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Customer Success

Quick Guide to Customer Success ROI

How to Measure and Improve Your Customer Success ROI

5 min read
By Marc Troyan
From renewal to engagement, understanding the return on investment for your customer success efforts takes time and diligence. However, we consistently see companies that make the effort be rewarded with success.

With the right financial and executive support, the [customer success] team can have one of the most positive and predictable effects on a company’s future when compared to almost any other investment. - Digital Hesitation

Showing the return on investment (ROI) your company gets from customer success will make betting on your team an easy decision. ROI models give you the data and tools you need to make improvements and continue to scale your organization.

Let’s look at why you should track customer success ROI and how to use the data to improve your organization.

What Is ROI in Customer Success?

A return-on-investment metric measures how much you invest in something against what you got out of that investment. ROI calculation allows you to evaluate if investing in a company or stock was a wise decision, or if your resources would be better placed elsewhere.

Your customer success ROI weighs how much time and money you spent on customer success efforts against how much money you made from that effort. With responsibilities spanning from adoption to expansion, your customer success department is crucial to the success of your overall organization. Because of this, a successful investment in your customer success organization will greatly improve your bottom line.   

Simply put, calculating your customer success ROI helps you answer these questions:

Am I seeing a positive financial result from the investment in my customer success efforts? Am I investing my time and resources properly to achieve maximum revenue?

The Importance of Measuring Customer Success ROI

Calculating ROI for customer success allows you to understand the financial impact that customer success has on a macro level. It also helps you determine what specific customer plays are worth executing on an “on-the-ground” level. As a customer success leader, you can also use ROI data to show senior executives how well your department is performing. This gives you backing to make a case for an increased budget or headcount

Measuring customer success ROI allows you to make more informed decisions and should be a cornerstone of your customer success strategy. While there are many reasons why customer success organizations have made ROI calculation a best practice, here are three major benefits:

Enables Data-Driven Decisions

It should be clear that having better data about ROI will enable you to make more impactful decisions. It can help you answer questions such as:
  • Do we need to hire more people on the team?
  • Where should we invest more?
  • What practices are leading to renewals and/or expansion?
According to our benchmark study, only 30% of companies have a customer success-specific data scientist or analytics team member. This shows a lack of focus in the industry on how to properly analyze the data coming into your organization.
“Data Collection Survey for Customer Success Organizations”
Data Collection Survey for Customer Success Organizations

Knowing how your customer success team compares to industry standards or your own internal benchmarks allows you to make adjustments accordingly.

Since customer success shares responsibility for renewals, adoption and retention with other departments, you will need to dig into the data. It can be hard to seperate where the sales team’s responsibility ends and the customer success team’s begins. Consider adding a customer success data scientist to assist with documenting and deploying the appropriate customer engagement model for your organization.

Having a dedicated data scientist on your team can help with information awareness, workflow automation, and improvements in the customer experience. They can also help you wade through the data and find metrics that best showcase customer success’ specific ROI. If you’re a customer success leader, you can use this to show how an investment in your team benefits the company. It also gives you hard data for what you could accomplish with continued or increased resources.

Additionally, customer success data scientists help identify trends that lead to renewals, which becomes crucial in a software-as-a-service (SaaS) context.

Bottom Line: Don’t ignore the data. The more information you have and the more you are able to use that information, the more you will see results.

Optimizes Customer Success to Succeed in SaaS

For everything-as-a-service (XaaS) and SaaS businesses, increasing renewals and limiting churn are critical for success. The subscription nature of XaaS means it runs on annual recurring revenue (ARR). This means the customer lifetime value relies on your customer continually choosing your service.

Customer success’ role is central in product adoption and a faster time-to-value. Customer success is often on the front lines of customer retention, but focused more on “defense” (i.e., protecting the base). Armed with ROI data, you are able to not only reduce churn, but also find opportunities for upsell and cross-sell.
 

Customer success is the future of an offensive play in which customers not only remain customers through churn mitigation, but they also grow through effective consumption management, expansion efforts, and renewal management. Every opportunity to help a customer is an opportunity to grow a customer. - Digital Hesitation

Tracking ROI for customer success allows you to pivot toward outcomes aimed at expansion in your XaaS endeavors. Without that data, it’s more difficult to see the impact customer success is having on your digital transformation.

Bottom Line: Optimize your XaaS playbook by calculating your ROI and building an action plan around retaining and growing customers.

Increases Efficiency

Having an efficient customer success department is of the utmost importance, especially in today’s economy. One of the ways to cut costs in an economic downturn is to do more with what you already have.

TSIA’s Land, Adopt, Expand, Renew (LAER) customer engagement model is a way to look at the customer journey and each team’s function on that journey. Having a well-defined model for tracking customer success ROI is a key to LAER efficiency. Make sure your team is looking at the whole of a customer journey, and not just focusing on one specific stage.

The industry has shifted focus away from simply “landing” the customer to having adoption, expansion, and renewal as central components. This puts more pressure on customer success, and usually means you are asked to do more with the same amount of resources. Being efficient with what you have is a necessity.   

Make sure you’re driving engagement through the entire customer life cycle without duplicative motions or time better spent elsewhere. Don’t force your customer success team to track down leads that aren’t worth the effort—this is not only frustrating for your team, but will also hurt your department’s overall ROI.

Everyone touching an account should care about expansion and renewal. - "Creating LAER Efficiency with Customer Success"


Our research shows that having effective customer success ROI metrics in place helps you to monetize customer success, increase efficient sales, and better use fiscal metrics. 
“Words”
Outcomes of Customer Success ROI Model

As you can see, increasing your efficiency through effective ROI-based action plans leads to results that have far-reaching benefits. This not only frees up your resources, but contributes to the company’s bottom line.

