The Math of Customer Success - Part 1

By Jeremy Gillespie

“If you can’t measure it, you can’t manage it”

This quote is generally attributed to Peter Drucker (although apparently he didn't actually say it) and has become a part of corporate lore.  Regardless of its origin, it does apply to Customer Success.  Many customer success leaders are comfortable with the people side of their role, but are unsure of how to measure key metrics.  If that's true for you or even if you just need to brush up on commonly used ratios, this series of practical posts on customer success metrics is for you.

I’ll start with some basics and build to more advanced metrics in future posts. These posts will cover how to measure the performance of customer success, retention and engagement, as well as red flags.  This post is focused on the top line metrics that every customer success team should consider.

Churn & Revenue Retention

Lets start by taking a look at the overall health of the business. You can go into much more depth (and we’ll get into that in a later post), but here are two top-line metrics to measure churn and retention.

CHURN RATE = [# of customers who cancelled in a period] / [total # of customers at the start of period]

The opposite of the renewal rate, the churn rate measures how many customers are leaving in a given time period. For most SaaS companies, this is the metric that is reported to the board and investors.

REVENUE RETENTION RATE = [[Start of period MRR + MRR from up-sell + MRR from price increases] - [MRR from churn + MRR from price decreases]] / [Start of period MRR]

Want to see how you measure up to all-star SaaS companies? Measure the net monetary impact Customer Success is having on revenue growth using the revenue retention rate. If you’re at 100% or above, give yourself a pat on the back.

Customer Success Performance

Once you have the high-level metrics down, you need to measure the role Customer Success is playing in driving retention and growth.

RENEWAL RATE = [# of customers renewed in period] / [# of customers up for renewal in period]

Pretty straightforward, this formula measures the percentage of customers are renewing their subscription. Most companies track this ratio on a monthly basis, and this is a common ratio to build team or individual goals around.

HEADWIND = [Churn + Downgraded MRR in period] / [MRR at start of period]

Just like the wind slowing your plane down, the headwind metric uncovers the impact downgrades and churn are having on your growth. Rule of thumb: 20-30% headwind is detrimental to growth.

TAILWIND = [MRR of pricing increases + upgrades] / [MRR at start of period]

The opposite of headwind, this metric measures how pricing and upgrades are accelerating your growth. Both headwind and tailwind are useful to report on a monthly basis to see changes over time, especially if you're making changes to your team or pricing.

CUSTOMER RETENTION COST RATIO = [Annual Cost of Customer Success Team + Customer Success Tools + Customer Success Programs + Customer Marketing] / [ARR]

This ratio is similar to customer acquisition cost ratios seen in marketing and sales, and is an indication of how much it costs to serve customers relative to how much revenue they produce.  Another way to measure cost relative to revenue is the Magic Number, which is also used to determine whether a success team is ready to scale.

These metrics should give you a good sense of the state of customer success in your company. Be sure to track these on an ongoing basis to see historical changes and trends. In my next post I'll discuss how to measure customer engagement as well as some red flags to watch out for. 

Need more math?  Here are some additional resources for customer success metrics:

Need to know how to improve your metrics?  The Success League is a consulting firm that works with executives who want to unlock the retention and revenue a top performing customer success team will bring to their business.  We transform support into success by building metrics, goals and processes that enable customer success teams to perform at their peak.

Jeremy Gillespie - Jeremy is a growth-oriented marketing geek, technology enthusiast and customer evangelist. He loves using complex data to build creative retention solutions. By leveraging technology, Jeremy excels at creating scalable retention marketing programs.  He works for LinkedIn, holds a BA in Communication from the University of Pittsburgh and MBA from Point Park University.  He is a proud former Pittsburgher, but currently lives in San Francisco, CA.

Change is Good!

