Reports indicate steady growth in CS functionality since 2013. And since the COVID-19 pandemic, this growth has substantially increased. In 2021, 76% of surveyed CS professionals said they had a team consisting of more than 10 people. With this expansion comes the development of CS as a discipline.
Welcome to the customer success era.
In this CS era, business focus is on customer experience. And when it comes to your product, this means to show and let your customer try your offering. That is, be product-oriented to drive product-led expansion.
In this Process Street article, we identify the 4 key customer success metrics you need to develop your CS functionality. These metrics will inform your product-led growth strategy by measuring acquisition, adoption, retention, and expansion. This article is structured as follows:
- Understanding product-led growth and its benefits
- 4 key product-led customer success metrics
- 3 bonus tips to rocket your expansion revenue
Understanding product-led growth and its benefits
Product-led growth (PLG) is a business methodology where user acquisition, expansion, conversion, and retention are driven primarily by the product. The product provides the most sustainable and scalable source of business growth.
Achieving product-led growth requires multi-departmental coordination. This means aligning efforts delivered by teams in engineering, sales, marketing…you name it. The product is central and brings teams together.
A PLG aims to provide easy product access to the customer. This could be by providing freemium or free trial versions when possible, to get the prospects using the product quickly.
The benefits of product-led growth
Being product-led brings the following benefits (as outlined by productled.org):
- Faster growth 🚀: PLG gives a customer easy and free access to the product right away, lowering barriers to entry.
- Cost reduction 💸: The product is the driving force behind acquisition, engagement, retention, and expansion. Hence organizations can save huge sums traditionally spent on scaling sales, marketing, and service efforts.
- High-revenue diversity 💰: The PLG approach offers smaller deal sizes, giving a higher revenue diversity, minimizing the impact of losing accounts.
- A better product 💎: Consumer-grade products are designed requiring additional forethought, empathy, and resources. This gives consumers a product they enjoy. In turn, you get happier customers, higher customer satisfaction and NPS scores, and improved customer lifetime values.
In case you’re still not convinced, analysis by OpenView reported PLG company value was >30% than the public-market SaaS index fund.
“Product-Led Growth means that every team in your business influences the product. Your marketing team will ask, “how can our product generate a demand flywheel?” Your sales team will ask, “how can we use the product to qualify our prospects for us?” Your customer success team asks, “how can we create a product that helps customers become successful beyond our dreams?” By having every team focused on the product, you create a culture that is built around enduring customer value.” – Allan Wille, Co-founder and CEO at Klipfolio
4 key product-led customer success metrics
As the saying goes…
“You can’t manage what you can’t measure.” – Peter Drucker, Management Consultant
To measure in business involves using key metrics. And there’s a seemingly endless list of metrics marketing teams should track. Each metric has varying levels of accuracy. Common metrics include lead volume, conversion, and engagement.
When thinking about metrics for PLG-focused businesses, what sets these businesses apart is that they aren’t solely focused on the top of the funnel, but also the end customer experience. It’s all about customer advocacy and whether the customer is successful in their use and adoption of the product.
“I tell my team members that their gold standard is not whether customers bought a product, but did they recommend us? It’s a higher bar and a different standard. We also don’t see marketing’s role as getting customers in the door and then wiping our hands and going on to the next one. Marketing’s role is about driving recommendations, so we spend a lot of time building up playbooks and putting together hints and tips on how to get the most out of Slack.” – Bill Macaitis, Growth Advisor at Slack
Selecting the right customer success metrics and aligning teams around them is crucial to the PLG process. And to do that, you’ve come to the right place. The four metrics presented in this article can be reported on by cross-functional teams. The idea is to leverage data and make coordinated, informed decisions and changes across your business.
Metric #1: Calculating the cost of acquisition (CAC)
This metric is pretty straightforward – what is the total expense incurred by your business in acquiring a new customer?
The Cost of Acquisition (CAC) is calculated by dividing the total cost (this could be total media spend, or specific channel/campaign costs), by the number of new customers acquired from the same channel/campaign.
In a PLG strategy, the product is used to do the talking. The aim is to reduce acquisition costs by removing the need for expensive marketing campaigns. Teams can hone in on one Call to Action (CTA), such as a free trial or freemium product version.
