10 Customer Engagement Metrics Every SaaS Should Track To Measure Engagement
Studies have shown that acquiring new customers is 5 – 25 times harder than retaining existing ones. A key reason why customer engagement metrics are important to successful SaaS businesses.
While customer acquisition is important, if you’re unable to keep user engagement up, you’ve built a leaking house that will drown everyone in it!
In this article, we will walk you through ten important user engagement metrics to measure.
Let’s get started!
- Customer engagement metrics are how you measure your customers’ interactions with your brand and product across different touchpoints and channels in their journey
- Measure engagement by acquisition channel to optimize your acquisition strategy and focus on the one with the most engaged users.
- Measure engagement by feature usage to understand what brings the most value
- Measure engagement by customer engagement score and personalize engagement experiences
- The most important engagement metrics: CR across the journey, LTV: CAC, activation rate, feature engagement, active users, customer engagement score, NPS, CSAT, retention, customer churn
What are customer engagement metrics?
Customer engagement metrics measure how your customers interact with your brand and product across different touchpoints and channels in their journey.
To drive customer engagement rates, you need a sticky product that keeps users interacting with it. While you may think you’ve built that, monitoring customer engagement metrics gives better insight into how customers feel about your product.
The customer engagement metrics show you the parts of your product or the customer journey stage that is faulty. This is how you know where to focus your attention to improve retention rates.
How do you measure customer engagement?
Now that you know how important customer engagement is to a SaaS product’s success, how do you measure it?
When looking to optimize customer engagement, you need to look at how engaged users are at different points in their journey. There are three different ways of measuring customer engagement:
1. Measure customer engagement by acquisition channel
This shows which segment or cohort of your different marketing efforts results in the highest engagement rates and best LTV-CAC ratio. By doing this, you’ll know what channels bring you the best users, and be able to optimize your acquisition strategy.
2. Measure customer engagement by feature usage
Tracking feature usage gives you insight into users’ interactions with the different parts of your product. It helps you understand what your customers value most and guides your product development efforts and in-app onboarding process.
3. Measure customer engagement with a customer engagement score
This tells you the likelihood of getting specific outcomes (retention or churn) based on customer engagement with your product.
What customer engagement metrics are important to track?
Like I mentioned earlier, customer engagement metrics look at the ways customers interact with your product at the different stages of their journey.
To track this, you’ll need to use product usage analytics and look at specific metrics at each stage in the user journey. Most SaaS companies use the pirate metrics framework for this.
Pirate metrics is a system of grouping and tracking metrics across the different stages of the customer funnel. It’s also called the “AAARRR” funnel, an acronym for each stage of the customer’s journey: Acquisition, Activation, Adoption, Retention, Revenue (expansion), and Referral.
Since there are a lot of metrics to track at each stage of the funnel, I’ve picked 10 of the most important ones to go over in this post.
This gives you an insight into how many of your prospects are turning into leads and how much of those leads are converting from a free trial to becoming paid users.
The conversion rate shows how users are progressing through the customer lifecycle. Here are four important touchpoints to look at:
- Visitor-to-sign-up rate
- Sign-up-to-PQL rate
- PQL-customer rate
- Sign-up-to-customer rate
By monitoring your conversion rates, you’ll be able to figure out what parts of the user journey needs optimization:
- your acquisition rate is too low?
- are you converting trial users to paying customers at a lower rate than the industry benchmarks?
You can’t be in multiple places at the same time, optimizing engagement at each stage at the same time (unless you have a huge product marketing team). Conversion rates will tell you where your funnel is leaking and can determine your product marketing strategy.
LTV to CAC ratio
LTV to CAC ratio measures the revenue generated by each customer against the cost of acquiring them. Are you spending more to get less value or are you spending way less than you should be?
That’s what the LTV to CAC ratio helps you learn.
Customer lifetime value (LTV) tells you how much revenue you get on average from each user. This is calculated by dividing the Average Revenue Per Account by the Customer Churn Rate.
Customer acquisition cost (CAC) shows you how much you spend on marketing efforts to get users into the funnel. CAC is calculated as Total Sales and Marketing Expenses divided by the number of customers acquired.
