Three Critical Metrics to Retain and Grow Customer Relationship Value
With all our customer metrics, what do we really know about our customers and how do we assure that we can sustain and grow relationship value?
If you inventory all the metrics used by your customer-facing organizations – Sales, Marketing and Service – you will find an impressive collection of data elements that describe how you interact with your customers. Marketing metrics describe the ability to reach and influence customers; Sales metrics provide insights into the time and efficiency to book revenue; and Service metrics describe the volume, timeliness, and effectiveness of interacting with them. Add to this, 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?
With all these customer metrics, what do we really know about our customers? 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 with too few focused on examining the quality of our relationships.
Don’t stop tracking transactional customer metrics but consider adding the following measurements to examine the strength and quality of your customer relationships.
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 this Matters
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 percent of licenses sold that are being used.
- Metric: % of licenses adopted
- Adoption Extent (Feature Adoption): What features are customers using. Are customer using a basic set of available features or do they take advantage of advanced capabilities.
- Metric: % of basic users
- Metric: % of advanced users
What to do with Adoption
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.
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 this Matters
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: What percent of an established success plan 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
What to do with Success
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.
How many of your current customers do you keep and how long do 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 this Matters
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
What to do with Retention
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.
The Goal: Retention, Growth and Long-term Profit
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.
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