining customers (80) by the original number of customers (100) and multiply by 100 to get your CRR. In this case, it would be 80%.
A high retention rate means you have an excellent customer experience—or, you’re the only game in town and customers can’t switch (I’m looking at you, local utility companies!).
Customer retention rate also has a positive impact on other key metrics, like monthly recurring revenue (MRR). Because retention has a clear correlation with profit, most companies measure either retention rate or churn rate.
3. Churn Rate
Churn rate is the holy grail for SaaS businesses and other subscription-based companies because it not only helps you forecast growth—it also helps you avoid existential threats. If you lose as many (or more) customers as you acquire each month, your business is unsustainable.
Calculating your customer churn rate is simple: divide the customers who leave by the end of a time period (like a month or a quarter) with the number of existing customers at the start of that period. Then, multiply by 100. If you have 1,000 customers and 50 of them leave after a month, your churn rate would be 5%.
Think of churn as a red flag. If your churn rate is at or above industry averages, you’re probably doing okay. But if it dips below, you need to analyze why customers are leaving—and fix your product and customer experience in a way that convinces more of them to stay. These CX softwares can help you manage your customer journey and improve interactions to enhance satisfaction.
4. Customer Lifetime Value
Customer lifetime value (CLV) measures how much your customers spend, on average, throughout their relationship with your company. CLV tracks not only the initial sale but also upgrades, downgrades, add-ons, and cross-sells.
CLV helps you understand:
- How much you can spend to acquire customers.
- How much you should spend to keep customers.
- Which customers are the most valuable.
Use CLV to help you budget for customer acquisition and retention. If your CLV is in the tens of thousands of dollars—as is the case, for example, with Tesla’s customers—it should be easy to justify putting a large budget toward improving the customer experience and retaining customers.
You should also be segmenting your customers by CLV to understand which types of customers spend more. Over time, you can orient your marketing toward attracting more of those customers.
5. Customer Acquisition Cost
Customer acquisition cost (CAC) tells you how much it costs to bring new customers onboard. To determine CAC, take all expenses involved in acquiring customers—like the cost of sales and the cost of marketing—and divide them by the number of customers you’ve acquired. If you spent $50,000 to acquire 250 customers, your CAC is $200.
By pairing CAC with customer lifetime value, you can understand if you’re spending too much on bringing new business in the door. Most companies should be shooting for at least a 3x return on their customer acquisition costs—meaning that if your CLV is $300, you can spend as much as $100 on customer acquisition.
6. Customer Satisfaction Score
Customer satisfaction score (CSAT), like NPS, attempts to measure the overall customer relationship. One difference is that NPS measures customer loyalty while CSAT measures how satisfied customers are—similar concepts, but not the same.
While NPS captures your customer base’s feelings toward your brand as a whole, CSAT gauges how customers felt about a recent interaction with the question, “How would you rate your overall satisfaction with the goods/services you received?”
Think of CSAT as more of a short-term gauge of your customer success efforts than NPS. If you’ve made improvements to product quality, the first place you’ll see it reflected is in your CSAT score. Over time, your NPS should rise, too.
If you’re an e-commerce company or retailer, send the CSAT survey to customers shortly after a product has been received. Software companies should consider sending a CSAT survey after onboarding, after six months of product usage, and after customer support interactions.
In an interview with HubSpot, Nils Vinje, the VP of Success at Rainforest QA, says, "The best time to send a customer satisfaction survey is after a meaningful part of the customer lifecycle is completed. For example, sending a satisfaction survey at the end of the customer's onboarding will help you capture valuable feedback on how to improve the onboarding experience.”
7. Customer Effort Score
As a consumer, my biggest pet peeve is companies who make it hard to get support—especially when the issue at hand is their fault. (Okay, I may still be bitter about getting a two-legged table from a company that decided maybe two legs was a good enough start).
Customers are sensitive to having their time wasted. They’d rather their problems with your product be fixed yesterday—but until you get a time machine, your job is to fix them as quickly and painlessly as you can.
Customer effort score (CES) attempts to sum up the effort it takes for customers to complete certain actions with your company. For example:
- How long does it take to sign up for your product?
- How much work goes into completing a return?
CES surveys are simple: you ask customers a straightforward question, “[Company name] made it easy for me to handle my issue,” and ask them to agree or disagree on a scale from 1 (strongly disagree) to 7 (strongly agree).
