What is customer analytics?
Customer analytics incorporates algorithms that run on customer-specific data, which assist in identifying those with the potential to churn, calculating projected revenue or other customer success-related metrics.
When it comes to customer satisfaction, leading SaaS businesses know to never rest on their laurels. Instead, these companies are constantly measuring the health of their business model to make sure they are doing the right things to keep their customers happy and the revenue flowing. That’s where customer analytics comes in.
Armed with customer data, SaaS businesses will know if they are meeting — or taking the right steps toward — key growth milestones and metrics, so they can continue to grow sustainably and gain market share. For example, one McKinsey study found that if an early-stage software company was only growing at a 20% annual rate, it had a 92% chance of failing in just a few years.
So if you want to help your B2B SaaS company maintain a healthy trajectory, then you need to commit to setting up and performing the right types of customer analytics programs for the life of your business.
Why is customer analytics important?
Titans of the technology industry and even startups know that keeping their customers happy not only leads to strong revenue today but also to a strong pipeline tomorrow. To do so, these businesses often rely on customer success software, which captures customer analytics data and consolidates it with other information across your enterprise platform in order to better understand how, why and when customers are using their services and what sort of experience they are having.
Armed with this type of data at their fingertips, businesses can evaluate, for example, how responsive consumers are to pricing, feature upgrades, new services and interface updates, Customer analytics data can also be used to:
- Better understand the overall health of its SaaS business
- Support actionable insights to refine services, processes or operations
- Develop forecasts of potential customer churn and identify possible mitigation strategies
- Justify refinements in pricing models
- Monitor customer conversion and/or adoption over certain time periods
- Prioritize upgrades or business objectives for the future
What are some essential customer analytics metrics for SaaS businesses?
While your products and services are designed to be one of a kind, when it comes to the metrics you use to better understand your customers, there is no need to reinvent the wheel. That being said, it’s important to select the right metrics to reflect your SaaS business model. Here are some best-practice metrics to get started with your analysis effort:
Customer churn is a clear, top-line metric for SaaS businesses, identifying the total number of customers that have ended their accounts — through cancellation or expiration — in a certain time period. Churn is calculated by dividing the total number of customers at the beginning of a period by the number of customers that no longer have accounts in that same period of time.
Net Promoter Survey Score
The result of a question asking how likely it is for a customer to recommend your product to others, the Net Promoter Score helps to measure your customers’ overall satisfaction with your company’s product or service and their potential to advocate for it on your behalf with their peers.
There are many ways to measure and analyze customer retention, but one key way is loyal customer rate. The LCR is the number of long-term (over a specific tenure) and repeat customers divided by the total number of customers. This metric can help to show how important your products or services are becoming in a customer’s own business operations as well as how well your upgrades and new features have been responsive to customer needs.
Trial Conversion Rate
Another customer-driven growth metric is the trial conversion rate (TCR), which captures the number of new paying customers following a free trial period. To calculate the TCR, divide the number of new paying customers that previously participated in a free trial by the total number of free trials that began in the same time period. The TCR shows the ability of your product to help drive growth.
Monthly Recurring Revenue
Monthly recurring revenue (MRR) is the revenue that a SaaS business is projected to collect based on current and upcoming subscriptions. MRR is often considered to be the key metric as it can reflect growth or change from month to month in new customers.
Average Revenue per User
Average revenue per user (ARPU) is all of the revenue collected in one time period divided by the total number of active subscribers contributing to that revenue over the same period of time. ARPU can reflect both growth in current customer usage and the depth of the services that customers, on average, utilize. A slow decline in ARPU, for example, can be an early indication of potential future churn.