Three Critical Metrics to Retain and Grow Customer Relationship Value

Three Critical Metrics to Retain and Grow Customer Relationship Value

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Three Critical Metrics to Retain and Grow Customer Relationship Value

​If you inventory all the metrics used by your customer-facing organizations – Sales, Marketing and Service – you’ll find an impressive collection of data elements that describe how you interact with your customers. But with all your customer metrics, what do you really know about your customers? How do you assure that you can sustain and grow relationship value? These 3 critical customer relationship value metrics can point the way.

Marketing metrics describe the ability to reach and influence customers.

Sales metrics provide insights into the time and efficiency to book revenue.

Service metrics describe the volume, timeliness, and effectiveness of interacting with them.

Add to this the insights provided from customer satisfaction assessment efforts.  As an industry we have a lot of customer data, but does it tell us everything we need to know about how to engage and sustain long term profitable relationships?

We know how much effort it takes to reach and influence customers, the time it takes to convert prospects to buyers and the time, effort, and costs to service customers.  These are all important, yet too many customer metrics focus on the transactional aspects of the customer relationship—volumes, speed, and efficiency. Too few of them focus on examining the quality of our relationships.

Now we’re not saying you should stop tracking transactional customer metrics!  BUT consider adding the following measurements to examine the strength and quality of your customer relationships:

Critical Customer Relationship Value Metric #1: Adoption

Adoption tracking provides important insights into the frequency and extent of customer product use.  Customer adoption metrics answer questions such as: Are your customers using your products?  Are they using them to the fullest extent possible?  It seems counter intuitive that customers would not use what they buy, but for many reasons lack of license utilization or under utilization occurs.

Why Adoption metrics matter

If customers are not using what they have already paid for or are not able to apply products to their business, then future subscription renewals or license sales are in jeopardy.

What to measure

Whether through automated tracking or customer surveys, it is important to understand if, how and to what extent your customers use your products.  Consider the following metrics:

  • Adoption: The percentage of licenses sold that are being used.
    • Metric: % of licenses adopted
  • Adoption Extent (Feature Adoption): The features are customers using.  Are they using a basic set of available features or do they take advantage of advanced capabilities?
    • Metric: % of basic users
    • Metric: % of advanced users

How to use Adoption metrics

If you determine that customers are not using what they already have, the next step is to determine why.  Are products too complex? Do customers lack necessary skills? Are products not aligned to customer needs?  The sooner you understand the barriers to full adoption, the sooner you can take corrective actions through services, training, or product enhancements to drive higher product and feature adoption rates.

Critical Customer Relationship Value Metric #2: Success

Customer success tracking builds upon Adoption and examines the extent to which customers realize tangible benefits from your products. Customer success metrics answer questions such as: Do customers consider your products to be integral to their business?  Are they able to apply your products to meet their business goals and objectives?  The very health of your customer relationships depends upon your customers ability to apply your products to drive success with their business.

Why Success metrics matter

Even with 100% adoption rates, it is possible that customers fail to achieve the outcomes they want with your products.  Understanding the extent to which a customer can positively affect their business with your products is a critical indicator about the overall health of the relationship.  Customers that indicate positive impacts from products are far more likely to continue or expand their relationship with you.  Customers that fail to meet performance objectives are at risk of lower spending or ending their relationship with you.

What to measure

Success can be a subjective measure, yet the perception of success is the basis upon which real decisions are made.   Success measurement is most effective when there is a mutually established definition of success.  Companies that work with customers to develop success plans and journey maps with measurable outcomes can track progress to plan.  Success can also be measured as the return on the original investment in a product.  The most subjective metric is based on asking customers to express the extent to which they believe they have benefited from the use of a product.  Although not ideal, this approach provides insights to alert you to situations where negative perceptions may impact customer relationships.

