11 Must-Track SaaS Customer Success Metrics (+Measuring Them)
- July 14, 2021
It’s no secret that every SaaS customer success team needs to be laser-focused on optimizing growth and customer retention.
Tracking the right client-relation metrics is key to unlocking growth by painting an objective picture of your revenue stream, benchmarking current trends, uncovering growth opportunities, and revealing pain points. Your company is best positioned to succeed when you leverage data to influence your sales and marketing strategy, product updates, and initiatives, like referral programs or community-building efforts.
With so many metrics available for customer success teams to capture, measure, track, and analyze, it can be challenging to identify which ones are most worthy of your time. If you don’t focus on actionable metrics, you’ll end up spinning your wheels and miss insights that will help you grow your revenue and retain customers.
The following must-track customer success metrics will clarify how and where you’re generating revenue. They will also empower you and help you make smarter, customer-focused decisions.
What are the key customer success metrics to measure?
1. Customer Churn Rate
Your customer churn rate is a foundational customer success metric that tracks the percentage of your customers who have decided not to renew. This metric is essential to monitor because it shows you how many customers aren’t seeing value in your product or customer success efforts.
How to calculate customer churn rate
To calculate your churn rate, divide the number of customers who no longer subscribe in one month by the total number of customers you had at the beginning of that month. There’s no universal number for what your churn rate should be, but the average amount of monthly churn for SaaS companies hovers just under 5%.
Customer churn rate formula
(Users at beginning of a period – users at end of a period) / users at beginning of period
2. Average Revenue Per User (ARPU)
ARPU is the total revenue your product generates across all your customers. Determining your ARPU helps you find opportunities to optimize your pricing and positioning by displaying how much money customers are willing to spend on your product – and is a critical KPI for SaaS companies.
How to calculate average revenue per user (ARPU)
To calculate ARPU, take the revenue generated from subscriptions in a month and divide it by the average number of your subscribers over that period. For example, if you had 1,000 customers last month and generated $50,000 in revenue, your average revenue per customer would be $50.
ARPU is dependent on such factors as your pricing model and industry. To establish your benchmark, try to find the ARPU of your competitors or an average for your sector.
Average revenue per user (ARPU) formula
Total revenue / total # of users
3. Monthly Recurring Revenue (MRR)
MRR is another foundational metric that measures your predictable revenue. It’s the amount of recurring revenue you generate in a given month after subtracting one-time fees. This metric uncovers the quality of your revenue and shows investors that your company is capable of generating income.
How to calculate monthly recurring revenue (MRR)
For subscription-based businesses, the simplest way to calculate MRR is to add up a month’s worth of your recurring revenue. There’s no industry benchmark for MRR — the value is in tracking it internally over time to see if your revenue is growing or shrinking.
Monthly recurring revenue (MRR) formula
(Total # of active customers) X (average billed amount)
4. Conversion Rate
Your conversion rate is the percentage of customers who complete an action that aligns with your business goals. You can track the conversion rate of many customer actions, including free-to-paid conversions, signups, or form submissions. A high conversion rate signals that your messaging and positioning are solid and your marketing efforts are working well.
How to calculate conversion rate
To calculate initial signups on a landing page, divide conversions by the total number of visitors to the landing page, then multiply by 100. For example, if you had 1,000 visits to your landing page and 100 people signed up, your conversion rate would be 10%.
There’s no single standard for conversion rates, but Lincoln Murphy, a customer-centric growth expert, states that “the best SaaS companies with opt-in free trials have a free trial-to-paid conversion rate of greater than 25%.”
Conversion rate formula
Total conversions / Total visitors
5. Customer Acquisition Cost (CAC)
Customer acquisition cost is the amount of money you spend to persuade a consumer to buy your product. This metric is critical to track because it tells you how much time it will take for a customer to become profitable — if it’s too high, your business may not succeed in the long run without adjustments.
How to calculate customer acquisition cost
To calculate CAC, add up all your sales and marketing expenses (including salaries) and divide that number by the total number of customers added in the specific period you are measuring — for example, your annual costs divided by the total number of customers you added in a calendar year. For example, if your company spent $100,000 to land 10,000 new customers in a month, your CAC is $10.00.
CAC varies among industries and is closely tied to where you set your marketing and sales budget. A good way to tell if your CAC is healthy is to calculate your CLV to CAC ratio. A ratio of 4:1 means every dollar gets you $4 back in customer lifetime value.
Customer acquisition cost formula
(Marketing costs + salaries + professional costs + sales costs + software costs) / # of customers acquired
6. Customer Lifetime Value
Customer lifetime value (CLV), also known LTV, is the dollar value of a customer over the life of your relationship with them. Knowing your CLV can help you determine how much you should spend on acquiring customers — the amount you spend should depend on how much a customer is worth. This makes it one of the most important KPIs for SaaS customer success teams.
How to calculate customer lifetime value
There are several ways to calculate CLV — a simple approach is to take your annual revenue per customer, multiply it by the length of your typical customer relationship in years, then subtract your CAC. This calculation will give you a general idea of how much revenue you can expect from a customer while they’re subscribed to your product.
