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Using Proxy Metrics in Customer Success

By David Lahey | No comments

I’m a fan of Net Promoter Score (NPS). I believe it delivers many benefits beyond the final score itself. In fact, Bain & Company found “promoters” have an average lifetime value typically three to eight times that of “detractors,” depending on segment and industry. There is also good value to be found by analyzing the “why” from detractors to drive your own strategic initiatives. The challenge I’ve experienced with NPS is that it takes time to implement properly and even more time to analyze the results, all which leads to data latency issues.

It was at #opentalk17 when I first learned about proxy metrics during a keynote from Tomasz Tunguz at Redpoint Ventures. He suggested that proxy metrics could solve the problems caused by data latency between customers and product. I remembered the data latency I personally experienced with NPS. I then thought about all the time and energy organizations put into dashboard reporting and started to consider alternate possibilities.

Perhaps a single proxy metric by stage of the customer journey is the holy grail for your Customer Success dashboard?

proxy noun \ˈpräk-sē\: the authority or power to act for another

metric noun \ˈme-trik\: a standard of measurement

If this still sounds interesting and plausible, I’ve oversimplified the customer journey below for the sake of illustration and suggest a single proxy metric for each stage:

• For Implementation/Onboarding, the correct proxy metric is Time to First Value. In other words, how many days are required for your customer to find your product useful after signing a sales contract. I think it is fair to say that if you are not measuring (and improving on) this metric, there is a good chance of controllable churn increasing.

• Once your customer is receiving value from your product, Deployment/Expansion is the new goal to expand the level of engagement. If you’ve already built a Customer Health Score, pick a metric that represents the greatest return on investment. I would argue against using your internal Red/Yellow/Green rating as a proxy metric since that is too broad of a measurement.

• Your CFO is probably already tracking your Renewal rate, but I encourage you to be clear on the definition as well as methodology, and to not confuse it with upsell/cross-sell. Renewal is simply your customer deciding to extend the term of the subscription. Upsell is getting the customer to pay for more of what they already have (for example, adding users). Cross-selling is getting the customer to purchase a complementary product. A beginners guide on this topic can be found here. The ultimate proxy metric at this stage of the customer journey is to track the rate of negative churn.

Below is a real-life example of how customer health scores were updated with the use of proxy metrics (click on the image to make a larger). I like its simplicity. Remember that no matter what metrics you choose for your dashboard, it is critical they are aligned with and meaningful to the entire organization to ensure you own company’s success.

 

Any chance I’ve convinced you to adopt a proxy metric or two? Please share your thoughts and add your comments below. Feel free to reach out if you need help building or scaling your Customer Success department.

POSTED IN / Cloud-SaaS, Customer Success

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