Keeping the Dogs Awake: How to Measure & Prove Customer Value

You know those customers who just keep paying their monthly fees or renewing their annual contracts even though they aren’t really utilizing your application much (or at all), aren’t achieving any results, and don’t really seem to notice? Sure, every SaaS company has at least a few of those, and the typical approach for customers like that is to “let sleeping dogs lie.” Why poke them, right, if they’re content to stay on in apparent blissful ignorance? And it may seem like a great strategy to continue accepting their revenue when they usually require little to no attention. Until they wake up – then they tend to bite (and those stitches can be costly!), or run away, or both. So it’s definitely in your best interest to keep your customers from becoming sleeping dogs in the first place. But how?

As discussed in a previous post, it’s important to gather and analyze data on what your customers are doing and what they’re saying in order to understand whether they’re likely to continue their business relationship with your company. And it is even more critical that you – and your customers – have a clear line of sight into what they’re accomplishing with your application. Make it your mission to continually measure the value your customers are gaining from your product, and to demonstrate that value to them simply and often. If you provide a human resources recruiting tool, are your customers hiring better job applicants more quickly and easily by using it? And can you prove it? It’s time to get crystal clear about your Customer Value Indicators, because you can’t afford to wait until after a customer churns to ask why.

“Simply put, when realization of value stops, that customer is already gone; and as a SaaS provider you are in a unique position to actively monitor for threats and stop your customers from getting to that point.”
(from SaaS Providers: Growth Requires Proactive Customer Retention, a blog post by Lincoln Murphy on Sand Hill)

Let’s start with a definition:

• Customer Value Indicators – Signs or patterns, in the form of metrics, actions, events, or attributes, that are generally correlated with customers attaining value from your application.

In our discussion of Business Outcome Indicators, we used a scientific method approach: start with a question, form a hypothesis, experiment. That’s a helpful framework for zeroing in on Customer Value Indicators, as well. Let’s work through an example, from the perspective of a fictitious HR recruiting product:

Question: What are the signs that a customer is gaining value from our application by improving the efficiency of their hiring process?

Hypothesis: If a customer reduces the average time from when a job req is submitted to when it’s posted, their hiring process is becoming more efficient.

You’ll note that “improving the efficiency of hiring process” came straight out of the Customer Value definition statement we spelled out in the previous post in this series. Always start by mining your Customer Value definition statement for the basis of your approach – your customers’ goals.

You’ll also notice that usage patterns such as number of logins, time in application, features used, and number of users are not included in that Customer Value definition statement, and should not be your primary Customer Value Indicators. While you may be interested in those factors as secondary signs of value, your customers are not, and they won’t be measuring their success by such metrics.

In previous articles, comments, and conversations, I’ve referred to the importance of measuring both Product Usage and Results Metrics. And I’ve had people ask me: What’s the difference, and do I really need to be concerned with both? If product usage is stellar – if my customer is logging in every day, using advanced functionality, and adding users – can’t I assume that they are an extremely low churn risk? And I say: Yes, sure. If you’re willing to wager your revenue on an assumption. You might have a good idea of what your customer is doing, but what about how they’re doing? Are they getting the results they signed up for, and can you demonstrate those results?

Time to Experiment

Now that you’ve asked your question and turned it into a hypothesis, it’s time to roll up your sleeves and get dirty in the data. What do you need to show your customer to prove to them that they are achieving their goals? Here are three types of patterns to be on the lookout for:

• Trends – Results that are better than the customer’s own previous results.

  • Example: A 20% increase in a key performance indicator (KPI) over the past 90 days.

• Outliers - Results that are exceptionally good for that particular customer.

  • Example: One more occurrences in the past 60 days of a 200% or greater spike (vs. previous average) in a weekly KPI.

• Comparisons – Results that are better than similar customers’ results.

  • Example: A 10% higher average monthly KPI than comparably sized customers, customers in the same vertical, or customers that started in the same month.

For every one of your hypotheses, you should be continually experimenting with two things:

1. Finding the right metrics and patterns to paint the value picture.
2. Finding the right way (timing, channel, etc.) to message that value to your customers.

