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The business world has grown increasingly reliant on data and analytics to provide support for major business decisions. But are you paying attention to the right analytics? If you’re part of a Customer Success organization, you need to monitor the following Customer Success key performance indicators (KPIs) and metrics.
The question TSIA was asked most often in the Customer Success research practice in 2020 was about the key performance indicators for a successful Customer Success organization.
The key performance indicators are the metrics that align most closely with your organization’s specific goals. These goals should be based on your organization’s overall strategy. In essence, the KPIs are measuring your progress toward achieving your strategic goals. When viewed in that light, the KPIs become vital for the long-term success of the company.
Furthermore, the key performance indicators are also an important input for company improvement. If you are consistently tracking your progress toward your strategic goals, it will be easier for you to course correct efficiently and effectively.
All key performance indicators must be measurable and empirical. Many will be financial in nature.
Since KPIs are tied very closely to larger company goals and strategy, they will likely differ from company to company. Nevertheless, there are certain Customer Success metrics that tend to be good indicators of the overall health of a Customer Success organization.
It is a common belief for finance executives to expect a direct tieback to the recurring revenue stream. TSIA has stated that Customer Success is a service capability with a sales result. We have also framed that it is effective technology adoption that leads to increased retention and expansion.
We encourage your organization to focus on creating adoption-specific metrics either as part of a customer health score, or separately by working with your product organization for new telemetry opportunities to monitor customer adoption. However, we have yet to see these adoption metrics supersede the importance of the core supplier outcome metrics of retention, churn, and expansion.
With all of that said, here are the Customer Success management KPIs you should be monitoring:
For a XaaS or SaaS business, the truest indicator of how much customers value your products or services can be found with your renewal rates. These statistics track the amount of your subscriptions that are being renewed. High renewal rates indicate products that are meeting the needs of customers.
You can calculate your renewal rate by dividing the number of customers who renewed their subscriptions by the total number of customers whose subscriptions were up for renewal.
For further information about how renewal rates impact your company’s bottom line, check out TSIA’s Renewal Rate ROI Calculator. Based on TSIA benchmarking, the calculator is a great tool to help you forecast your renewal revenue.
This one is pretty obvious since churn rate is such a strong indicator of how your business is trending. The churn rate measures the rate at which customers stop using your product or service. If churn rates begin to accelerate month after month, you likely have a problem you need to address.
Churn rates are typically calculated on a monthly basis. To get the churn rate, you divide the number of customers lost during the course of the month by the number of customers who are still using the product.
Depending on your business, your churn rates could include more than just customers who leave your business. If you offer tiered services, then you also want to look at customers who downgrade their service. You may not have completely lost the customer in that scenario, but you have lost revenue. Furthermore, such a downgrade in service indicates that the customer may not have been fully pleased with their original purchase. This is, of course, a red flag.
When you consider the percentage of customers leaving your company and the number of customers downgrading their subscription, you will get a fuller understanding for how customers value your product or service.
On the flip side of churn rate is expansion rate. This statistic tends to indicate customers who are pleased with your products or services and want to increase their subscription.
Expansions are great for a couple of reasons. First, strong expansion rates indicate that your customers are valuing your offerings. You’re doing something right and customers are responding. Secondly, expanding sales is the most cost-effective way to increase revenue. Expansions are a far more efficient way to increase revenue than new sales.
Expansion rates are usually expressed as the amount of your company’s monthly recurring revenue that comes from your current customer base. Compare the current month’s recurring revenue from existing customers to past months, and you will see if expansion is trending upward or downward.
There are three main reasons why customer health scores are important. These scores can help you to predict customer churn, predict when customers are ready to expand with more technology or services, and predict business outcomes for your customers.
TSIA established an initial framework to create customer health scores. These super set metrics are intended for companies to obtain a reading on their customer’s health relative to their performance using technology and services they’ve purchased.
While each calculation can be considered unique, the important thing is to have a methodology that helps your company align your Customer Success processes with the outcomes you want your customers to achieve.
Our initial framework included three steps to determine your customer health score, which outlined a process to categorize, weigh, and measure subjective and objective elements. We also created a more extensive prescription for our members in the paper titled “Customer Health Tracking: Past, Present, and Future.”
In TSIA’s Customer Success member community, the most effective customer health scores frame the score in a predictive way that contains benefits for both the technology or services supplier as well as their customers.
TSIA recommends that all Customer Success organizations closely monitor the four key performance indicators mentioned above. Depending on your business, there may be additional KPIs that you need to follow as well.
The point is to identify the key performance indicators that your Customer Success organization will follow and unify your team around them. The simple act of internally announcing the Customer Success metrics to measure will ensure they are on everyone’s radar. This is a critical step in the quest to improve your KPIs.
If you need help identifying or measuring your Customer Success KPIs, contact TSIA. If you are a TSIA member, you can also find more information about Customer Success KPIs, trends, and obstacles in the State of Customer Success annual report.
February 23, 2021
Stephen Fulkerson is the vice president of customer success research for TSIA. Prior to joining TSIA, he served as the vice president of customer success at both Upland Software and Alert Logic. Stephen has over 25+ years of experience working in technology companies and has been a leader in professional services, technical account management, and business development for APAC and LATAM operations. Stephen started his career in Customer Success in 2004 and he has spent the bulk of his technical career-building Customer Success organizations and finds this work the most rewarding for both serving the customer and the company.
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The Technology & Services Industry Association (TSIA) is dedicated to helping technology and services organizations large and small grow and advance in the technology industry. Find out how you can achieve success, too. Call us at (858) 674-5491 or we can call you.