By Dawn Harger

Believe it or not, a new year is upon us.  This might be the perfect time to start looking at some changes within your Customer Success team, big or small.  Maybe your group is getting a little tired of the same day-in and day-out routine.  Maybe they are becoming a bit complacent.  Maybe a little change will help to reenergize the team!  Whatever the case, change is good.  It helps to keep everyone engaged and ensures a cycle of constant learning.  But, which changes should you consider making?  Here are a few ideas:

New Targets

Now might be the time to review the goals and metrics of your CSM team.  Is there something you can do to change them up a little?  There are always the key metrics, revenue and retention, but maybe there are some individual goals that you could shift.  These could be tied to personal goals that make sense given a team member's role.  For example, if you have someone who would like to build their sales skills, think about including a goal related to closed deals.  Additionally, consider implementing a contest to get the competitive juices flowing.  Your team will enjoy a bit of friendly competition and your revenue will benefit too!

New Offers

Another thing that might change things up is a new offering for your customers.  Can you provide a renewal deal for the New Year?  Do you have the ability to bundle products at a discounted price?  Not only is this a revenue driver, it gives your CSMs a reason to reach out to their accounts with something fresh and new.  Start with an email marketing campaign introducing the offer, and then have your CSMs reach out to extend the deal personally. 

New Tactics

Are you having trouble getting your customers on the phone?  Do they turn down your offer for free consulting?  What challenges are you faced with today when it comes to your clients?  Pull your team together and identify the top three things that frustrate them the most.  Then brainstorm some solutions with your team.  Can you change the verbiage you are using when you offer that free consultation?  Are you calling customers at the right time, with the right message?  Try some new tactics and see how it goes.  Doing the same thing day after day, expecting a different result, is just not going to get you anywhere.

New Accounts

One last thing you should think about is making some changes to account ownership.  Personalities definitely drive the success or failure of many relationships.  Sometimes they mesh and sometimes they just don’t work at all.  Some of the best CSMs can’t seem to break through to that one customer for no reason other than a personality clash.  In cases like this, consider making a switch.  Give that client to another CSM.  Not only does this provide the opportunity to improve things with the client, it also allows your CSMs to work with clients where there is a smoother communication flow. Win-win.

Not Sure?  Run a Customer Survey

If you know things aren't perfect, but you can’t think of any changes to make, send out a customer survey and get feedback directly from your clients.  Instead of just a 5 or 10-point scale questionnaire, ask for detailed feedback on what they would like to see from their CSM.  This can provide insights you never would have considered and great ideas for making the CSM experience that much better. 

At the end of the day, don’t forget…the only constant in life is change.  And change can be good!

Need help figuring out the right changes to make on your Customer Success team?  The Success League is a consulting firm that works with customer success leaders who want to unlock the retention and revenue potential in their team.  We partner with success teams to gather and present customer data in a way that allows them to advocate for customer needs and drive true change in their organization.  

Dawn Harger - With over 10 years of managing account management teams, Dawn has found her niche in defining and implementing measures that equate to customer success.  Her passion is creating teams of customer advocates and consultants, while mentoring those that cross her path.  Her prior background in operations also allows her a broader picture of the business, giving her additional insight into a company’s strategy in retaining and growing their customer base.  Dawn works for VerticalResponse, holds a BA in Marketing from San Jose State University and MBA from St. Mary’s College.

Are You Making the Biggest Customer Success Mistake?

By Jeremy Gillespie

The biggest customer success mistake a company can make, other than ignoring customer success outright, is to think customer success starts once a prospect becomes a customer. This myopic approach is often influenced by the metrics customer success is measured by (churn, expansion revenue). Companies who truly understand customer success know that it starts before someone becomes a paying customer.

Moving to a model that incorporates customer success from the very beginning of a client's lifecycle requires that a customer success mindset be pervasive across the entire company. In particular, Marketing and Sales teams need to incorporate customer success thinking in their processes. There are two main areas where CS leaders can help to set this tone and win customers:

How You Market Your Product

The tip of the spear for customer success is held within marketing. Successful customer acquisition requires a well-defined, target customer profile. After all, marketing really comes down to answering two questions:

  1. Who is your target customer?
  2. Where is your target customer?

When companies think about their target customer, they often refer to personas. Personas are great, but they should be informed by your Ideal Customer Profile (ICP). Lincloln Murphy popularized this framework and I couldn’t agree more with his approach. His framework covers eight criteria to consider when developing your profile.

