SaaStr 794: The Top 10 Customer Success Metrics Investors Care About in 2025 with Gainsight CEO Nick Mehta

0:01Welcome to the official Sastr podcast where you can hear some of the best Sastr speakers. This is where the cloud meets. Up today on the Sastra Podcast. What do you do to show clients the value you're receiving? This is something a lot of investors will ask. What value are your clients getting? But what value are they getting? How do I know when there's a new executive at that company and the person you sold to is gone? I don't know they won't just rip it out. So what are their goals? And then what you ideally want to do after that sale is bring everyone together. Make sure that client is aligned on what they need to do to get that value from your software.

0:41I know it sounds so basic, but a lot of people, what they do is they sell the software. They end up working with the junior people to get it deployed. The executive loses track of it. They quit. Somebody else comes in and says, what the heck is this stuff? And do we get any value? And people are like, I don't know what it does. That's the problem many of us in this room deal with.

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3:06Please welcome Nick Mehta, CEO at Gainsight. Appreciate you guys. So excited to be here. My name is Nick Mehta. I'm the CEO of Gainsight. Over 12 years, I've met more than 5 ,000 companies talking about how they manage their customers. I've talked to hundreds and hundreds of investors and I've learned a lot about where customer success fits in to the journey for a company. Many of you, as you build your business, need to make your customers successful because you need to drive growth. You care about your customers. You want your employees to be happy, but you also want to raise money. Whether you're directly raising money or you're trying to understand the VC world more, One of the things I want to talk about, main thing, is how does the data about your customers and the understanding of your customers fit into the process of investors thinking about investing?

4:02So I'm going to share with you in a little fun way the 10 things that investors will grill you about around customer success, customer retention, net retention, all those types of things. Unless you're OpenAI or one of these crazy hot AI startups, you're like most companies, which is you got to find ways to grow, raise money, make your employees happy. And it's not as easy as it used to be, right? SaaS in 2021, SaaS 2021 was just a party. Everyone was buying stuff, sales cycles. Fundraising happened in almost autopilot and the party's over. But I want to talk about one question that you're going to get a lot from your investors.

4:49One thing that's going to come up over and over again, whether you have a new investors you're looking for or you have existing investors and you have board meetings. And that thing is going to be all about your customers. How are they helping you grow? How are you helping them? It turns out to be one of the most important things investors ask about. I'm also going to talk more generally about how this fits with the entrepreneurial journey. Because being an entrepreneur, and some of you have done it multiple times, is a total slog, right? It's all glamorized on TV, and maybe some companies have unfettered success.

5:24For most of us, it's just like a climb every day. You're trying to get to that next level every day. You're climbing up a mountain. You're climbing up a rock face with no ropes, right? It's challenging. And I can't claim to have a panacea, but maybe some of these things will help as you go through it. I am not an investor. I say that up front. Now, one of the things we're going to do is try to ground this presentation in data. So I've got a lot of data in here, and these data is powered by a free tool we created. It's a benchmarking tool, and we're happy to give you access. And it basically lets you go put in your metrics about your business around customers.

6:04So net promoter score, gross retention rate, net retention rate, daily active users, and then compare it to about 700 other companies that are in our data set and filter on companies like you. So that's what the data is going to be based on in this presentation. So I'd love to share is the top 10 things I think you might get grilled on by investors, by your board, maybe by some of your employees about your business in terms of customers. So let's start. All about net retention, which I'll describe, gross attention, early warning indicators, a lot of the best practices in customer success, but applied to what your investors might ask them.

6:48So let's click in. Net retention rate. And I'll say up front, it's a scam. So I'll say it's a bit of a vanity metric. But the basic concept is looking at your existing customers, how much they're spending with you, let's say one year ago, how much they're spending with you now, not counting new customers, right? That's the basic idea of net retention rate. Now, this is a chart from our benchmarking deck, and it basically lets you look at, in this case, your annual recurring revenue for a company, and what's the average net retention rate for a company. And you could see here that generally speaking, as your company grows, your net retention rate will go on.

