Customer Success

Customer Success Metrics that Matter Most

Best Practices for Measuring Your Success in Customer Success

What metrics are being used in the customer success industry to manage their organization? This question was the second most common inquiry we received from our members in customer success for 2022.

Customer success organizations are transitioning from the “art of customer success” to the “science of customer success.” As a result, executives are hyper-focused on ensuring the customer success metrics they are using matter the most in their daily engagements with customers. With the recent global economic challenges, this is the right investment.

Many believe that all customer success organizations use the same metrics to measure outcomes and success. While it’s logical to assume so, what’s fascinating is that our research shows that not to be true. Across the industry, customer success organizations use  different metrics in areas of adoption, expansion, and retention.

The industry is divided on which customer success metrics work best, but from our research there seems to be a consensus on several strategies. At TSIA, we have access to the largest vault of industry data, with studies on everything from fortune 100 companies to SMBs tech companies. Using TSIA’s Top Metrics study, we were able to identify key trends in how different organizations use renewal, expansion, and customer health metrics in order to help you implement best practices.

Customer Renewal Metrics

Customer success still has some “wild west” tendencies, and the customer renewals metric is a key area where this can be seen. When organizations ask me what is the most common renewal metric, I point out that this “golden metric” is not as common as you might believe.

The definitions of “renewal” across the industry do not always align. As a result, the focus of the metric does not always align with the intent or story organizations are trying to tell.  
 
There are a plethora of metrics to leverage for customer renewals, so which “matters most” to renewals? In partnership with our Customer Growth and Renewals team, we looked at the top renewals metrics and focused on the primary customer success key performance indicator (KPIs) and metrics that renewals teams used to track customer renewals.

Our Top Metrics research study identified dozens of possible metrics that could be leveraged and narrowed down the list to the top seven. From there, we had members from across the industry vote on which metric was their primary metric for renewal metrics.   

1. Dollar Renewal Rate (DRR)
2. Net Dollar Retention (NDR)
3. Net Renewal Rate (NRR)
4. Gross Renewal Rate (GRR)
5. Monthly Recurring Revenue (MRR)
6. Annual Recurring Revenue (ARR)
7. Contract Renewal Rate (CRR)

At TSIA, we consider a common practice to be anything greater than 50%. For our research, there was no common practice for renewals metrics. The closest metric that surfaced was Annual Recurring Revenue (ARR), with 33% of the industry using it most to measure renewal success.

Why don’t we see consistency on renewals metrics? Each organization is using the metrics that are designed to best tell their story. In some cases, the renewal story is for stockholders and the board of directors. For others, their renewal story is designed for an Initial Public Offering (IPO) or for a venture capital company to acquire their organization. As a result, some organizations are focused on volume/gross customer churn while others are focused on changes in the dollar that is renewed across the customers that are present.

Each of these strategies helps tell the story and uses a different metric to do so. As a result, we don’t see a renewal metric used as a consistent industry standard.

Expansion Metrics

In our State of Customer Success 2022, I shared how the role customer success plays in expansion continues to grow exponentially. In 2015, 10% of the customer success organizations were responsible for expansion. Today, 61% are charged with the responsibility of expansions.  

That data speaks volumes, and so we also looked at what metrics were the most common across the industry when measuring success in the area of expansion. Much like with renewals, there were a plethora of options to look at but we focused our expansion metrics options on the following areas:

1. Net Expansion Rate (NER)
2. Dollar Expansion Rate (DER)
3. Upsell
4. Upsell and/or Cross-sell

The metric that was used most to measure expansion growth was “Upsell and/or Cross-sell” at 38%. However, there is still no majority metric that is used that crosses the 50% threshold of being a common practice.  

Why is this the case? Each organization leverages their customer success managers (CSM) in different ways based on their experience and the complexity of their offerings. Where there is low complexity, the CSMs are leveraged in opportunity development or lead generation.  

Additionally, CSMs are leveraged for upselling more of the same product offering and cross-selling additional offerings. Complexity, go-to-market strategy, and the CSM’s experience play a role in how CSMs are used and what metric is being leveraged most to measure the performance of expansion in customer success.

Customer Health Metrics

The health of the customer is paramount for customer success organizations to track. It is a great indicator of whether the customer is receiving the value they perceived and are adopting your offering. 

There are a plethora of metrics that can be used for measuring customer health based on the offering your company provides. Again, the list for this was narrowed to focus on the primary areas of customer health, and the results aligned with the TSIA Customer Success Benchmark data.

When tracking health, customer success organizations were asked which of the five categories were most important for their first focus and go-to customer success KPI.

1. Consumption (Low Adoption)
2. Customer Success Manager (CSM) Disposition
3. Voice of the Customer Metrics (NPS, CSAT, CES)
4. Customer Business Outcomes (Effective Adoption)
5. Other

Consistent with the research from our benchmark data, customer success organizations leverage “Consumption (Low Adoption)” as their primary metric at 32%. Even still, there is no common practice across the industry that yielded a 50% or greater usage.  

Why is that? For organizations that are not cloud-based or using an anything-as-a-service (XaaS) model, it is more difficult to monitor or track the consumption and usage of their technology. Other organizations may not have created an adoption framework or have not leveraged the TSIA Adoption Framework to know what the metrics are that align with consumption or low adoption. We can help in that area. TSIA Customer Success not only has research but also an Advisory Block and Workshops that can help organizations with the creation of their adoption framework and the telemetry that will support measuring your customer’s health.
 

Metrics Continuity

Everyone has an opinion on metrics and which ones are best. Many customer success executives bring with them seasoned experience from previous positions on metrics that matter most. However, when we researched how organizations decide which metrics are best for their organization, there was a common practice across the customer success industry.

1. Research Firms (i.e. TSIA, etc.)
2. In-House Experience
3. Internal Departments (i.e. Finance, Sales, CX, CX, etc.)
4. Customer Success Platform Companies (i.e. Gainsight, Totango, etc.)

At 55%, the common practice is that organizations leverage research firms to verify and validate which metrics are best for their organization. This research data shows that customer success as an organization is still evolving. As a result, customer success executives are forward-leaning and excited to learn new information to stay on top of the ever-changing market.

Turning Your Metrics into Action

These metrics for managing your customer success department and organization are just the tip of the iceberg. There’s even more to cover, from creating customer success metrics for SaaS to tailoring KPIs for your specific business goals. You’ll need to have a plan of action for implementing many of these recommendations, which is exactly what TSIA is here to help you with. When it comes to TSIA can provide you with the top metrics we see top tech companies use to manage their customer success organizations.
 

  July 20, 2022