For any plan or strategy to be successful, it is necessary to have the right information and data. Customer success leaders need to have the right insights to make guided strategies and plans. It is necessary to use relevant and actionable customer success metrics to make the best decisions. These customer success financial metrics will examine the overall financial health of any SaaS business. If customers can be considered the lifeblood of a business, financial metrics are the heartbeat of the company. Customer success financial metrics provide an assessment of the financial health of the company and can forecast stability and growth.
Top Customer Success Financial Metrics You Should Monitor
The core metrics of any financial health will serve as a great indicator for long term innings and scalability. Some of the core metrics include the ones mentioned below.
Revenue Retention Rate
This is a macro metric that measures the change in revenue over a time period. Gross revenue retention is the amount of revenue earned or retained minus the revenue lost cause of churn or down selling. The impact of cross-selling and increase in prices and more is not considered. Revenue retention rate is an indicator of the long-term health of the business. This will showcase the true health of any business. You can count both gross and net rates are measures. Net revenue retention is the amount of revenue left over after churn and other expansions like upsells, upgrades, and other price increases. GRR, or gross revenue retention cannot be greater than net revenue reduction.
Average Revenue Per Account
This metric assesses the profitability of a company based on revenue calculated on a period basis. It can be quarterly, monthly, or yearly. Investors use this profitability metric to evaluate and compare the performance of the company and check which solutions generate a better income. Average revenue per account is the total revenue divided by the total number of accounts. ARPA can be segmented for customers both old and new to understand revenue generation for each category.
Annual Recurring Revenue
The subscription-based model looks to generate and maintain recurring revenue. Annual recurring revenue is the amount of revenue that is normalized annually. ARR is a customer financial metric that measures sustainability, growth, and value. Knowing your ARR helps companies forecast sales and growth projections, identify trends quickly, budget for sales, and motivate the team to perform. Revenue from consultancy services, credit adjustments, and other add-ons needs to be removed while calculating ARR. ARR is the sum of all customer’s annual subscription fees.
Revenue Churn Rate
Revenue churn rate is the percentage of recurring revenue lost due to account downgrades or customer churn. It takes complete revenue churn into account keeping at bay all revenue earned due to new customers or account expansions. A small decrease in revenue churn rate will lead to more revenue at the end of the quarter. Gross revenue churn is equal to churn plus down sell. This needs to be divided by the starting ARR. It is the opposite of revenue retention. When revenue is greater than churn, it is known as negative churn. Most companies aim to reduce the churn rate to keep afloat and profits high.
Customer Lifetime Value
Customer lifetime value is the monetary value attributed to a customer. Customer lifetime value measures the overall profit from the business gains over the entire timeline of the customer relationship. By tracking your customer lifetime value, you know who the best customers are. It helps with understanding customer retention and how much you can spend on acquiring new customers. Customer lifetime value can be calculated as customer revenue minus the costs of acquiring the customer and serving them.
Quick Ratio
Created by Mamoon Hamid, this financial metric measures the efficiency of growth while comparing revenue with churn. It measures the company’s ability to grow regardless of the churn rate. It is a true indicator of the company’s growth against its revenue churn.
Quick Ratio less than 2 = Bad Growth
Quick Ratio 2-4 = OK Growth/average growth
Quick Ratio greater than 4 = Good growth
Bottom Line
Monitoring trends about revenue generation can help identify any lags. This will help create better strategies, improve growth, and test scalability. Customer success teams can use this to evaluate the past, understand the present, and chalk a plan for the future. These financial metrics help motivate the team, forecast sales, and marketing. These metrics may raise questions which will lead to forming an analysis. These metrics are based on factors like product adoption, product stickiness, usage frequency, and more. For any company to be successful, it is necessary to keep these financial metrics in mind. When these metrics are known, it is easier to gauge plans and estimate the health of customers of the company.