A Framework for Understanding Customer Love

Which numbers add up to “love”?

Ha Nguyen
Ha Nguyen
Oct 1, 2020 · 6 min read

People talk about “customer love” a lot, but what does it actually mean? How do you know if you have it? Which numbers represent customer love?

Over the course of my 16-year product leadership career, and in my role now as a VC evaluating startups, I’ve observed that you can boil it down to 4 pillars:

  • Revenue & growth
  • Organic referrals
  • The pain-killing power of the product
  • Retention

Here’s some more detail on how these 4 pillars can serve you as a framework for developing customer love at your startup. That includes targeting the right metrics and picking up on the right signals to find out whether your customers are truly in love.

Revenue & growth

Are customers going to pay for this product? And will a lot of customers pay for it?

At the start, revenue is the easiest metric to measure whether customers want your product and are willing to pay you for it. I also look for market pull for your product, which means that you’re gaining adoption with many more customers in your target demographic over time. We call this growth.

When it comes to revenue, I look for month-over-month growth. Double-digit month-over-month (MoM) growth for at least 6–12 months is a strong sign that the market is pulling for your product.

If you’re an early seed stage startup, consistently achieving 10–15% MoM growth is strong (compounded, this implies annual year over year growth of 3–5x). Achieving 15–20% MoM growth is exceptional (implied annual growth of 5–9x).

Organic referrals

While revenue and growth is important, the quality of the revenue is equally important. I like to understand what percent of growth is coming from organic, word-of-mouth channels. This matters because while it’s easy for a startup to show fast growth through ad spend, it can be difficult to maintain healthy growth at scale if most of your early growth relies on paid.

For an early stage startup, I like to see healthy double digit growth where most of your users are coming from organic channels — ideally word-of-mouth or referral.

A great measure of whether there’s love around your product is the Net Promoter (NPS) question: Would you recommend this product to a friend or a colleague?

If there are a lot more promoters than detractors, then this is a very promising sign and likely signals customer love. A very good NPS score for an early stage startup is >40. An exceptional NPS score is >60. I wrote in depth about how to measure and calculate NPS in this blog post.

Of course, what customers say they’ll do is different from what they actually do. I also look to confirm that friends are in fact recommending your product to others, and that potential customers are seeking out your product. I’ll often ask for a breakdown of traffic to see what % of your traffic is coming through organic, non-SEO channels. At the earliest stages of a startup, I like to see > 70% organic traffic.

The pain-killing power of your product

Credit: www.quotecatalog.com

The next indicator of customer love is the pain-killing power of your product. Is your product solving a real customer pain point? Is your solution 10x better than what’s out there?

A good way to visualize this is to imagine your customer’s hair on fire. Recognize that the pain is so strong that they’re in desperate need for a solution that will put out the fire. If it so happens that your product is the way to put out the fire, then your product is a true pain killer.

A good way to measure whether your product might be a pain killer is through Sean Ellis’ product-market fit question, “How disappointed would you be if you could no longer use the product?”

Sean Ellis believes that if 40% or more of your customers would be extremely disappointed that they could no longer use your product, then you likely have product-market fit. This is also a good indication that your product is likely a pain-killer.

As a VC, I’m going to talk to customers and non-customers to discern whether your product is solving a real pain point for them — and to what extent your product is indispensable. I will even ask Sean Ellis’ question “How disappointed would you be if you could no longer use the product?” when I interview customers during my due diligence.

As a founder, I hope you’re regularly talking to your customers and asking the same thing. Many founders don’t, and so they don’t know if their product is a vitamin or a pain killer.

Retention

The final pillar to measure customer love is retention — do your customers actually return to use your product again and again? You may want to start by measuring your Day 7, Day 30, or Day 90 retention. Specifically, for new customers who use your product today, what percent returns again by Day 7, by Day 30, or by Day 90?

The best way to visualize retention is to look at cohort curves. Almost all cohort curves will see a steep decline in usage after the initial customer sign-up. Ideally, you’ll want to see a flattening of the curves and that you’re able to retain a good chunk of your users over time. If 80 or 90% of your users churn by month 12, your retention is poor.

What’s a good retention target? This will vary largely by type of business, but a general rule of thumb is that if you’re able to retain at least 40% of your customers after 12 months, this is generally good. When you set goals, I recommend aiming to lose no more than one half of your users by the end of Year 1.

When I’m in diligence with a company, I like to ask for retention curves by cohort. Start by looking at quarterly or annual cohorts. If your product is getting better over time, your retention curves should also be improving with each cohort over time.

From my perspective, it’s okay if retention of your early cohorts is less solid — you’re learning. Mainly, I’m looking to see improvement with each subsequent group of customers.

Summary

There you have it. These are the 4 pillars I look for to assess whether there’s customer love around your product.

  • Revenue and growth
  • The “pain-killing” power of the product
  • Organic referrals
  • Retention

If you’re an early stage startup, look to implement these metrics to regularly assess whether or not your product is working and that there are good signals around customer love for your product. If there is, please be sure to reach out. I always love to learn about new products. And of course, always hoping to fund startups that are demonstrating massive customer love!

Get in touch via ha@spero.vc.

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