Bottom Line: Use ROI calculations to streamline your customer success department and focus on the sales that matter most. 

How to Measure Customer Success ROI

Now that we’ve covered the importance of measuring customer success ROI, you might be asking how to actually calculate it. While there are many ways to calculate ROI, we see one metric used over and over again: net retention rate (NRR).

Measuring NRR

NRR is used to measure churn, or the rate at which customers stop using your service or product. This also includes a stoppage of any cross-sell and up-sell during a given period. Most companies track this on an annual basis.  However, this can also be tracked on a monthly basis as monthly recurring revenue (MRR).
 
NRR =
(Starting Annual Recurring Revenue - Churn - Downsell + Up-sell + Cross-sell) ÷ (Starting Annual Recurring Revenue) X 100.

This type of metric is especially useful for cloud companies or companies making the transition to XaaS. More frequent tracking of your ROI through churn and expansion gives you an idea of your current retention and growth rates. Monthly tracking allows you to catch problems and make changes in a timely manner while still watching “big-picture” trends.

This isn’t to say that NRR is the sole contributor to the customer success ROI model. When looking to calculate ROI, it’s common practice to track key performance indicators (KPI) that reflect your desired outcomes.
 

Other metrics used to calculate ROI can include:
  • Customer Acquisition Cost (CAC): How much does it cost you to acquire a customer?
  • Customer Expansion Cost (CEC): How much does it cost you to expand a customer?
  • Customer Retention Cost (CRC): How much does it cost you to retain a customer?
  • Customer Lifetime Value (CLV): How much revenue will this deal generate over the customer’s lifetime with the company?
  • Customer Usage: At what frequency is your customer using your product? How might that impact their desire to renew?  
  • Adoption: To what effect is your customer using your product? Are they able to use it toward achieving their desired outcomes? How might that impact their desire to renew? 
When using any of these metrics, the goal is to measure the team’s performance in both revenue and customer maturity. Plus, you can use these metrics to prove the positive impact of your customer success program.

What is the department’s average CAC, CEC, and CRC and how does that impact both recurring and expansion revenue? Is the team effective at lowering the churn rate?

On many metrics, the customer success department shares accountability with other departments. However, they don’t always have ownership or high influence on the results. This is why it’s crucial to use ROI to determine the specific impact of customer success.

If you want to learn more about customer success metrics, check out our blog comparing expansion, retention, customer health scores, and continuity rates.

Ways to Improve Your Customer Success ROI

Some of you might already be using ROI calculations to inform your customer success strategies, and are looking for ways to improve. Here are two crucial ways you can improve your customer success ROI metrics today:

- Get More Centralized Data

This is a seemingly obvious improvement—the more data you have, the better decisions you’ll be able to make, and the better your customer success ROI will be as a result. But executing this step can be anything but simple.

First, you need to determine what data would help your customer success department close more deals and secure renewals. Next, you’ll need to find out where that data lives and compile it so that you have actionable insight. Arming your customer success department with valuable data makes it easier for you to determine and increase your ROI. The more data on ROI you have, the more you’re able to increase your ROI.

To save time and increase your long-term efficiency, aggregate your data in one place and share it across department lines. The more you keep information siloed in different teams across the organization, the more chances there are for redundancy. This will streamline processes not just in customer success, but across your organization.

- Add a Focus on the Customer Experience

A great customer experience is an expectation from customers, and customer success is a main player in that arena. Creating a positive customer experience helps you keep renewals high while also drawing in new customers.

In order to improve your customer experience, you first need to understand and evaluate your current experience. You can achieve this by creating a Voice of the Customer (VoC) program. VoC programs help your business optimize the customer experience by identifying operational processes to improve.

VoC programs are generally made up of the following three key metrics.

First, the Net Promoter Score (NPS) evaluates the end-to-end customer journey, focused on the customer experience. NPS is a survey that defines the customer relationship with the supplier, and is used to analyze a customer’s likelihood to renew. This information is critical to helping your customer success department run efficiently and use your resources wisely.

Most times, NPS is based on a variation of the question:

On a scale of 0 to 10, how likely are you to recommend our product/service?

This is a chance for direct communication with your customers, and can be used as a “relationship check in.” This will give you a clearer picture of what you can expect from the relationship and help you plan your strategy moving forward.
“Words”
Net Promoter Score (NPS) Example Survey

Second, the Customer Satisfaction Score (CSAT) measures the satisfaction level a customer has after a transaction or engagement with your company. While “satisfaction” might seem intangible, using a CSAT can help you quantify what a satisfied customer looks like for each interaction. CSAT scores can provide insight into how to create or improve your customer experience.

Lastly, the Customer Effort Score (CES) measures how much effort your customer has to put in to solve a problem and use your product/service effectively. As my colleague put it, how much work are you requiring from the customer to resolve their issue?

By taking the work off of the customer, you are creating a more effortless experience for them. This can impact their desire to renew and maybe even lead to expansion opportunities for customer success.

Conclusion

If executives can't tell if customer success efforts are effective, they won't be able to make informed decisions about them. Measuring customer success ROI will allow leadership to invest in areas that will translate to revenue growth and stronger adoption rates.

If that’s you, it’s time to create a return on investment model for customer success. Measuring your ROI involves a lot of number crunching and interdepartmental communication that can feel overwhelming. However, the process can lead to increased customer adoption, expansion, renewal, and satisfaction.
 

 September 7, 2022

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