7:28One thing I'll show you is net retention rates in general, year over year have gone down because it's a harder environment to sell and to renew and so on. Now, speaking of that, we just did a recent survey, separate surveys, not the benchmark data. And we asked people your net retention rate this year versus last year. So this essentially, the chart looks at the x-axis is the net retention rate. The y-axis is number of percentage of people that are in each of those buckets. And net retention rate was down three points year over year. But this includes a lot of big companies. I've seen a lot of startups for growth stage companies where their net retention rate is down 10, 15, or 20 points year over year.

8:13Now, why is that? Net retention rate is a mix. I said it's a bit of a scam because it's mixing a lot of things together. So vanity metric. Now, the reason I show you this chart is as you operate your business, my two cents, is it's important to break down these levers because each of these levers has a different solution. You look at it, if you want to drive more growth in your packages, in your product, probably need more packages to sell, right? It's about pricing and things like that. It's about the value prop of moving up in the packages. It's about the marketing on those. If you want to upsell, you have to do a better job proliferating your product throughout the organization.

8:51If you want to cross-sell, you have to have more stuff to sell. Churn might be for anything from a lack of deployment to change in sponsor. Downsell might be because they have economic pressure at the customer. They want a discount. So the basic idea is each of these has a different strategy. So net retention is something people will probably ask you about. but every savvy investor knows how to see through this and they will go to the second one which is cohort level gross retention so cohort level gross retention is the idea that you need to look at your retention of your existing clients but not including any of that expansion right so gross retention is about looking at what people are doing with your business not counting any additional things they add in.

9:39So 100 % is the max. So it can only be less than that. It doesn't include upsell, doesn't include cross-sell, doesn't include upgrades. It just includes the bad things that could happen. Now, if you look at it in the same benchmark data, we have your gross retention. And this is a little bit more spotty, but in general, you find roughly in SaaS that SMB-oriented businesses that sell to SMB have gross retention somewhere between mid-70s and mid-80s. enterprise-oriented businesses that are maybe departmental apps are anywhere from 85 to low 90s. Poor systems of record, CRM, ERP, accounting, HR might have 95 plus percent.

10:22ServiceNow has almost 100%, for example. So this is an overall gross retention. Now, what's interesting is you can compare it year over year. Again, we have this great data set to do that. And we looked at this year versus last year, on average, gross attention is down one point. But again, this includes a lot of big companies with more sticky products. For smaller companies, gross attention is down anywhere from five to 10 points year over year. That's everything from people churning because they're consolidating vendors or thought your product was nice to have to people putting price pressure and saying, yes, I'll renew, but I want a 20 % discount to saying, I don't need that extra package.

11:06All of that is the churn people are seeing. So if you have seen your churn go up year over year, you're not alone. Definitely not alone. It still sucks, but you're not alone. Now I said cohort level gross retention, right? What does that mean? The traditional calculation of gross retention is pretty simple. It's one minus looking at your churn and your downgrades and downsell over your starting point, right? So if you had started with a million dollars and you had$50 ,000 of churn, full churn,$50 ,000 of downsell, that's$100 ,000 total. Out of a million dollars, you've had 10 % churn, 90 % gross attention.

11:48That's a very simple math. But what investors often want to do is look at cohort-level analysis. So core level analysis, it's basically looking at for a given, let's say, month or quarter, you bring customers on. Let's say you bring 100 customers on in a month or quarter. Okay. In that month or quarter, over the next year, two years, three years, how many of those customers are still with you? You brought in 100 customers. A year later, they're 90 with you. The next year, they're 80. And that's looking at just the sample size of those customers. Now, why does that matter? People want to see if your cohorts, meaning like your new sets of customers, are getting better or worse.

12:32So that's the second thing people look at is gross attention. So we get to question three. What are the early warning indicators in your business? If you were talking to an investor, what can you show them to convince them these customers will renew? To show them that you have a handle on the ones they're going to churn? What do you do to figure that out? Now, one way to think about this is something called net promoter score. It's a way to assess how rabid and excited a customer base is. And the basic idea is you ask people on a scale of zero to 10, how likely you are to recommend company X, gainside or whatever, to a friend or colleague.

13:16You look at the tens and nines minus this zero through six. You divide them by the total. That's the metric. Maximum net promoter score you could have is 100 % and minimum is negative 100%. This is a good metric. It's good to track it. Also, you often don't get good response rates. You also get random people filling it out. So most people don't find this super valuable. The second thing people will do is come up with some way to track early signs of retention or churn. So this is like our own methodology we use is called DEAR. It stands for Deployment, Engagement, Adoption, and ROI. So we have our own, like for our business, a formula, and that correlates heavily to retention.