Primary questions:

  1. Problem - What’s the problem your product solves?
  2. Ready - Does the customer have the problem?
  3. Willing - Is the customer ready to solve the problem?
  4. Able - Does the customer have the means to solve the problem?
  5. Success potential - Will your product solve their problem?

Secondary questions:

  1. Acquisition efficiency - Are the marketing channels to reach customers cost-effective?
  2. Expansion potential - Does the customer have opportunity for up-sell/cross-sell?
  3. Advocacy potential - Would this customer be ideal for advocating your product?

Rolling your ICP out to the marketing team should be a collaborative effort that involves solid data on your current customer base. Work with your marketing team to define these criteria and re-visit annually to refine. This is a lengthy, but essential process.

How You Sell Your Product

Once a prospect reaches the sales funnel, the initial mission shouldn’t be to assess their wallet size and determine how much money you can squeeze from them. Instead, the first order of business should be to determine whether or not the prospect fits your ICP.

The sales process cannot start until a prospect has been qualified. Take a selfless approach and build a set of discovery call questions around “Can we help you?” Work with your sales leaders to develop qualifying questions using the primary ICP questions above. If you don't start with qualification your organization runs the risk of selling to customers who aren't a good fit, and either churn out early or are poor prospects for expansion selling. 

After a prospect has been qualified by your ICP, the conversation can shift from “Can we help you?” to “Can you help us?” During the sales process, make sure to use the secondary ICP questions to evaluate expansion and advocacy potential.

Customer Success is an Attitude

Considering customer success before money changes hands is necessary to provide long-term value for both parties, but working across departments to make that happen isn’t always easy. Making customer success a part of your company's culture is an essential step in the right direction. It should be an attitude your company stands behind, not a department created to combat churn. Once there is a culture of customer success across the company, it will become easier to work with marketing to build your ICP and with sales to determine a qualification process for prospects. 

Does your organization have a true Customer Success attitude? The Success League is a consulting firm that works with executives to unlock the retention and revenue a top performing customer success team will bring to their business.  We transform support into success by building metrics, goals and processes that enable customer success teams to perform at their peak.

Jeremy Gillespie - Jeremy is a growth-oriented marketing geek, technology enthusiast and customer evangelist. He loves using complex data to build creative retention solutions. By leveraging technology, Jeremy excels at creating scalable retention marketing programs.  He works for LinkedIn, holds a BA in Communication from the University of Pittsburgh and MBA from Point Park University.  He is a proud former Pittsburgher, but currently lives in San Francisco, CA.

Customer Engagement Model - Community

Today I’m wrapping up my blog series on the customer engagement model I introduced a few weeks ago.   This model is designed to help you identify where your company is in terms of customer engagement, and which programs you should consider introducing or improving.  This week I’ll review the peak of the pyramid - Stage 4: Community.  Companies that reach this level have figured out how to encourage their customers to engage each other to drive retention, adoption and expansion.  

If you're new to this series, here's a quick recap.  Links to my other 3 related posts are provided at the end.

How the Model Works

The 4 stages on the pyramid are different areas where customers engage.  

  • Product = your company’s offering. 
  • Success Team =  customer-facing parts of your organization.  
  • Company = your organization and brand as a whole.  
  • Community = group of your customers or users.

If your customers are engaged they should be able to make the statements on the right about each stage. 


This stage is at the peak of the pyramid for two reasons.  First, because a strong community creates some of the most engaged and active brand advocates a company will ever have.  Amazing, right?  So why isn't every company at this stage?  Because of the second reason - it is the toughest to implement.  At this stage you need to successfully influence both people within your company (marketing team, data team) and people outside of your company (customers, industry leaders) in order to achieve results.  

