How Do You Measure “Customer Success”?

Golden Egg 2

Customer Success 2.0 arrived in 2005 which, when you think of it, makes the profession sort of a teenager…  Having raised a couple of them, there does seem to be some strong similarities… The “searching for an identity” and all that.  In reality, customer success is a nascent profession, but even with that said, I’m still surprised how infrequently I hear discussions about how Customers define and measure success, something that should be top of mind regardless of our age or stage of development!

There seems to be an assumption that the greater the usage, the more the customer buys of your product, technology or service, the better off they are… the greater their success! Unfortunately, that isn’t always the case. I’ll never forget talking with a C-level executive at a Fortune 100 company who had deployed process-mapping software that was very popular within his company… His comment, “When are we going to stop drawing and start doing”, not a happy camper. He understood the value of process mapping, but success was defined in terms of process improvement, decreases in cycle time, efficiency, etc. Clearly, he had lots of “users” but as a “Customer” that wasn’t how he defined “Success”!

The metrics that I hear talked about most frequently by Customer Success professionals are a combination of things like churn, usage, NPS, satisfaction, adoption rates, retention, etc.  These all are great measurements of success; unfortunately, it is your success, not your customer’s.

How Customers Measures Success:

Although the whole concept of Balanced Scorecards started to catch on in the early nineties after Kaplan and Norton published their article in HBR[1] I’m not sure if the rigor they suggested ever got applied. With that said, I believe the concept of Performance Management or Performance Alignment are somewhat universally accepted. Almost everywhere I’ve worked, and the hundreds of customers I’ve worked with, all have a process by which they try to decompose their strategic and business objectives into a series of quantifiable deliverables from the different organizations, groups, and individuals within the company. These tend to be expressed as Key Performance Indicators (KPIs), Key Process Metrics (KPMs) and incentive objectives such as MBOs or Quotas.

Sales Organizations have: Pipelines, Conversion Rates, Acquisition Costs, Quotas… Human Resources have: On-boarding Time, eNPS, Attrition, Time to Fill…

Project Managers: Have a whole series of metrics associated with Cost and Schedule Variances. Supply Chain Professionals have: DIFOT or OTIF (On Time in Full), Turns, Lead Times… The list goes on and on.

These metrics are how customers measure success:

This is how executive management aligns and influences organizations and individuals to drive execution of the company’s strategy for success. In addition, these metrics or individual objectives define customer success at the level you are most likely to engage. Yes, there is ROI which impacts revenue and earnings, (the only metrics that really matter), but often ROI (or IRR, etc.) is used as a threshold for investments or a validation point for an investment rather than an ongoing measure of success. In the world of recurring revenues, my experience is that the greater opportunity to identify needs and impact success comes from following KPI’s and incentives.

This in no way suggests that things like usage metrics or ROI calculations are not important. They are incredibly important. I believe usage information provides one of the biggest opportunity to help customers that XaaS companies serve, however, this is most impactful when analyzed in the context of how your customer defines success internally. If you really want to be successful, you must understand how usage drives: DIFOT, Conversion, Cost per Click, Time to Market, or whatever the customer executives you work with are measured on.

Once you make this connection you can actually show that your customers are more successful because they do business with you. You can comprehend the value you add in the market and gain insights into how this can be increased enabling you to help drive market focus, technology roadmaps and ultimately the valuation of the company that pays you to make them successful too.

In the words of Peter Drucker:

“The value of a service or product isn’t what you put into it, It is what the client or customer gets out of it.”

[1] Kaplan, Robert S; Norton, D. P. (1992). “The Balanced Scorecard – Measures That Drive Performance”. Harvard Business Review (January–February): 71–79.

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