14:03This is a screenshot from Gainsight, but you can do this in Excel or whatever. Basically, a set of metrics that you have some belief correlate with retention. If you're a small company, you can't run like statistically significant analysis and say this provably drives retention. But at a minimum, you can say this is our hypothesis. You can come into the investor and say, yeah, we have these four core things we track. We'll see how they go over time, but we believe these are predictive of retention. So really having a point of view, it could be, by the way, you know, have we met with a customer the last 90 days?

14:39That's engagement in our terminology. It could be, are they using all the licenses they have? That's deployment in our terminology. It could be, are they adopting all the features that we've shipped or maybe some key features. And then ROI, it could be the value that they've gotten. But you need to have something to stand on, particularly if you don't have a lot of renewals because you're a new company. Now, the other thing that people will do is look at the sentiment of the customer. And what I mean by that is you get all kinds of emails and video meetings. And now with AI and stuff like that, you can analyze it and show to an investor what's the sentiment of these customers, right?

15:19Running your communications through some LLM to give the investor a summary of what customers are saying and how they feel about you. That's a no-brainer. I would totally do that. Number four, what makes your customers sticky? Now, what do I mean by sticky? I think most of you probably heard this term, put up a fun image of my CEO role model, Michael Scott. And sticky is the idea that there's some products that you just can't get rid of, even if you don't like them. And I know that sounds heretical. I think most of us would love to have beloved products. We also want to have products that people don't quit on.

15:56And I'll tell you a secret, and that's not a secret anymore. There's a lot of beloved products that people churn left, right, and center nowadays, including many of the ones you love, maybe some of your products as well. So the question is, what do you do to make your business sticky and show the investor that it is actually sticky? One thing people look at is basic usage stats. Some people probably know what a Dow-Mow ratio is. Daily active users, so the number of people using your product every day, divided by monthly active users. The basic idea is if you have people that are using it every day and almost everyone that uses it in a month uses it every day, you have a very sticky product.

16:38If you have a product that people use once a week, once a month, once a quarter, it's dangerous. It's much easier to rip out. So showing an investor some kind of metric that shows stickiness, that's an example. Another example, we talked about cohorts, showing cohorts for user retention. I'm sure many of you have used analytics products before. Pretty simple concept. You look at a customer that comes in month one and the number of users, and then you look at the number of users month after month. And that will always drop, but is it dropping off a cliff, which is really scary, meaning every new customer starts using you and then stops.

17:21And the only reason you have users is you keep adding new customers. Or are you keeping customers and keeping them active month after month? And then what you can do is then define what you're doing to drive that sticky adoption. So in this case, like one of the features in our product that's very sticky is it's called Journey Orchestrator. It's like an automated digital customer success thing. We identified that people that use Journey Orchestrator have a 10 point higher net retention than people that don't. So we create all these campaigns in our customer success team to get people to use it more.

17:58So what are those things that people use that get them totally hooked, that make them want to stay? You think about just any consumer app you use, TikTok or something like that. There's something you do on TikTok that causes you, maybe it's watching five minutes of videos, that you want to keep using it every single day and you can't stop like most of us here. And what's that thing that makes a customer addicted to your product? That's stickiness. Now, investors will dig even further. They're going to say, what are your processes? What are you doing to make this all better? Like what are the core principles, what you're doing as a company to make things better for your customers to drive adoption, retention, and so on.

18:41One of our people in Gatesite put this chart together a while back, which is a pretty interesting, very basic chart. It just shows the customer lifecycle. You sell a customer. You get them to use the product, adopt. You get them to ideally expand, renew, advocate, etc. But along the way, what you're doing is moving them through a journey. You know, you're onboarding them. You're getting the turn on some basic features. You're getting them to use advanced features. You're deploying it to more users, right? You're just expanding that role. If you can show an investor a slide that's just like how you're approaching your customers, I think it goes a long way.

