Customer Success is the key to driving retention, and renewals and thereby, increasing recurring revenue for the business. Although it’s upon the Customer Success team to drive retention, renewals, etc., the senior management in the CS function should be well-informed about the impact that their customer success strategy can have on the profitability of their business. Hence, understanding the Return on investment (ROI) of implementing customer success is crucial!
Are you any one of the following?:-
- Senior Customer Success (CS) leader
- VP of Customer Success
- Head of Customer Success
And, are you losing your sleepover identifying and measuring ROI for your CS practices?
If yes, then this blog is intended for you!
The secret of success is to do the common thing uncommonly well.
John D. Rockefeller Jr.
Customer Success is the lifeblood of a SaaS business. If you’re a B2B SaaS business, this statement becomes more profound! If your customers stop using your services, you would not have any revenue whatsoever.
The key is to keep, nurture and cultivate them. It is important to do so to become loyal to you and become strong advocates for your business. It requires time, effort, and willingness to help your customers achieve their outcomes, and consequently, to retain them.
Why is it critical to measure Customer Success?
In a subscription-based economy, making your customers successful is the best strategic move to achieve your targeted business growth. All thanks to the customer success function!
You can grow through massive Customer Acquisition, but the best companies out there are growing through Customer Success.
Lincoln Murphy
As a Head of CS, at your place, you should be aware of the true cost of scaling Customer Success and also need to know how exactly is this cost turning into revenue.
Let’s look at some facts and figures which are vital metrics to keep track of.
- In B2B SaaS you spend anywhere between 1–3X times the Annual contract value (ACV) as your Cost of Acquiring the Customer (CAC). So on the day of the acquisition in unit economics terms, you have just incurred a loss. It’s done because the plan is to retain and grow the recurring revenue from these customers for many years to come.
- In continuation with the above fact, it’s anywhere between 5-25X more expensive to get a new customer than it is to retain your current customer.
- Retained customers’ purchase and spend frequency is much more than the newer customers. They know the value of your product, and hence, keep coming back, repeatedly.
- Satisfied and loyal customers are more likely to refer your business to their friends or family or their clients— bringing in new customers!
- Bain & Company’s research concluded that repeat customers refer more people to your business than new customers.
- Another research has concluded that even a 5% increase in customer retention can help in increasing the profits by a massive 25%- 95%.
Well, that is the impact of implementing CS function on ROI!
Let’s try and understand how it works.
As you can see, building great relationships with your customers can reduce costs. Also, the increase in revenue (due to customer loyalty) can easily be quantified. Since managing customer relationships has a quantifiable revenue impact, many firms are taking investing in Customer Success more seriously than ever because CS drives retention, reduces churn, enables upsells, and accelerates new business.
ROI of Implementing Customer Success
CLTV (Customer Lifetime Value) is the customer’s lifetime value or, simply put, a measure of how much revenue a customer would spend throughout his/her tenure with the company. Studies have shown that customer health increases renewal likelihood, and consequently, CLTV of the portfolio.
This directly impacts the MRR or the ARR of a business, and hence, increases profitability.
The table below shows the impact indicators for different KPIs which we use to measure Customer Success impact.
KPI | Calculation | ROI Impact Indicators |
MRR | MRR= (No of customers) *(average billing per customer per month) | Increase in number |
CAC | CAC = Total expenses to acquire customers / total number of customers acquired | Decrease in number |
CLTV | LTV = Average revenue per user (ARPU) / MRR churn (or customer churn) | Increase in number |
LTV: CAC ratio | LTV/CAC | Improves by 3 times |
Churn rate | MRR churn = Lost MRR / MRR over the previous period | Decrease in rate |
Adoption rate | Adoption Rate = Number of Unique Daily Logins / Total Number of Purchased Account Licenses | Increase in rate |
Customer Usage | Average Time Spent in App Per Login = Amount of Active Time Spent in App Per Week /Total Number of Logins Per Week | Increase in number |
CRC | CRC = Cost of { Customer Success Team + Renewals and/or Account Management Team + Customer Engagement and Adoption Programs + Professional Services and Training + Customer Marketing } | Decrease in number |
ARPA | ARPA (per month) = Monthly recurring revenue (MRR) / Total Number of Customers | Increase in number |
Check out the complete Customer Success Cheat Sheet to know about the important metrics and KPIs which need to be kept track of.
P.S. – The main image has been taken from pexels.com
