How should we measure Customer Success?
First, it’s important to know who is measuring Customer Success. A customer has a very different view of what success looks like than the company has. For the purpose of this post, let’s assume that the company is looking for the best metrics.
This topic continues to be widely discussed and you are likely to get as many different answers as there are people to ask. Before we look at some metrics I consider worthwhile, I will look at it from a pragmatic perspective. CS is ultimately a sales function and as such most businesses expect the CS organisation to contribute to the overall sales goal. How they measure the progress and more importantly how the CS organisation is going about it, is often a point of discussion and sometimes controversy.
No quota, no future: CSMs need sales targets. Without them, when budgets shrink, executives will eye the CS team and ask, ‘What’s your bottom-line impact?’
Sales can be measured easily, it’s black and white, it’s tangible. Personally, I like to have the CS organisation linked to a hard sales quota. There are some caveats with this expectation. Customers often don’t like to work closely with sales people, so having the CSM act as just another sales rep is not in the interest of the company, nor the customer. If the CSM isn’t seen as the expert who can help customers get the most value from the product, they’ll have a hard time building strong trust with those customers. Finding the right balance is a challenge but so crucial to get right. Expect to take a couple of attempts before you strike an acceptable balance.
The answer to that question also depends on the phase the company is in. Is the company still in “startup” mode? Expect your sales and pre-sales to fill the CSM role as best as they can. If funding is no issue and sales and pre-sales are getting way too busy with finding new business, it’s time to invest in CS. How to start and build up the CS organisation is a topic for another day. In the early phases you don’t really measure the net new sales by the CS organisation, but ensure that you identify the customers with potential to scale and let CS do what they do best. Once the company moves into “expansion” phase, the metrics ultimately have to change and the scarce resource CS is, has to be much more pointed. Metrics are linked to tangible outcomes.
What kind of metrics are actually important to look at – out of the long list of possibilities?
First of all, if you can’t measure something, you will struggle to improve it. Make sure you align your goals for the CS organisation to something meaningful (customer) and measurable (sales). Meaningful in this context also includes purposeful.
The list of metrics comes down to maturity of the company, processes and the CS organisation. It will absolutely vary between companies. Here are some I consider valuable:
Net Revenue Retention (NRR) – we need something which measures the existing business plus the growth we are aiming for. NRR will capture renewal, growth and churn. It doesn’t say, however, if the growth and/or renewal success was solely the work of CS, or the renewal team or direct or channel sales or a combination of them all.
Customer Health Score – this is a mix of different values, some are subjective, like the “gut feel” of the CSM how the account is going, others are black and white, e.g. QBR with executives present executed, customer champion identified, executive support within customer, low number of support cases, ascending number of customer users using the product, etc. Use the input from various measures and create a score or a traffic light system. Over time you will learn how to fine tune this score to give you some early indication if this account is going to be in trouble.
Time to Value (TTV) – this one is important for both – the customer & the company. You need to know what value customers expect from your product and how soon they expect to see results. You can’t build this metric if the customer doesn’t have a goal, doesn’t really understand what value can be achieved or has very unrealistic value expectation. It’s also a metric for a more mature organisation that uses frameworks and playbooks to guide the customer to value realisation.
There are several other metrics one could and probably should use, such as churn rate, retention rate, product adoption rate, expansion revenue, renewal rate etc. CS organisations often use Net Promotor Score (NPS), Customer Satisfaction Score (CSAT) or Customer Lifetime Value (CLV). I find them utter useless to measure individual or small groups of CSMs but they hold indicative value on a companywide scale.
There is not one ultimate metric to rule them all but each organisation needs to find their metrics most valuable to them. Whatever you do, ensure a sales goal is part of it.