How to Build and Manage Customer Success Key Metrics (KPIs)

I was recently asked, “what are the key metrics for a CS Leader.” My answer:

Net Retention Rate

I mentioned that while this is the key performance metric, it is also a lagging indicator. He proceed to ask me what I meant, and I explained how I joined a company with a major churn problem. We completely overhauled the customer experience, and I expected the renewal rate to increase significantly. It didn’t. It didn’t the next quarter. It didn’t the quarter after that either. One year after all that work was completed the number started to increase. We went from 60% to 73%. Then to 78%. Then 83%. And then 85%. The same is also true working the other way. If you remove an essential service, you likely won’t see the corresponding negative impact for around a year later!

He then proceed to ask if it’s a lagging indicator, what do I look at? This follow up question led to a much deeper exploration of the subject, which I’m addressing in this blog post.

Customer Success Metrics

First, when thinking of Customer Success, I include CSMs, Support, and Professional Services. Second, I break my metrics into my “in-quarter” financial metrics that I need to hit/influence in the quarter, and a dive into the customer health metrics that are my leading indicators to impact revenue and margin.

Financial Metrics

When looking at Financial Metrics, I categorize as follows:

New Customer Business
Existing Customer Business (both renewals and growth)
Operating Margin

Customer Success directly impacts #2 and #3, and influences #1. As such, I track the following financial metrics typically on a quarterly basis (for annual contract companies).

For most of these metrics, I am reviewing all of the deals within a quarter to track the status and ensure everything is tracking according to plan. Once I am 30 days out for the next quarter, I start to review the following quarter as well.

Renewal Rate by customer count and by dollars: I’ve seen many companies over-focus on their “big accounts.” That’s why it’s important to look at renewal rate by customer count as well. I had one of the largest tech companies in the world start out as a small 5 figure account end up as a mid 7 figure account. If we bucketed them as a “small” customer based on their ARR, we likely would never have grown them into becoming our largest customer! Not to mention, it’s almost always better to down-sell than to lose a customer. Keeping an eye on customer count will help find some issues you have in your lower revenue install base that you might otherwise miss. Reporting on why customers left, ideally with a customer exit survey process is extremely beneficial. I perform a quarterly retrospective on all lost customers to extract lessons learned and how to prevent moving forward.
Down-sells. Understand and work to remove the reasons for down-sells! This number is heavily dependent on use case, target customer profile, how deals are sold originally, and other variables. As an example, look at the recent economic conditions: understanding that down-selling is happening due to your per-user license counts going down due to customers having layoffs vs. another reason is important to show internally!
Uplift: Report on the $ amount, % of uplift, and % of customers you successfully had uplift. This is a straightforward way to increase revenue by having a set (in the contract) uplift amount that should be straight forward as part of the renewal process. Tracking these metrics will ensure this program is adhered to. I review uplifts for every customer that is renewing and understand every reason for why an uplift is not included in the renewal as this should be included unless removed as part of a negotiation (multi-year deal, customer is upselling significantly, etc).
Upsell: Report on the $ amount, number of customers, and the product. If off of plan, understand why.
Cross-sell: Report on the $ amount, number of customers, and the product. If off of plan, understand why.
Services Revenue: Understand how services revenue is perceived in the company, and tracking revenue targets, by core deliverable, such as training, onboarding, etc. Depending on the size of the services organization, I track many of the above metrics for services work just like product revenue.

I’ve attached a sample sheet I use to track renewals and upsells. Please note, I export the data from my CRM into this sheet to track on a weekly basis. If you are doing CSQLs, I recommend mapping the upsell sheet to track those to ensure they are followed up on and closed!

In-Quarter-Opportunity-Tracking Download

I also track the following Margin/Cost metrics. I typically review these on a monthly basis to ensure there are no surprises, as changes in new business and renewal rates can impact staffing and these metrics significantly. These metrics are typically provided by the finance team and via department specific tools. I will dig into each of my team’s tools if I see something I am not expecting.