Consider the following metrics:

  • Success Plan Realization: The percentage of an established success plan that has been realized.
    • Metric: % Success rate
  • Return on Investment: A tangible measure to indicate the payback from the investment in a product over an established timeframe.
    • Metric: ROI
  • Success Perception:
    • Metric: % positive impact (success rate)
    • Metric: % Neutral impact
    • Metric: % None or negative impact

How to use Success metrics

Getting customers to adopt products is just the beginning of long-term profitable relationships.  You need to be able to help customers realize tangible positive benefits from product use.  Regardless of how you measure success you must be cognizant of when you fail to meet customer expectations.  The very practice of measuring success suggests that you are attempting to establish a baseline understanding of what customers need or want from the use of your products.  When you understand customer expectations and detect that your products have not met them, you can examine the reasons why and develop corrective actions to increase success rates.

Critical Customer Relationship Value Metric #3: Retention

How many of your current customers do you keep? How long do you retain established relationships?  While adoption and success tracking provides insights into the health of a customer relationship, they do not explain all the reasons for churn in your customers base.  Retention examines the rate and duration that you sustain customer relationships and provides an opportunity to identify and examine the reasons for lost relationships,

Why Retention Metrics matter

For many companies most revenue comes from existing customers, thus keeping the customers you have is imperative.

What to measure

Retention is a straightforward metric when you establish a clear definition of what it means to retain a customer.  For our purposes retention is defined as active, revenue-generating relationships.  This is clear for subscription-based / SaaS relationships, but less so for relationships based on perpetual licensing.  When SaaS customers stop paying for their subscriptions they lose their ability to use the product or service they subscribed to.  Perpetually licensed software is different.  A customer can continue to use a perpetually licensed product but pay no maintenance fees, nor purchase any future products.  Retention examines the net number of revenue-generating customer relationships from one period to the next.

Consider the following metrics:

  • Customer Retention (perpetual and subscription): Revenue-generating relationships carried over from previous period (e.g. year to year or quarter to quarter).
    • Metric: % Customer Retention rate (relationships)
  • Net Revenue Retention (perpetual and subscription): Net value of existing contracts carried over from previous period, plus new revenue and less losses (e.g. year to year or quarter to quarter).
    • Metric: % Net Revenue Retention rate

How to use Retention metrics

Retention analysis informs about the stability of your customer base.  You can strive to get your customers to adopt products and be successful with them.  Even then, you cannot prevent all existing customers (or contract value) from going away.  You must however be vigilant and monitor customer retention rates and examine the reasons why you lose customers and revenue (e.g. you may keep a relationship, but at a lower value).  Only when you understand why you lose customers can you act to retain them.

Your Goals: Retention, Growth and Long-term Profitability

We know a lot about customers, but let’s make certain that we understand the foundations of successful customer relationships.  By measuring the extent to which customers adopt and use our products successfully we can identify situations where products fall short in fulfilling their needs and expectations.  With these insights we can take corrective action to minimize churn and identify ways to retain and expand existing relationship value.

We’re here to help.

Reach out anytime to start your own conversation about recurring revenue and customer relationship value. Use the chat button at bottom right, send an e-mail, or click on my calendar to schedule a specific time.

 

Ready to commit to a Customer Success strategy? Learn the 5 critical milestones.

Exclusive ServiceXRG White Paper:

Ensuring a Successful Journey to Customer Success

Download the ServiceXRG whitepaper, "Ensuring a Successful Journey to Customer Success"

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Beyond Service Metrics – Focus on What Really Matters

Beyond Service Metrics – Focus on What Really Matters

Your service organization is an incredible source of metrics and measurements that describe ongoing interactions with your customers. Of all the metrics your service team tracks there are 5 important areas that you should key a close eye on.

Your service organization can tell you how many customers they interact with on a daily, week or monthly basis through a variety of communications channels. They can tell you about the top concerns of your customers, the challenges they face using your products and the features they want to see in the future.  If you dig a bit deeper Services can provide statistics on the level of service provided, and the costs and revenues associated with delivering these services. 

1.   Defects

Customers contact your Services team for a variety of reasons, and if typical, more than half of all customer service requests are related to “how-to” type questions.  These are “good” interactions – your customers are engaged with your product and this provides insights into how they are using it.

Few customers (hopefully) are contacting you because your product does not work as expected.  Defect related interactions are not always pleasant but are inevitable. Tracking defect rates is critical since they are often costlier to respond to and result in higher levels of customer dissatisfaction.  What you need to know about defects:

  • What percent of all customer reported issues are directly attributed to product defects?
  • What is the total cost to handle defect related issues (total and as a percent of total service costs)?
  • How do defect related issues affect customer satisfaction?