You need to create a single landing page with this CTA to optimize conversions.
Freemium/free trials will capture a significant chunk of your addressable market. To be profitable, you’ll only have to convert ~10% of users to your paid version, and get this – there is no additional expense on your end. Think about how this will reduce your CAC?
The next step is to measure product usage. What features are being used?
Take Heap as an example. Heap is a platform that helps businesses track user behavior on a given website for later analytical analysis. As a product-led business, the Heap Inc team is intentional with every move they make. As founder and chairman Matin Movassate says…
“When we’re thinking about adding or building out a certain feature, we first try to get a clear sense of the problem we’re trying to solve. We make sure we can identify which part of the funnel we’re addressing and the impact the feature will have on our business. If there is no compelling story there — no data to suggest that the effort is a high-leverage use of our time — we won’t do it.
Essentially, the question to ask is not, ‘can we make this change,’ but ‘should we make this change?’ It’s about prioritization based on impact… when a new feature is fully launched, we are disciplined about measuring the success metrics to determine if people are using it, whether it’s affecting retention or activation, and whether it’s something that’s coming up in sales conversations. All this data informs us how we should refine and build that and future features.” – Matin Movassate, Product-led Growth Playbook
Feature use and free-trial/freemium sign-up tell you the extent of product acquisition. Looking at feature use guides you towards creating a more useful product for your target market. With a more useful product, customers are more likely to adopt the product from their own back without energy, effort, and expense from your end.
In summary, provide a free trial/freemium version when possible, and optimize feature availability to drive down CAC.
Metric #2: Calculating time to value
The time to value is how long it takes you to see value from a customer action (e.g. a purchase). You’ll see customer value once your customer has adopted and realized product value.
Product adoption on the customer’s end happens when the customer has learned how to use your product. Once adopted, the customer can make an informed cost-benefit evaluation.
You want this adoption process to be fast. You don’t want prospects to have to sit through hours and hours of product onboarding or training videos to get started. Instead, guide your users to complete key functions that will allow them to achieve what they set out to achieve.
For instance, the instant messenger application Slack stays away from traditional email onboarding. Instead, users are given in-app notifications guiding them through the product adoption process.
Be strategic about what features to include in which plan. You want to reduce the time it takes for a user to move from a free trial/freemium/basic version to a paid/advanced plan. And from a paid/advanced plan to an upsell/cross-sell position. Reducing this time means reducing the time to value.
Time to value is an example of a customer success vector. That is, you have the customer’s goal which defines their direction. This customer goal will have a business value attached. You aim to move your customer through one goal post to the next, in the shortest amount of time, until you can extract business value from them.
We’ve spoken about customer success vectors before. For more information, read our post 5 Tips to Make Your Customer Success Vectors Actual Vectors (KSIs Not KPIs).
You can represent customer movement from one goal (milestone 1) to the next (milestone 2), in a vector chart as given above. You aim to steepen the vector’s gradient in the positive direction. This is a win-win situation – your customers will achieve their goals quickly and you’ll reduce the time it takes you to extract value from them.
Metric #3: Using an account health scorecard
You want your customers to receive value and benefit from your offering. If they don’t, then you can’t expect to retain them.
Here an accounts health scorecard is your holistic metric to determine customer retention. To help you,
- Accurately capture the customer’s target objectives, target outcomes, and progress along their value realization path.
- Provide an advanced visual aid for users to understand product performance based on usage and business value creation.
- Track potential and emerging areas of concern and red-flag these as issues.
By red-flagging areas of concern, you can take appropriate action to continuously keep your accounts healthy.
Key checklist features:
- Stop Tasks: Stop Tasks ensure the required steps for creating an accurate scorecard are completed in the correct order.
- File Upload and Approvals: You’ll be asked to upload the account scorecard you produce using our File Upload feature. Your manager is then notified that your scorecard is ready for assessment, and can jump in and accept/reject (with comments) as required using our Approvals feature. This gives an extra layer of quality control.
- Role Assignments: Use our Role Assignments feature to assign your supervisor to the approval task. Your supervisor will be automatically notified of the upcoming approval action required.