Support Cost: Show as flat cost, % of revenue, and per customer. If you are a growing company, it’s acceptable that Support costs are increasing, but you should be showing how you are becoming more efficient over time by decreasing costs as a percent of revenue and by customer count.
Professional Services Cost/Margin: You want to ensure you are understanding revenue, cost, and making sure it’s aligned with larger company goals. Depending on your business, having too much Services revenue can be viewed as a negative by the company! For Services Margin you need to understand the following:
- Team Utilization is at target (see next bullet).
- How much work are you giving away vs. billing for.
- Hourly rate (Anecdotally, I’ve seen most software companies are between $200-$350 an hour). Some companies I know of go down to $90, so it’s business specific.
Team Utilization: Every team should show team utilization, and should be near capacity for optimum margin. I typically have 80% as maximum margin. If you look over a year, 10% is for PTO & Holidays, and 10% is for internal meetings (training, 1:1’s, etc), which is why it’s 80%.

Driving Retention Rates

Moving into metrics that drive successful customers, I conceptualize it using an pyramid analogy. While everyone cares about growth, there are so many items you have to execute on to earn the right to grow a customer. The metrics you look at are a reflection of these items.

This pyramid also maps to departments. As such, I review the following metrics below on a weekly basis to ensure I am aware of any potential issues that might have occurred the previous week, and to ensure we are improving the metrics based on our quarterly initiatives.

Functional

The bottom layer, Functional is whether the product or service you are providing, fundamentally works. To ensure this is the case, I track the following metrics:

Bugs:
- Number of bugs as a flat number, and as a percentage of overall ticket volume.
- Time to Resolve on the bugs.
- Note: You should have alignment about bugs you will fix, and bugs you won’t fix with product and engineering for proper customer communication.
Customer Impacting Service Impairments:
- This includes site outages and any significant functionality impaired. I think of this similar to a construction site where it’s “days since last injury.” This number needs to be 0 for as long as possible.
Feature Requests:
- Number of feature requests as a flat number, and as a percentage.
- Time to Resolve, and size of backlog to understand how many are getting implemented, and how fast, and whether you are keeping up with customer demand.
- Not all feature requests should be implemented. CS should have a process to screen and prioritize feature requests for the product team, and a process to politely tell the customer when a feature request won’t be implemented. It’s better to tell a customer you won’t be implementing than to say nothing!
Customer Effort Score: I am a believer in this as it can show where there is friction within your customer experience, leading to a lower perception of your solution overall. I typically ask this question both after support ticket resolution (instead of CSAT), and in Customer business review meetings.

Tactical

This is when the product is working, but customers have questions they need answered to use and get value from the product. I track the following support metrics:

Support Tickets per Customer: Depending upon your product, 0 could be a good target, or having a few come is a reasonable target. For one company, seeing a decrease in ticket volume gave us a 6 month heads up the customer was leaving. Understanding ticket volume by renewal rates is a good way to understand how you should think of average tickets per customer. Any delta’s on a per customer or across customers should be looked into immediately.
Initial Response Times across channels: Understanding how fast your support team responds for each channel (email, chat, phone, social, etc) is important. Look at both average and max. The Max response time shows you the worst experience. If you’re that customer, you don’t care that the average customer was fast when yours is still slow! You should have processes that handle the exceptionally poor experiences within support, while also keeping them rare.
Resolution Times: How long does it take to resolve the customers question? Again track average and max so you can understand your target, and the worst experience.
Re-Open Rate: Tickets should not need to be re-opened. If that is happening, then it’s good to track and see what’s broken in the process to fix.

Value (and Relationship Quality)

This is the third layer, and where the CSM is primarily accountable. While the concept of value is easily understood, reporting on it can be incredibly challenging depending upon your business!

Additionally, many buyers are not logical, but in fact emotional in their decision making process. CSMs should record in their CRM or CS Tool the quality/strength of the relationship of the key individuals: power user, executive sponsor, contract signer.