If the ratio between both values is less than 1:1 it means you’re running at a loss. 3:1 is the optimal rate. Anything more than that means you’re not utilizing enough acquisition resources.
To calculate LTV: CAC ratio, all you need to do is divide your LTV figure by the CAC figure.
It’s important to track your LTV: CAC ratio because it helps you:
- Understand what is a loyal customer and adjust your targeting strategies.
- Optimize your already limited budget to focus on the channels that work best.
- Attract investors with the optimal ratio. Because an optimal ratio means business profitability.
The activation rate measures user engagement by looking at how many users get to experience the value your product offers by reaching the activation point in the journey. It shows how many customers are performing key action in your product that drives them to experience the value and get their job done.
Activation rate is calculated as the total number of users who reached the activation stage, divided by the total number of sign-ups, multiplied by 100.
Since SaaS products are different and have multiple users types, activation points differ from one product to another. Monitoring this customer engagement metric will help you understand what key core actions does a user needs to take in order to experience value.
Then you can optimize your product to remove friction and drive more engagement towards that.
The activation point is where you get to experience value. If users are dropping off before experiencing the value you promise, that’s a bad thing for your churn rates. If you’re acquiring users but failing to engage and even convert them to paying users, how are you generating revenue?
Customer feature engagement
Feature engagement measures how customers interact with your product’s features.
It’s important to track primary feature usage both primary (the ones that users engage with first and reach the activation point) or secondary features (more advanced features that deliver extra value).
Because your SaaS product has various features meant for different use cases it’s important to track user actions and the usage frequency for each to be able to understand:
- Which features are useful or not?
- How quickly are users adopting them?
- What features need to be optimized?
- Which features need to be abandoned?
Measuring the feature engagement metric tells you how customers are engaging with your product and adopting it. It also gives you insights into where to focus your product onboarding efforts using in-app marketing to drive feature engagement.
To calculate the feature engagement metric divide the number of a feature’s monthly active users (MAU) by the number of user logins in a given period and multiply by 100.
Engagement with key product features – active users
This particular customer engagement metric reveals how many users actively engage with your product’s key features.
Active users are not the same thing as daily active users, as we are more focused on product engagement, and we all know that some SaaS products don’t require users to use the product daily in order for them to be considered engaged.
First, you have to define what features are core to your product’s existence. What are the most important things to be done using your product?
Using Hootsuite, a social media management tool as an example, the key features user should consistently engage with to be considered active users are:
- Connecting their social media pages to the app
- Creating posts
- Scheduling and publishing posts
So when measuring active users, these are the points they’ll look at. Always start by identifying your product’s core features. Measuring customer engagement by key features shows you how many users are active and engaged by your product at a certain time.
To do this, use a product analytics tool built for tracking customer engagement and product usage such as Heap, Mixpanel, or Amplitude.
You can alternatively just track usage of important features with a product adoption tool, like Userpilot. This allows you to tag features directly inside your UI and start tracking engagement without having to set up custom events. The best part is, once you are tracking these, you can also use Userpilot to run in-app experiences meant to increase engagement.
Track customer engagement with Userpilot:
Customer engagement score
The customer engagement score tells you how engaged each of your customers and free trial users are with your product, based on how they engage with your product or not.
Every user has an engagement score indicating their product usage and activity in-app. And the more users you have with high engagement scores the higher your customer engagement rate.
To calculate this you add each total event value to the other; where total event value is gotten by multiplying event importance by event occurrence.
This metric is important because it gives an overall view of your product’s usage. By tracking unengaged users with a low customer engagement score and cross-referencing it with other product usage analytics, you’ll be able to identify friction points and act on them to improve the product.
The same goes for users with high engagement scores, you can cross-reference data with product usage analytics to identify areas for customer expansion.
Net promoter score
NPS measures customer loyalty by asking how likely customers are to recommend your products to others. NPS feedback is collected with in-app surveys. The logic is that highly engaged users (who pick between 9 & 10) value your product and will be willing to recommend it to others. While dissatisfied customers (who pick between zero and six) won’t.
It’s important to track this so you know how customers feel about your product and can take necessary action to improve.