Metric #4: Measuring the difference between CLV and CAC
It’s the job of CS teams to influence and empower customers to expand their account’s value. We’re talking about account renewal, an increase in product usage, upselling, cross-selling, and product advocacy. And we have a bunch of metrics that will allow you to measure this expansion, namely:
- Renewal rate: Divide the number of users who renewed their subscription by the number of users up for renewal.
- Product usage: Track and record meaningful in-product user interactions.
- Upsell percentage: Divide the number of customers that purchased more in a cohort by the total number of customers in that cohort. Multiply value by 100 to get a percentage.
- Cross-sell ratio: Divide the number of products/services sold by the number of customers.
- Product advocacy: There’s no single metric that measures product advocacy. Commonly used tools include social listening, tracking referrals, customer engagement measures, and influencer revenue.
Ultimately, product expansion is about growing the profitability of a given account. Whether that’s through upselling, cross-selling, or advocacy – the above-listed actions add up and boost an account’s revenue. A more holistic approach would be to measure expansion directly by comparing CLV and CAC, as I’ll explain.
- Calculate the CLV for an account: Multiply the average number of purchases in a year by the average retention time in years.
- Calculate the CAC for an account: Divide the number of new customers acquired by the total sales and marketing costs it took to acquire these customers.
By comparing the CLV and CAC values for a given account over time, you can measure whether the gap between these two measures is widening (account expansion) or not. You aim to grow an account’s CLV and reduce an account’s CAC.
3 bonus tips to rocket your expansion revenue
Great customer success should boost account expansion all on its own – but sometimes you need a bit of help.
Expansion revenue might be the chief concern for CS teams, but it also fundamentally determines the success of the business, and everyone needs to be involved.
Before wrapping up this article, below I’ve listed 3 top tips to help you expand revenue way beyond your current targets.
Tip #1: Work with the product to boost virality 🌍
Your users love your product and through your ‘Aha!’ moment, you know what path new users need to take to get to that point. Any user-product interaction though it a massive win.
Many of the best and most successful SaaS companies have increased their virality and the number of people who end up inside their product at any given moment is by adding free collaborative features.
This might be a Guest user who’s invited into the product. This person then gains value from the product at no extra cost, and maybe they’ll be a convert and choose to spread it to their team.
You could also create freemium tiers to help new people inside your customer’s organization, who’ll use your product regularly. The more people you can get inside your product from companies who already get value from you and pay you money, the more impact you’ll see on your bottom line.
Tip #2: Work with marketing to add conversion moments 🤝
One of my favorite examples of conversion moments in product collaboration is Calendly. If you’re not already a Calendly user, then once you’ve booked a slot on someone’s calendar it immediately takes you to a success page where it tries to get you to sign up.
After all, they already have your email so it’s presented as a one-click process.
Adding these sales pages in key conversion moments for people who might find themselves collaborating inside your product is a huge way to draw people in.
Many people who use you probably would want to use you again. Make it as easy as possible to do so!
Be wary, of course, of going too far with this! You don’t want to create a bad experience for your existing customers by constantly trying to sell to their clients or partners who they’ve brought into your product to collaborate with.
Tip #3: Work with your Community team to create evangelists 🤳
Maybe you run the Community team, maybe it’s under Marketing, or maybe it’s its own department?
I don’t know the structure of your org. Sorry.
But building community is one of the best ways to engage your customers, make them happier, and tailor a product around their needs. It’s also the best way to create super users who evangelize your product to everyone they meet, and you can reward them for it by considering using a referral program.
Try to get your customers to be active in your help forums, invite them to conferences, ask them to show off a cool use case in a post for your blog, work with them to make a testimonial video, and more and more and more.
Any opportunity you have to lift your customers will be repaid. Champion your customers and they will champion you. That will turn into expansion revenue.
And that’s why we call it customer success!
- Customer Success Onboarding: Learn How to Improve Profitability and Reduce Customer Churn
- How to Manage a Successful CS Transformation to Be More Customer-Centric
- Customer Success Operations: How to Build Repeatable Processes to Scale and Grow
- How to Have a Customer Health Score Beyond Just NPS (Which We Know 46% of You Use!)
- Customer Success 2.0: The Essential Software Stack to Execute McKinsey’s Model
What metrics do you use to inform your product-led growth expansion strategy? Are there any metrics we’ve missed in this post you think are worth touching on? Please comment below as we’d love to hear from you!