This experimentation process is ongoing. As you get access to new data points and analytical tools, as your application grows and changes, as your customers’ definition of value evolves – you name it, there are a thousand reasons to iterate your value measurement and communication process over time.

Of course, you should also set yourself up to get alerted when a customer’s value metrics are trending down, unusually bad, or worse than others’. Although you’ll obviously want to message differently, take proactive advantage of those opportunities to connect with the customer in a consultative role, share your expertise and best practices, and turn the ship around. Do not let sleeping dogs lie.

Measured vs. Reported Value

I’ve brainstormed with many Customer Success leaders who are frustrated because their application doesn’t support capturing the right value indicators. They often feel stuck in a very high-touch model (even if their price points don’t warrant it), forced to assign Customer Success Managers to small groups of accounts. To bridge the data gap, the CSMs are responsible for staying in close, frequent contact via phone calls and meetings, and regularly quizzing their customers about the value the application provides. While having close relationships with customers is never a bad thing in and of itself, it’s a difficult model to scale, and the customers’ reports are often unreliable.

That said, if high-touch is where you are (for good reasons or otherwise), don’t fret. But do make sure that the valuable data points from the conversations your CSMs are having with your customers are being systematically captured, that a history is being maintained, and that you have tools in place to allow you to analyze that data together with all of your other customer data for a complete picture. Look for efficiencies: Could a regular customer survey, call script, or quarterly business review process be used to reliably collect this metric for trending over time? Whatever you do, don’t get stuck in the mode of having your most dire data silo be your team’s brains – it’s not good for you, for your team members, for your customers, or ultimately for your retention rate.

Also keep in mind that you might be able to use the information your team is gathering straight from customers’ mouths (and stats on the time it’s taking to collect it) to make the case for better product instrumentation or new features. For example, if your customers report that the applicants they’ve hired using your recruiting tool are performing better and staying longer than those they were getting before, should you consider building performance review functionality into the application and measuring that value directly?

Whether it’s through conversations with your customers or finely tuned metrics within your application, or a combination of the two, you must consistently capture the evidence of what your customers have achieved by using your product and ensure that they understand the impact of those achievements.

Value Inside Lifecycle

Once you have a solid list of the Customer Value Indicators you plan to measure, take the time to consider customer lifecycle events and their impact on those indicators. Typically, achievement of value looks different during the onboarding phase than it does later, during mature product usage. Firsts are important milestones. If you sold a company an HR recruiting tool, how many days lapsed between the time they signed their contract and the time they posted their first job opening? What’s typical for other customers their size? How long before their first hire? Are you retaining those statistics so that they are available for cohort analysis? Are you triggering proactive outreach if that time to first value drags on for longer than it should? These are all important considerations. And down the road, it’s to your distinct advantage if value indicators are exceptionally and consistently strong in the period leading up to renewal. Once again, it’s all about measuring and demonstrating value, throughout the customer lifecycle.

Review & Recalibrate

Ultimately, your final proxy for determining whether or not your customers are really achieving the value they’re after is whether or not they continue to pay you. Unfortunately, as a lagging indicator, measuring value by way of outcome won’t help you be proactive in retaining customers or ensuring their success. But it’s still important to periodically assess your value metrics against the reality of historical outcomes. If half of your customer base’s value indicators are generally “average”, and the other half is achieving “good” value, but very few of your customers are renewing, it’s time to recalibrate.

Bring the Bacon

So how do you make sure the dogs* don’t fall asleep? Keep treats in your pockets. That’s right, make sure you always have something on hand to show them how well they’re doing and entice them into doing even better. Keep that information about what your customers are accomplishing front of mind – communicate it clearly and regularly – and they’ll want more.

Next time we’ll complete the circle and talk about how to get alignment in your Customer Success program, so that by delivering customer value you can achieve your business objectives. Until then!

*For any customer-types (aren’t we all?) reading this post, please take no offense at the comparison to dogs. I love dogs. And customers. But in this metaphor, it’s just not good for the owners – or for the dogs – when they sleep.