If you’re looking to improve your customer loyalty and net promoter score, working on your CES is a good way to do that. Gartner research found that “96% of customers with a high-effort service interaction become more disloyal compared to just 9% who have a low-effort experience.”
8. First Contact Resolution Rate
There’s nothing more irritating than when customer support transfers you back and forth between departments like a ping pong ball. Or, worse yet, having to call back because the first support rep couldn’t solve your issue.
First contact resolution rate (FCR) is the KPI that attempts to solve this madness. FCR monitors how many customer support inquiries are resolved the first time the customer reaches out. You’ll see FCR most often in a call center and customer support context, but it’s an important metric for customer success teams to be aware of since it can directly affect churn.
If FCR numbers are low, consider how you’re routing your support tickets, and look at retraining your support team. But it’s not always your customer support team’s fault—you may need to take a second look at your onboarding process, or get the product team involved to understand why so many customers are having issues.
To measure FCR, divide the number of support inquiries solved on first contact by the total number of support tickets. If you have 1000 support tickets and 600 of them were solved right away, your FCR would be 60%.
9. Customer Health Score
Customer health score (CHS) tracks which of your customers are at risk of churning. Unlike most other KPIs in this article, CHS is a custom metric, meaning it can vary widely between businesses.
To use CHS in your business, you first have to determine the factors that affect churn—and how important each is. For example, you might choose customer success metrics like:
- Completion of onboarding
- Number of support tickets
- Customer satisfaction score
- Customer engagement (i.e., time on platform)
You can also use subjective metrics based on the relationship your customer success manager (CSM) has with the customer. Once you’ve gathered all your metrics, assign a weight to each of them based on how important you think they are for retention.
Since CHS is a custom metric, you can decide how to score it—a range of 0-100 is usually the easiest to understand. At-risk customers fall on the low end of that scale, healthy customers at the high end, and neutral customers in the middle.
Once you’ve determined which customers are at risk, it’s time to take action: give them more attention, better support, and retention incentives.
10. Time to Value
After customers sign up for your product, the clock starts ticking. They’ll never be more excited about your product than they are in this moment, but in the back of their minds there’s a lingering doubt—”Was this the right decision?”
To soothe these concerns, your job is to provide value as quickly as possible after the sale. Time to value (TTV) is the metric that measures this. Customers need TTV to be as close to zero as possible—a McKinsey study found that high TTV lowered customer satisfaction by as much as 30%.
For a low-tech example of an excellent TTV, just look at ice cream shops:
- You get free samples (so you know exactly what you’re getting).
- You order. Within 30 seconds, you have your ice cream.
- You can even start enjoying it while you’re paying.
Sadly, most products aren’t like ice cream. Modern SaaS companies and enterprise products and services can be complex, and each customer may perceive value differently.
The best way to lower TTV is to help customers realize value during the onboarding, when their motivation is high. The challenge is that because “value” can mean something different to each customer, you need to approach TTV with flexibility.
If you run 1:1 onboarding calls, ask customers what they most want to achieve, and walk them through the process of doing that. If you have a low-touch onboarding process, create different interactive walkthroughs for the different types of value customers hope to get.
11. Qualitative Customer Feedback
“Wait—qualitative feedback can’t be a KPI,” I hear you saying.
True. There’s no way to turn anecdotal customer feedback into a proper metric. But hear me out.
KPIs are important, but they can also mislead. If you’re singularly focused on customer churn, it’s easy to get tunnel vision and focus on preventing customers from leaving—rather than making them want to stay.
So what’s the antidote to KPI tunnel vision?
Talking to your customers.
Survey and interview your customers as much as you can. Understand what they like and what they don’t like about your product and the customer experience. Customer success software is a good way to collect this kind of feedback at scale.
Keep a running list of the top issues customers are running into, and start fixing them. When you let your customers direct your product improvements and customer experience, there’s a positive side effect—you’ll see your other KPIs start magically improving.
What Gets Measured Gets Managed
KPIs give you a feeling of being in control, but they can also lead you astray. If you’re tracking NPS, CRR, CLV, CAC, CSAT, ART, TTV, ARPU, and CES—but neglect customer interviews—you might end up with a migraine instead of happy customers.
Make sure you’re measuring and managing the right things. Use KPIs, but be strategic with them. Use your conversations with customers to figure out a single north star metric that will nudge you in the right direction. Then, choose more granular KPIs that also support that goal.
To learn more about which tools can help you collect data on your KPIs, check out this article:
Best Customer Service Tracking Software
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