The Comprehensive Guide to SaaS Customer Success Metrics

Published in

The SaaS Growth Blog

9 min readJan 16, 2017

Discover the secret to customer success with these powerful SaaS metrics.

This is Part 4 of my epic four-part series, taking a deep-dive into SaaS metrics. I’ve covered KPIs for Growth, Marketing and Sales, and now it’s the turn of Customer Success, as we dive into formulae, explanations and expert opinions for 50 essential metrics.

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Section 4: Customer Success Metrics

Customer acquisition can feel like the be-all and end-all for growth-hungry startups, but the bigger you get, the harder it becomes to maintain the same rapid growth rates.

Customer acquisition alone isn’t enough to sustain your growth, and when you start to gain traction, it’s essential for your priority to shift. Instead of continuing to fixate on your sales and marketing strategies, it’s time to focus on Customer Success: fuelling growth through the retention and upselling of your existing customers.

These SaaS metrics are designed to understand customer behaviour — how (and why) they’re engaging with your business — allowing you to improve the value your business delivers to its customers, and grow your revenue as a result.

1) Daily Active Users (DAU)

DAU stands for Daily Active Users, and it’s a simple measurement of the number of active users on a given day (period d):

The key to creating a helpful DAU or MAU metric is to carefully define how users qualify as “active”. Many SaaS companies use DAU to count the number of users who logged in on a particular day, without differentiating between a user that logs in to use every aspect of their product’s functionality, and another that logs in to send support requests and delete their data.

While this can be helpful for simple reporting purposes, it does almost nothing to reveal how engaged users actually are with your product, or predict retention rates and at-risk customers.

Instead, it’s better to create a more discerning definition of “active”. Though this will reduce the size of your DAU or MAU measurement, it creates a much more useful metric.

2) Monthly Active Users (MAU)

MAU is the monthly counterpart to DAU, and stands for Monthly Active Users: a measure of the total number of “active” users in a given month (period m).

3) Net Promoter Score (NPS)

The Net Promoter Score (NPS) is a tool that’s used to try and quantify customer satisfaction with your service. The NPS uses a simple survey question:

“How likely are you to recommend [your SaaS product] to a friend or a colleague?”

Respondents are then asked to choose a corresponding score, on a scale from 0 (“Not at all likely”) to 10 (“Extremely likely”).

Source

Your Net Promoter Score is then calculated by subtracting the percentage of Detractors from the percentage of Promoters. A positive score suggests more people willing to recommend your product than those trying to dissuade others from using it — you’re receiving a net promotion — and vice versa.

For example, if 50% of responders were promoters, and 10% of respondents were detractors, your NPS would be 40:

According to Zendesk, the median NPS score for B2B companies is 29.

4) Customer Satisfaction Score (CSAT)

Unlike the Net Promoter Score, Customer Satisfaction (or CSAT) scores are used to rate individual interactions with your company. After an interaction (say a customer support conversation or closing an upselling deal), the customer is asked a simple question:

“How would you rate your overall satisfaction with the service you received?”

Respondents then score their interaction from 1 (very dissatisfied) to 5 (very satisfied). CSAT scores are then calculated by averaging out these responses:

For example, if we surveyed five customers about their experiences, and four responded with a 5, and one with a 3, we’d have a CSAT score of 92% (with 100% reflecting complete satisfaction):

As your SaaS business grows, monitoring your customer interactions becomes both harder, and more important to do. CSATs can provide a simple window into the type of service you offer, and functions as a valuable complement to NPS measurements.

5) Upsell & Cross-sell Rate

The Upsell Rate allows you to calculate the percentage of a period’s revenue that was generated from upselling: encouraging existing customers to increase their spend, by purchasing more seats, more storage space, going to a higher-priced tier, etc.

For example, if we generated $10,000 in Annualised Contract Value over a single month, and $2,500 of that revenue can from upselling, the upsell rate would be 25%:

The same calculation can be applied to cross-selling, to work out the proportional revenue generated by encouraging customers to take-up complementary services (like purchasing an invoicing product to work alongside their recurring billing tool):

6) Viral Coefficient

Customer referrals can be a powerful contributor to growth, and the viral coefficient is a way of measuring the growth of your customer base generated by successful customer referrals.

Simply put, your Viral Coefficient tells you how many new users a current user is referring to your business. Understanding and improving the viral coefficient of your SaaS solution is a crucial part of achieving explosive, ‘viral’ growth.

The example below assumes 100 users, each sending out 10 customer referrals. Those referrals convert into new paying customers at a rate of 15%, generating a Viral Coefficient of 1.5:

A Viral Coefficient greater than one means that for every new user you acquire, you’ll gain an additional user (or more) as a result of successful referrals. In this example, a coefficient of 1.5 means each new customer is, in turn, generating 1.5 additional customers as a result of the referral process.

This type of truly viral growth (where growth is self-sustaining through referrals alone) is pretty unobtainable, but a viral coefficient of less than one is still hugely valuable.

Receipt tracking service Shoeboxed calculated that they had a viral coefficient of 0.2. Though not truly “viral”, this still culminates in one additional referred customer for every 5 new customers, effectively increasing growth by 20%:

7) Referral Revenue

Referral Revenue is a simple aggregate measurement of all the revenue generated by successful customer referrals, over a particular time period. Customer referrals are a cost-effective channel of growth, and it’s important to aim for an increase in Referral Revenue over time.

With that said, Referral Revenue figures alone only show you simple trends in revenue; and to unlock more useful insights, it’s important to compare Referral Revenue to the investment in Customer Referral that generated it.

8) Referral Return on Investment (ROI)

If we want to go a step further than calculating Referral Revenue, we can use Referral Return on Investment (ROI) to compare the amount we’re spending on customer referrals with the revenue those referrals will generate over their lifetime.

Imagine our average customer pays $1,000/month, for a lifetime of 2 years:

For our referral scheme, we’re offering an incentive of 20% off the monthly bill ($1,000 x 0.2 = $200), for 12 months, to both successful referrals and successful referrers:

We can use that information to work out the Referral ROI: a number that shows how many dollars in LTV we’re generating for each dollar of referral marketing spend:

Given our example above, we’re generating $4.5 in LTV for every $1 we’re spending on the referral:

9) Viral Referral ROI

Importantly though, Customer Referral programs actually increase your LTV: in addition to the direct revenue customers will generate over their lifetime, they now have a hand in generating revenue from other customers, as a result of successful referrals.

In order to improve our Referral ROI, it’s a good idea to factor this into the equation. The formula below is changed in one regard: the LTV is now modulated by our Viral Coefficient, or the average rate at which existing customers generate new customers, as a result of referrals.

If we generate a new customer from the referral efforts of every 5 existing customers, we’d have a viral coefficient of 0.2. This actually increases the ROI of our customer referral program, from 4.5 to 5:

A Closing Thought on SaaS Metrics

Many companies fail to track more than a handful of SaaS metrics. Others build-out huge dashboards of KPIs but pay little more than lip-service to its findings. To my mind, that’s just as bad.

It’s important to go beyond the shiny dashboard of graphs and green arrows, and use your SaaS metrics to positively impact your growth. It doesn’t matter that you’re seeing month-on-month growth of website visitors if none of them turn into leads. If you’ve doubled your customer acquisition but trebled your churn, you still have a huge problem.

Metrics alone won’t fix anything: they’re only a tool to help you make informed (and often difficult) decisions. But armed with the insight they provide, you can make a choice with as much data as possible. Whether you’re optimising your pricing strategy, reducing customer churn or boosting your free trial-to-customer conversion rate, these SaaS metrics will help illuminate the right path to take.