Dis-proportionally high defect rates can indicate a failure in process or lack of appropriate resources in Development and Quality organizations.  By understanding the cost and customer impact you can act to mitigate negative impacts from defects.

2.   Customer Health

You may receive periodic reports indicating customer satisfaction or Net Promoter Scores (NPS).  These are good indicators, but with so many touch-points with your customers expect to know how healthy your customer relationships are. 

Don’t make assumptions that NPS or satisfaction ratings indicate the health of a customer relationship.  Expect to understand if customers are generally content, or if they are anxious about the future, restless and thinking about moving to another vendor, or just plain angry with you. What you need to know about customer health:

  • What percent of your customer base is at risk of defecting to another vendor?
  • What percent of customers are at risk and likely to reduce spending or discontinue buying future products and services?
  • How much revenue is at risk?

Nurture healthy relationships but pay special attention to at risk customers and attempt to understand and repair relationships.

3.   Service Sales Performance

Selling a perpetual or SaaS license is the just the beginning of long-term profitable relationship when additional services can be attached to the initial license sale. Look at the financials of larger public software companies and you can see how important support and maintenance contracts are.  If you don’t already sell add-on services, consider it.  If you do, make sure that service sales performance is optimized.  If your products are offered as a service, then look to add-on services to grow. What you need to know about service sales performance:

  • How many customers are under an extended service contract or success plan?
  • At what rate are new contracts attached to product sales?
  • How does this differ by geography and channel?
  • At what rate do existing customers renew?
  • For SaaS companies – what rate do customers buy a higher level of service than what is provided with the subscription?

Service sales performance begins with the initial “attachment” of a service contract, but the sales process continues indefinitely with an opportunity to renew the relationship year after year.  Great service sales practices require focus and investment to sell, renew and expand the service relationship.

4.   Engagement

Your services team specializes in engaging with customers – in fact this is their job.  The frequency and quality of engagements is important.  If you never hear from your customers is that a good thing?  It certainly costs less but you have less visibility into how they are using your products or their level of satisfaction.  Too much engagement may suggest that your products are difficult to use.  What you need to know about customer engagement:

  • What percent of your customer base do you actively engage with?
  • How often do you engage with them?
  • What percent of customer engagements are positive? Negative?
  • How does the health of customer relationships correlate to engagement frequency and quality?

The correct engagement model can make the difference in the health and profitability of a customer relationship.  Engagement focused on early and effective onboarding and success coaching can help customers get up to speed and productive with new products.  High-touch engagement models may be necessary for large critical customers.  In all cases the type and level of engagement is hopefully proportional to the value of the relationship.

5.   Profitability

When we consider the role of Service, we need to think about it as an instrument to engage and retain customers.  The basic assumption is that more interaction may be good, especially if it is positive interaction, but if it costs too much it is difficult and costly to scale.  We cannot simply throw unlimited resources at customers to keep them delighted.   What you need to know about customer service profitability:

  • How much does it cost to deliver services?
  • How much direct revenue does Services generate?
  • How much indirect revenue does Services contribute to?
  • Will incremental investments in Services generate more direct or indirect revenue?
  • What impact will investments in Services have on retaining recurring revenue streams?

Service profitability, and the impact of services on overall profit can be elusive, often because the tangible return from the investment in services can be hard to connect to the costs.  For service organization that operate as a profit and loss center the relationship between the cost of services and the benefits is more apparent.  Accounting for the cost and financial benefits of service is critical.

These service insights are different from traditional service metrics such as cost per incident or time to resolution and are intended to provide a more strategic customer view through the eyes of your Services team.  Tap into the insights and perspectives services has to offer.  Services is on the front line with customers and they can offer unique insights about your customers, your relationships and the very health and success of your business moving forward.

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Recurring Revenue Rate

Recurring Revenue Rate

The amount of recurring revenue a company receives may increase, stay the same, or decline for a given period. Recurring Revenue Rate indicates the percent change in the amount of recurring revenue at the end of a specified period compared to the recurring revenue at the beginning of the same period.

