Why Should You Measure Your Outcomes for Success?
You can’t achieve your goals without defining them. Measuring outcomes allows you to set clear, measurable targets for success and provides a framework for tracking your progress. It fosters alignment within your team, clarifies priorities, and enables better decision-making. It gets everyone rowing the boat in the same direction, thereby producing the largest intended impact. By measuring key metrics, you can evaluate whether your client experience (CX) initiatives are effective and adjust as needed. CX is an investment, and like any investment, it requires tracking to ensure it delivers the returns you are seeking.
Key Metrics
1. Churn – Revenue and Logo
Churn measures the revenue lost over time and can be broken down and measured in two different types:
- Revenue Churn: Reduction in client spending overall (e.g., decreased services).
- Logo Churn: Full client departure.
Both are costly and reduce efficiency. Decreasing revenue through shrinkage can cause your sales and margins to erode just as much as full client loss, or logo churn. While losing misaligned clients can be beneficial, the focus here is on retaining valuable clients who contribute to growth.
*There are times when churn is not necessarily a bad thing. If a client is not a good fit for your business and leaves, that can be beneficial.
2. Retention – GRR (Gross Revenue Retention) & NRR (Net Revenue Retention)
Retention is a counter measurement of churn and there are two different types you should track:
- Gross Revenue Retention (GRR) : Tracks the percentage of revenue retained over a period.
GRR = (Ending ARR − Reductions − Churn) / Beginning ARR
- Net Revenue Retention (NRR) : Includes expansion revenue for a more comprehensive view of overall growth in the existing client base.
NRR = (Ending ARR−Reductions−Churn+Expansion Revenue) / Beginning ARR
Dividing by the beginning revenue will give you the percentage of growth. If you want to see just dollar amounts, then you do not have to divide by the starting point. Percentages are often a better reflection of overall changes because as the starting point or baseline grows, a higher dollar may not equate to the same level of growth as a previous period.
Tracking retention is important because having our existing clients stick around drives efficiencies, loyalty, and advocacy, which can increase revenue and reduce marketing costs.
3. Lifetime Value (LTV)
LTV measures the total revenue a client generates during their relationship with your business. A higher LTV indicates better ROI and highlights the importance of retention. Segmenting LTV by client type can guide resource allocation, ensuring time and marketing efforts are focused on high-value clients.
In addition, tracking LTV in comparison to customer acquisition costs is a great way to determine which client segments produce the greatest bang for your marketing bucks.
4. Average Revenue per Client
If you are focused on expansion revenue as a major source of growth, then tracking the average revenue per client is a key metric that will determine if your efforts are working. You can track on an overall basis or by segment.
Tracking this metric helps measure:
- Success in upselling and expanding services.
- Progress in targeting higher-value clients.
5. Expansion Revenue & Growth
Expansion revenue tracks additional revenue from existing clients. To measure growth effectively, exclude any new client revenue:
Growth Rate = (Ending ARR – reductions – churn – revenue from new clients + expansion $$) / Beginning ARR
Growing the revenue from your current client base, if it aligns with your client’s initiatives, is a far easier task and transition than learning completely new clients. If there is an opportunity for this to occur and you want to create this as a focus point for your team, this is a great metric to use.
6. Gross Margin
Gross margin is a measure of profitability. It is useful to track this by client, segment and your overall business. If applicable, it can also be useful to track by team. There is a lot of useful information to be gleaned by getting to the underlying root causes of why your margins change in each of these areas. By tracking the metric and getting to the root source of the changes in the inputs (ie data), then you can make much better and more informed business decisions.
7. Health Scores
Metrics like Net Promoter Score (NPS), Customer Effort Score (CES), and Customer Satisfaction (CSAT) offer insights into client satisfaction and loyalty. These scores provide qualitative measures to complement financial metrics. You can find more information on these scores in this blog.
How Does CX Show Up in Your Financials
Seeing how churn and lost revenue can affect your financials is easy for most business owners, but the truth is that all of the numbers above are interconnected and can affect your bottom line and your cash flow. Churn doesn’t just affect the top line, but it also reduces your gross and net margins and reduces your cash flow beyond just the loss of the MRR. Having to replace old clients with new ones is expensive in both efficiency and high marketing costs. Let’s face it, the longer your clients hang around, the higher their LTV and the more efficient your team becomes in servicing them. This leads to a greater likelihood of earning those expansion dollars, which increases revenue, margin and overall cash flow.
High churn also causes dissatisfaction in the team, which can create employee churn. Finding new talent and training them is also expensive. Again, all of this leads to an increase or decrease in margin, profitability and cash.
Understanding that CX can affect your financials is critical to the start of it becoming a core focus to guide your business decisions. When you start to see which clients and client segments are the most profitable, have the greatest potential for retention and expansion, and increase your team’s overall satisfaction, you can begin to understand where you need to focus your development, sales and marketing efforts.
To summarize:
- Churn reduces revenue, margins, and cash flow.
- Retention and LTV improve efficiency, lower marketing costs, and boost cash flow.
- High churn impacts team morale, leading to costly employee turnover.
How Can You Track and Measure
- Use Accurate Data: Ensure your accounting or CRM software is reliable. Garbage in equals garbage out.
- Start Small: Begin tracking metrics manually or with simple tools like spreadsheets.
- Establish a Routine: Regularly review and discuss metrics with your team to drive accountability and improvement.
- Focus on Decisions: Use insights from metrics to guide strategic decisions.
Tracking and measuring CX metrics not only improves performance but also signals to your team that these priorities matter. This focus drives positive change and long-term success.
Wrapping Up
Measuring client experience is not just about tracking numbers; it’s about understanding the story they tell and using that insight to make informed decisions. By focusing on key metrics like churn, retention, LTV, and gross margin, you can identify opportunities for improvement, foster client loyalty, and drive sustainable growth. These metrics serve as a compass, helping you navigate toward stronger client relationships, more efficient operations, and greater profitability.
The true value of client experience lies in its ability to create a ripple effect: satisfied clients lead to advocacy, reduced marketing costs, and increased team satisfaction. By prioritizing CX and consistently tracking your progress, you set the foundation for long-term success—where your business thrives not just through transactions but through meaningful, lasting relationships.