Value is an agreed upon metric, ideally across customers, that can show business results. This section should also show “risk” factors that may be impacting value. This can be very simple, or really hard!

As each company is unique, it’s critical to identify the metric that will work for your company. Do not fall into the trap of thinking it’s just “daily users” as that frequently is not going deep enough. You need to report on the value that daily user activity is driving! I know of one company that tracked on this, only to be surprised when one of their top customers fixed an IT configuration that was auto-logging everyone into their product, resulting in a customer who they thought was a “top user” to in reality hardly using the product at all!

Typically value should map to one of three categories: Revenue generated for the customer, cost saved by the customer, or the theoretical risk (measured in $) avoided by having your solution (think of security or insurance software like virus scanning software).

You should have a dashboard that shows customer value, with the contract value as part of the equation to show customers with healthy metrics, and unhealthy metrics. I’ve seen customers with healthy value, but the contract value was so high we were displaced by a competitor who came in at 50% of the cost! The vendor flat out told us, “I love you, but I can’t justify to procurement how much more expensive you are.”

The objective is to ensure there is value for the customer, so that the renewal process becomes easy.

Growth

I recommend an annual formal bottoms up plan on how you will hit your customer growth number. This should map down to the plays you are running, and what you think the success rates will be, and should have the CSMs feedback in this. Example plays:

Uplift: contract price increase.
Upsell: increased adoption of your product (users, or the activity that triggers additional billing).
Cross-sell: what products do you have that your customers haven’t purchased? What need products are you releasing that your customers will get value from?

This plan should then be refreshed the last month of every quarter, with a focus on the next quarter to create your forecast. When you do both the annual plan and quarterly refreshes, listen carefully to the CSMs and their feedback. If any of your growth plays are showing inherit risk of lack of adoption/success, then there is likely something wrong that will be triggering renewal risk as well.

Additionally, I track the following metrics for the “fly-wheel” effect. These will be company specific and done in partnership with marketing:

# of reference customers (private reference for a new customer, public reference for our website)
Customer Case Studies / Whitepapers produced
Strategy guides produced
Customer Referrals leading to new business (part of CSQL’s)

Professional Services

Professional Services includes many types of deliverables that are critical for the customer. I think of this team as being the glue between what the product actually delivers and what the customers need to successfully get value from the product. Services typically include onboarding, training, strategy, technical integrations, and even staff augmentation. Having key metrics for each deliverable is critical to understanding and driving positive retention rates.

As an example, I started at one company where the year 1 customer renewal rates where the lowest of any cohort. Digging in, we found that the largest reason was that there was a steep learning curve to our product, and that customers were not getting trained. We overhauled our training program making them easier to consume and more cost effective. We then required training to be included in all new deals. This resulted in a 25% improvement in the year 1 renewal rate! We had metrics that ensured users were trained successfully, and programs that put any new users into our training program.

Another example is around onboarding. Having a quick kick-off call, and optimizing for time to first value for the customer is critical. I personally saw over a 10% improvement in renewal rates when we updated our onboarding process to be instantaneous in kick off call introductions after contract signature and with the onboarding process improving time to first value from over 6 months to around 5 weeks. You may also need to look at how and when your finance team can recognize revenue as part of the onboarding process as well.

NPS

You might not have noticed, but one metric I did not mention was Net Promotor Score (NPS). I believe this is typically a lagging indicator, with the most value coming from the comments, which should already be showing up in other metrics listed above (customer effort if nothing else). I will implement it, as it can influence other executive team member behavior, it’s become somewhat of an industry standard, and I’ve had board members look at me strangely (as in, “Kevin I think you’re stupid for not having it” look). I just personally don’t find it incredible valuable other than being a vanity metric.

Conclusion

There are a lot of metrics to track to understand the performance of the customer success organization. It is critical to take the time to deeply understand each one and how it can positively or negatively impact the customer experience and value, which will ultimately affect your net retention rates.