Recurring Revenue Rate

Recurring Revenue Rate provides an indication of how much recurring relationship value has been retained, grown or been lost.

Recurring Revenue Rate can be applied to a specific timeframe (e.g. quarterly, annually, etc.) or applied to tracking Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR).  This is critical for tracking the financial health of recurring revenue relationships such as service contracts and subscriptions.

Unlike Contract Renewal Rate, where 100% is the maximum performance level, Recurring Revenue Rate can exceed 100% indicating that the value of an existing relationship, or the net value of all recurring relationships, has increase from the previous period.

Example:

For Period = Q1

Recurring Revenue Rate = Recurring Revenue at End of Term / Recurring Revenue at Beginning of Term

Recurring Revenue Beginning Q1 = $100

+ Recurring Revenue Added in Q1 = $50

$45 from new customers

$5 from expansion of existing relationships

Recurring Revenue Lost in Q1 = $30

$25 due to customer churn

$5 due to downgrade of existing relationships

= Recurring Revenue End Q1 = $120

Recurring Revenue Rate = 120% (20% growth)

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Less NPS and More High-Touch Understanding

Less NPS and More High-Touch Understanding

We have become too dependent on electronic surveys and NPS/CSat scores to tell us that our customers are okay. These are fine indicators but do not always tell us why we lose customers.

Less NPS / More High-Touch Understanding

To mitigate churn, we need to dig deeper to understand why a customer stops (or never starts) using a product or why they do not perceive value from the services they pay for.

The best way to do this – pick up the phone or visit your customers and listen to their concerns! Don’t wait for customers to cancel before engaging them.

How We Keep Customers

Not every relationship can (or should) be retained, but if you listen carefully enough you will find that you can address many top churn factors.  Onboarding, adoption, success planning and account management are all powerful tools to mitigate risk factors.

Principles and practices of customer success are taking us in the right direction with an emphasis on retaining existing relationships. We need to make certain that we avoid the temptations to rely too much on tech-touch and keep personal channels of communication open with customers – especially the ones we do not hear from on a regular basis.

The Bottom Line

Retention of both relationships and revenue are critical indicators of business health.  Understand retention levels and underlying factors that influence them. Retention is paramount – make it a strategic priority!

 

Assessment: Customer Success Management

How effectively do you engage new customers? Do have a formal onboarding process? Do you help customers plan for success with your products? Do you monitor customer health? Take this assessment to see where your practices stand and learn how to maximize customer success management.

Check out ServiceXRG’s Customer Success Management Assessment.  You will get immediate feedback with recommendations.

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Service Renewal Metrics: Definitions and Benchmarks

Service Renewal Metrics: Definitions and Benchmarks

Service renewal metrics indicate the level of performance for retaining the number of service contracts and the rate that recurring revenue is retained and grown.

Service Renewal Metrics

Tracking service contract renewal performance and recurring revenue retention is essential to help identify the factors that lead to customer and revenue retention and attrition. Measuring both the number of contracts and revenue retained is an important indicator of customer relationship health.

Two important service renewal metrics are Contract Renewal Rate and Recurring Revenue Rate both are defined and described below.

Contract Renewal Rate

Contract Renewal Rate indicates the percent of contracts due to expire in a specified period that are successfully renewed.

Contract Renewal Rate provides a good indication about the number of relationships your able to sustain and can help identify attrition and retention trends and underlying causes.  When possible, examine Contract Renewal Rates by key customer segments to identify relationship trends by customer type, geography, product family, length of relationship, etc.

Example:

For Period = Q1

Contract Renewal Rate = Contracts Successfully Renewed / Contracts Due to Renew

Contracts Due to Renew Q1 = 100

Contracts Successfully Renewed Q1 = 90

Contract Renewal Rate = 90%

Recurring Revenue Rate

Recurring Revenue Rate provides an indication of how much recurring relationship value has been retained, grown or been lost.  

Unlike Contract Renewal Rate, where 100% is the maximum performance level, Recurring Revenue Rate can exceed 100% indicating that the value of an existing relationship has increase from the previous period.