Because this is the most challenging stage to reach, and because there are so many parties involved, successful strategies and tactics will vary from company to company.  Community is something that can't be forced, so as a customer success leader your focus should be on working to build programs that enable a strong community to form on it's own. Below are some thoughts and ideas I hope will help you identify what might work best for your organization.   

“Your Community is active and inclusive.”

Active - If you think about it in the broad sense, having an active customer community just means that your customers are talking to each other.  This is really the first step toward having a community that improves customer engagement.  So, how do you get the conversation started?  Ask yourself these questions:

  • Where do your customers engage with you?  For example, if you get a lot of comments on your blog, you might consider starting a discussion there.  If, instead, your customers like to hang out on your customer portal, consider starting a forum.
  • How do your customers like to engage?  Do you have customers who prefer to connect in person?  An event might be a great option.  Are your customers all online?  Think about hosting an online discussion board.
  • Which topics might spur a discussion?  If your clients think you have all the answers, they aren't likely to jump in and engage.  On the other hand, if you ask questions or bring up topics you know are somewhat controversial, clients will be more likely to speak up.

Inclusive - Nothing turns people off faster than feeling like they are on the outside looking in.  No matter which programs you introduce to help drive community, make sure there is someone from your organization moderating.  It is normal for sub-groups of your most active customers to develop.  Make sure they are welcoming to those who are new to the community, and that they don't dominate the conversation.  

“Your Community enables opportunities for collaboration.”

Collaboration is working with other people to improve things.  Basically, two (or three or a thousand) heads are better than one.  In a perfect world, your customers would be doing this on their own without any prompting (think about the last time you recommended a useful mobile app to a friend).  In reality, most organizations need to facilitate collaboration to some degree.  Here are a few ways that companies provide opportunities for their customers to collaborate:

  • Sponsor a Hackathon - this could really be any event that brings customers together and encourages them to get creative with your product or service.
  • Build a User Group - user groups give customers a place to go to ask questions and share best practices.
  • Host a Meetup - I mentioned this in my last post as well:  Meetups tie the Company and Community stages together nicely!  Two birds, one stone.

A note about internal collaboration:  When I first designed this model I called out internal and external collaboration separately.  I think it's worth noting that B2B companies often have many customers or users within a single organization.  Brands can improve customer engagement by encouraging internal collaboration and sometimes find that an easier goal to start with.

“Your Community provides benchmarking data on my company and job.”

Since most of you will be reading this on LinkedIn, I'll use that brand as an example.  I'm sure you've noticed that when you set up your profile, you see a gauge off to the side that tells you how complete your profile is compared to those of other users.  LinkedIn also allows you to see how many people have viewed your profile, and how your level of profile views compares to others in your company or a similar field.  LinkedIn has done a great job of automating this type of data and presenting it in useful ways within their customer experience.

Even if it doesn't make sense for your company to automate benchmarking data, you can still provide this kind of information to clients.  Analyst studies are a great tool for organizations who don't have enough customer data, or who haven't done a good job of collecting it.  That said, don't be afraid to provide your clients with whatever you do have, even if you're still an early stage company.  Customers like transparency, and even just your willingness to share your data can be engaging.

I hope you've found this blog series helpful as you consider how to create engaged customers, and I'd love to hear about what you and your team are doing to drive engagement.  Here are links to the other 3 posts:

The Success League is a consulting firm that specializes in building and developing customer success teams.  If you need help identifying ways to improve your customer engagement, contact us!

Customer Engagement Model - Company

How many times are you going to have to look at this crazy pyramid?  Hang in there - this is good stuff!  Meanwhile, if you need to take a break and read something a little lighter, see my post from Friday.  This week I’m going to talk about Stage 3: Company.  This is all about how your success team can influence your company to provide programs that engage customers.

Recap - How the Model Works

The 4 stages on the pyramid are different areas where customers engage.  

  • Product = your company’s offering 
  • Success Team =  customer-facing parts of your organization
  • Company = your organization and brand as a whole 
  • Community = group of your customers or users

If your customers are engaged they should be able to make the statements on the right about each stage.  Start from the bottom of the pyramid and work your way up. 