Qualitative feedback in the form of follow-up questions in your NPS survey gives you a lot of insights into what’s stopping your customers from engaging with your product.
Maybe you’re missing a feature or customers are not getting the expected value? Tracking NPS will help you fix the issues and therefore customer engagement.
You can track common NPS survey answers with a tool like Userpilot and build automated responses in-app by targeting the right customer segment (segment based on NPS score).
NPS is calculated by subtracting the percentage of least engaged users (detractors) from the percentage of highly engaged users (promoters).
Customer satisfaction score
You already know that retaining customers and improving their lifetime value is important for SaaS businesses to scale. If customers aren’t satisfied with their overall experience with your brand or product, how can you achieve that?
This is why improving your customer satisfaction score is important.
Measuring satisfaction helps you understand what makes users happy or not. By replicating the good and improving on the bad you can turn disengaged users into power users.
The four most common types of customer satisfaction surveys are:
- Net Promoter Score (NPS): as mentioned above, this measures how likely users are to recommend your product to others.
- Customer Satisfaction Score (CSAT): this measures customer satisfaction and experience with a specific product, feature, or team interaction.
- Customer Effort Score (CES): measures the users’ perceived effort in using a feature or performing an action in your product (such as upgrading or requesting support).
- Product-Market Fit (PMF): customer satisfaction survey can also give you an indication of whether your product has achieved product-market fit or not.
You can use in-app surveys to measure customer satisfaction and get both quantitative and qualitative feedback. In-app surveys have higher engagement when used in context as they are relevant for where customers are in the journey and how they are engaging with your product.
You can ask multiple types of questions in your surveys as long as you are specific and contextual. Here’s an example of how you can ask for customer satisfaction feedback on using a feature:
Customer retention is the percentage of users you’re able to retain over a specific period of time. The higher your retention rates, the higher your chances of scaling.
If churn is the enemy of SaaS companies, that means retention is the goal everyone should aim for.
But customer retention doesn’t just happen, it’s a result of different customer engagement strategies. Consistent customer engagement translates into customers getting constant AHA moments throughout their customer journey. And if they get repeated value from your product, that results in increased retention.
Tracking customer retention at different points can uncover valuable insights, such as:
- A day 1 customer retention rate tells you if you are attracting the right audience (if they don’t return they might have not found what they were looking for). It also tells you if the in-app experience was engaging or not because if users don’t know how to use your product or find it difficult they won’t bother to use it again.
- A week 1 customer retention rate shows you if they’re still using your app after 1 week. What’s the chance of them getting to 1-month retention?
- 1-month retention rate tells you if your customers continue to receive value through their engagement with your product.
To calculate customer retention rate the formula is:
the total number of paying customers at the end of a specified period divided by the total number of paying customers at the beginning of the said period, multiplied by 100%.
Customer churn is a metric that shows how many customers you’re losing each month. It measures how many paying customers you had at the beginning of a period that opt-out of using your product in the following month.
Churn rate doesn’t factor in customers who downgrade their subscription from paid to freemium, just those who completely abandon the use of your product.
It’s important to monitor this metric because it could be an indicator of a fault in your product. If you’re unable to prevent a large majority of your users from churning, it means something is wrong somewhere and customers aren’t getting much value from you.
By monitoring this metric, you’ll be able to find out what is wrong and take the necessary steps to reduce churn rates and improve customer experience.
To easily discover what the problem is and why users are churning, you could use churn surveys to get direct feedback.
To measure customer churn rate, the formula is:
the total number of lost users during a specific period divided by the total number of paying users at the beginning of the period. Multiplied by 100%.
It’s also possible to spot users most likely to churn, segment them and reach out to them offering help just before they make the final move. With a tool like Userpilot, you can create segments based on user behavior, engagement, user identification, and custom events and build in-app experiences meant to drive engagement and improve user experience.
Anyone can acquire users, but retaining them it’s a different story.
That’s where your success as a SaaS company lies. This is why customer engagement metrics must be a close watch for every SaaS product team. Knowing how many users are not engaged and why will save you from both losses and eventual failure.
Now you know which metrics to measure for that.
By monitoring these ten metrics above, you’ll be able to optimize your product for increased user engagement and user experience.
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