Recurring Revenue Rate can be applied to a specific timeframe (e.g. quarterly, annually, etc.) or applied to tracking Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR).  This is critical for tracking the financial health of recurring revenue relationships.

Example:

For Period = Q1

Recurring Revenue Rate = Recurring Revenue at End of Term / Recurring Revenue at Beginning of Term

Recurring Revenue Beginning Q1 = $100

+ Recurring Revenue Added in Q1 = $50

$45 from new customers

$5 from expansion of existing relationships

Recurring Revenue Lost in Q1 = $30

$25 due to customer churn

$5 due to downgrade of existing relationships

= Recurring Revenue End Q1 = $120

Recurring Revenue Rate = 120% (20% growth)

 

Best Practices

  • Establish both contract renewal and recurring revenue metrics.
  • Monitor contract renewal rates to identify trends in relationship retention or attrition.
  • Examine contract renewal rates by key customer segments to determine variations in retention or attrition performance by customer type.
  • Compare contract and recurring revenue rates to indicate changes in buying behaviors.
  • Measure the rate of growth or reduction in revenue month-to-month or year-to-year.
  • Investigate the root cause for loss of contracts and revenue.

We’re here to help.

Reach out anytime to start the conversation about improving your service renewal metrics. Use the chat button at bottom right, send an e-mail, or click on my calendar to schedule a specific time.

 

Service Renewal Best Practices

Featured Playbook: Service Renewal Best Practices

Service renewal performance is fundamental to overall corporate financial health.  Existing service relationships represent a predictable recurring revenue stream and provide the foundation from which to grow revenue.  But before you can grow relationship value, you must be able to retain the customers you have now.

Login or register to get a copy.

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Starting NOW

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Net Recurring Revenue is a comprehensive indicator that reveals the extent to which you are retaining, expanding and growing customer relationship value. Examining the specific underlying elements that contribute to the calculation of Net Recurring Revenue provides the necessary insights to identify the root causes of churn, attrition and contraction. In addition, examining the reasons for revenue growth presents opportunities to embrace and expand practices that encourage expansion of relationship value.

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Retention is Paramount – Make it a Strategic Priority!

Retention is Paramount – Make it a Strategic Priority!

If there is one service performance indicator to steer by it is RETENTION. You can have plenty of satisfied customers but still not grow, but you can’t grow unless you retain the customers you have.

Less NPS / More High-Touch Understanding

We have become too dependent on electronic surveys and NPS/CSat scores to tell us that our customers are okay. These are fine indicators but do not always tell us why we lose customers. Frankly many of the customers we lose may never have shared feedback through voice of the customer campaigns.

To mitigate churn, we need to dig deeper to understand why a customer stops (or never starts) using a product or why they do not perceive value from the services they pay for.

The best way to do this – pick up the phone or visit your customers and listen to their concerns! Don’t wait for customers to cancel before engaging them.

How We Keep Customers

Not every relationship can (or should) be retained, but if you listen carefully enough you will find that you can address many top churn factors.  Onboarding, adoption, success planning and account management are all powerful tools to mitigate risk factors.

Principles and practices of customer success are taking us in the right direction with an emphasis on retaining existing relationships. We need to make certain that we avoid the temptations to rely too much on tech-touch and keep personal channels of communication open with customers – especially the ones we do not hear from on a regular basis.

The Bottom Line

Retention of both relationships and revenue are critical indicators of business health.  Understand retention levels and underlying factors that influence them. Retention is paramount – make it a strategic priority!

 

Assessment: How Effective Are Your Service Renewal Practices?

Check out ServiceXRG’s Renewal Assessment tool to reveal your Service Renewal Health Score.  You will get immediate feedback with recommendations to maximize service renewal performance.

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Net Recurring Revenue is a comprehensive indicator that reveals the extent to which you are retaining, expanding and growing customer relationship value. Examining the specific underlying elements that contribute to the calculation of Net Recurring Revenue provides the necessary insights to identify the root causes of churn, attrition and contraction. In addition, examining the reasons for revenue growth presents opportunities to embrace and expand practices that encourage expansion of relationship value.

read more

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