I mentioned in a prior post that there are stages in this model that your customer success team controls and other stages that they can only influence.  Obviously your success team doesn’t control your entire company, so moving to this stage of engagement can’t happen without the help of other teams.  Given that, I’ve listed some ideas you can use to help make it easier for other teams to recognize the value of customer engagement, and implement programs that move your brand toward its peak.

“Your Company takes my feedback seriously.”

The challenge here is that while the customer success team is generally the group hearing the feedback, they typically aren’t the ones who can use the feedback to drive change.  Too often there is no formal communication between success and product or engineering, and customer requests are lost in the day-to-day of a busy organization.  So, how do you fix this?

  1. Have multiple collection points – you should be gathering feedback in many different ways: a feedback button on your website, calls to your sales and success reps, a page in your customer portal.  Different customers have different ways they prefer to provide feedback, and you should be prepared to accept it from a variety of different sources and then…
  2. Develop standard records – everything you get from customers should be funneled into a single, standard record format that lets you easily sort and categorize what customers are telling you.  Turn that data into a report that will help you prioritize the feedback you’re getting from your customers and…
  3. Establish a regular task-force meeting – this is where you’ll hand off the feedback you’ve gathered to the teams who can use it to make a difference.  The more comprehensive and specific the data, the more likely these other teams will understand the importance of the feedback and execute the changes so you can…
  4. Report back to your customers – a lot of companies miss out on this critical bit.  Customers don’t spend as much time thinking about your product or service as you do.  In order for them to know that you made the changes they asked for, you have to tell them.  This is one of the most enjoyable parts of a CSM’s job, and creates a lot of loyalty!

One of The Success League’s contributors, Natalie Macks, recently wrote an article that covers the specifics of a system like this.  I recommend reading it if you don’t already have something in place.

“Your Company provides opportunities to learn about my field.”

If you work for a smaller company, this might need to be a joint effort between the success and marketing teams.  Larger companies sometimes have a training or professional services group that can help educate customers on your field as a whole.  Anything your company can do to give your customers opportunities to learn and grow will increase engagement and improve loyalty.  Here are a few ideas I’ve seen work well:

  • Webinars - invite an industry leader to speak about a topic of general interest.  (Be sure this isn’t a sales pitch for your product.)
  • Meetups – have one of your executives talk about a topic of general relevance to the industry.  (Again, avoid the sales pitch if your goal is engagement.)
  • User Conferences – while user conferences generally include sessions on your product, you should also include sessions on your industry.  If there is an association that provides certification within your industry, see if you can have a few of these sessions count as credit toward certification.
  • Certification Credit – if there is a certification program in your industry, consider sponsoring your top users, offering a scholarship program or even just offering up your site as a location for certification classes.
  • User Connections – provide introductions between the junior and senior users from different companies.  These relationships can provide education on both sides, and start to develop your user community (which we’ll discuss next week!)

“Your Company gives back in ways I like.”

I know that all of you can think of a brand you love because of the ways they give back to their industry, their community or the world.  If you work for one of these awesome companies, make sure the success team participates!  If your company doesn’t already do this, your success team can start driving change within your company by being the leaders who kick this off.  In any community there are ways you and your team can help – soup kitchens, food banks, animal shelters, cleanup, building housing – the list is almost endless.  Don’t just do this for the publicity.  Pick something you like and do it because you actually care.  If you’re the only team in the company giving back, spread the word by inviting other teams to participate with you.  You’ll find that when you serve as leaders and have fun doing it, other teams will want to follow.

Next week we’ll talk about how your customer Community can engage other customers for you, with a little structure and help.  Meanwhile, I’d love to hear about the creative ways your company is creating customer loyalty and engagement!

Need help getting other leaders in your company to understand why customer engagement matters?  The Success League is a customer success consulting firm that can quantify the value that engaged customers bring to your brand.