For example, if your average annual revenue per customer is $5,000, your customers stay with you for five years, and your CAC is $100, your CLV would be $24,900.
Customer lifetime value formula
(Average purchase value – average purchase frequency) x average customer lifespan
7. Renewal Rate
Your renewal rate measures how many customers stick around after their initial subscription expires. Tracking this customer success metric over time will allow you to notice and fix any downward renewal trends before they become a big issue. It also helps benchmark performance for your customer success managers.
How to calculate net renewal rate
Customer renewal rate is measured using different periods, like months or years. To calculate this metric, divide the number of customers who paid their subscription fee by the total number of customers up for renewal, then multiply by 100 to get your rate. For instance, if you have 2,100 monthly subscribers who paid and billed 2,200 subscribers, your renewal rate is 95%.
There’s no gold standard among SaaS companies for renewal rates, but higher numbers generally equal healthier companies.
Net renewal rate formula
((Revenue renewed + Expansion revenue) / Revenue that can be renewed) x 100
8. Expansion Revenue
Expansion revenue is a metric that tracks the percentage of revenue coming from existing customers through non-subscription revenue like upselling and cross-selling. It can help you determine which customers are so satisfied they want to buy additional products from you and highlight which products may be a good fit to market to other customers. This customer success KPI proves that SaaS customer success teams can be a leading driver of organizational revenue growth.
How to calculate expansion revenue
Track expansion revenue by dividing your revenue during a previous time period by the amount of new, non-subscription or contract revenue during a specific time period. Using a monthly calculation as an example, if you ended last month with $10,000 in revenue and gained $1,000 in cross-sell and upsell revenue during the next month, your expansion revenue rate would be 10%.
As a benchmark, expansion revenue should make up 20-30%+ of monthly revenue. For many SaaS companies, this number tracks closer to 10%.
Expansion revenue formula
(New revenue from upsells + cross-sells in a month) / Total revenue at the end of the previous month
9. Net Revenue Retention (NRR)
Net revenue retention is a metric that tracks how your company’s recurring revenue shifts over a known period. It is similar to MRR but can be measured over extended periods and factors in expansion revenue, downgrades, and customer churn. This statistic shows how well you’re performing in terms of retention, which is a significant success driver in SaaS.
How to calculate net revenue retention
To determine net revenue retention, choose a specific period and divide your recurring revenue at the end of that period by the recurring revenue at the beginning. To track it by month, take your monthly recurring revenue at the beginning of the month, add your new monthly recurring revenue, subtract your downgrades and monthly churn, and divide that number by your MRR at the beginning of the month.
For example, if your past month’s MRR was $20,000, you brought in $3,000 of new MRR this month, and you lost $1,000 from downgrades and customer churn, your net revenue retention is 110%. A net revenue retention rate of over 100% is considered a good growth indicator for SaaS businesses.
Net revenue retention formula
(Starting MRR + Change in MRR) / Starting MRR
10. Net Promoter Score (NPS)
NPS is a popular customer health metric gathered through surveys that ask a specific question — “On a scale of 0 to 10, how likely is it that you would recommend our organization to a friend or colleague?” Results are based on the number a customer chooses during the survey, and when the survey is tallied, customers are classified as either “Detractors,” “Passives,” or “Promoters.”
How to calculate net promoter score (NPS)
To calculate your company’s Net Promoter Score, subtract the percentage of Detractors from the percentage of Promoters. Customers who rate you a 6 or below are considered Detractors, 7 or 8 are Passives, and 9 or 10 are Promoters. For example, if 50% of your respondents are Promoters and 30% are Detractors, your NPS is 20.
Your NPS score can vary depending on your product and customer success efforts, but the software and app industry as a whole has an average NPS score of 31.
Net promoter score (NPS) formula
Promoters (%) – detractors (%)
11. Customer Satisfaction Score (CSAT)
Customer satisfaction scores are measured by asking customers how satisfied or dissatisfied they are with your product and company. CSAT is usually quantified by sending surveys asking questions like “How satisfied were you with our product/service/interaction with our company?” and commonly uses a 1-5 or 1-10 scale for responses.
How to calculate customer satisfaction score
To measure CSAT using a 1-5 scale, take the total number of 4 and 5 responses, divide them by the total of responses, then multiply by 100. For example, if you have 100 respondents and 70 rated you a 4 or 5, your score would be 70%.
A good time to gather CSAT metrics is when you want feedback about something specific, like after an event or when a customer completes your onboarding process.
Customer satisfaction score (CSAT) percentage formula
(# of positive scores / # of all scores) x 100
Set Up a Dashboard to Track Your Customer Success Metrics
Tracking these metrics can be challenging since many of them are fluid and can change quickly. To make sure your data is always up to date and accurate, set up a customer success dashboard. You can set up a dashboard using a simple spreadsheet or template, using a data visualization tool like Tableau, or investing in SaaS dashboard software such as Whatagraph.
Setting up a dashboard has several advantages — it gives everyone inside your organization full visibility into your data and speeds up reporting, and some dashboards automate the arduous task of making manual calculations. If you choose a dashboard that lets you pull in data from your CRM, support ticketing system, and internal KPIs, you can track everything in one place.
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