19:19It's not, you don't need to automate it. You don't need a ton of processes, just like a simple concept of what you're trying to do. And to show you an example, what that looks like, and this is gain sites. But we have these six reasons people buy our products, improve retention, get more efficient, things like that. And then we have metrics that we track for our customers to measure if they're getting value. And then we have processes to make sure these things happen. Number six, what do you do to show clients the value you're receiving? This is something a lot of investors will ask. What value are your clients getting?

19:58Yeah, they're using your product. Maybe they're staying with you. Maybe they're an advocate. But what value are they getting? How do I know when there's a new executive at that company and the person you sold to is gone? I don't know they won't just rip it out. So that's happened everywhere. And so what do you do to show your clients value? And again, this doesn't have to be rocket science. Very simply, simple process. You get a new customer.

20:29understanding why do they buy? Maybe it's in the sales process. What are they trying to achieve? Maybe you have a marketing technology. You're trying to grow more leads for them. Maybe you have software that uses AI to reduce risk. Maybe you're trying, you have a way to measure that risk. So what are their goals? And then what you ideally want to do after that sale is bring everyone together, make sure that client is aligned on what they need to do to get that value from your software. I know it sounds so basic, but a lot of people, what they do is they sell the software. They end up working with the junior people to get it deployed.

21:05The executive lose track of it. They quit. Somebody else comes in and says, what the heck is this stuff? And do we get any value? And people are like, I don't know what it does. That's the problem many of us in this room deal with, including Gainset. And so then ideally what you do is create some kind of a plan. So you've identified their goals and their strategies. What's the plan to make it happen? People call that a success plan. Ideally, you could go to your investors and say, yeah, we have 20 clients live. Three of them have achieved 200 % ROI from our solution. And this will come back when I talk about real customer evidence.

21:41This is going to be really important when you try to prove to investors that you have legitimate customers. So, good segue. So one of the things that's super important to know is who are your advocates? Who are the people that are going to pound the table and say they can vouch for you? Now, this is a complex area. This isn't just people that like, companies that like you, right? That's absolutely not enough. And so when I look at it, it's who are the massive fans? And I heard one of our, another investor I know that I do a little work with, he said, I need companies we invest in for series A and seed to have customers that are so passionate and will pound the table and like literally would do anything to get me to invest.

22:27Like that's the level of what you want ideally versus the like, oh yeah, we use that product. It's pretty cool. Or yeah, they're really nice people, right? You don't want them to say that is the opening line. You want them to say this is really valuable. The key thing is remembering they want real advocates, people that are actually getting value. So what's the checklist? Number one, they've got to actually use the product. I'm pretty sure Gainsight's been listed on the customer logo slide for a bunch of startups. And sometimes the investor emails me. I'm like, I don't think we've ever used that product.

22:59Right. And that's just, that's the reality. There's a lot of people that put logos on there that maybe there was a demo or maybe they had a friend there. People that actually use the product. Really having good adoption. Right. Not just, oh, we deployed the product. We're just getting started. We're in beta. we're doing a pilot. Ideally, we're actually using it. Real ROI. Investor call might go something like this. Hey, we heard you use this product X, Y, and Z. What do you think? They're like, okay, great. We love the product. It's awesome. Really nice people. And then what ROI have you achieved?

23:38And it's like crickets. What value is that customer going to tell the investor that you've driven? Now, you may need to help that customer articulate that value. You may want to do a prep call with that customer. I would totally do this. And say, hey, certain investor is going to reach out to you. I'd love to sit with you and just hear a little bit about your story. Maybe help shape like what you're going to share. So no shame in that. But make sure they don't go into that call with no real value they can articulate. They need to be a massive fan. So on top of all that, they just need to be really excited about what you do.

24:13So I wouldn't go in with a weak reference. In fact, if you, an investor says, who are some of your customers I can talk to? If my opinion, giving them a weak reference is worse than no reference. It literally dilutes your whole pitch process and value. And then finally, I think the final thing to have a great relationship with, having like what I call a texting relationship with a client, where you have such a strong relationship, they're going to give you the feedback after the VC call right away. You can check in with them to help them with data points to share in the reference, things like that.

24:47So these are the, for me, a checklist of what you might consider as you think about getting great advocates. Number eight, what's the cross-structure for CS? How much are you spending on customer success? We got some great benchmarks. And basically this looks at how much you spend on customer success divided by your ARR. And then the x-axis is the total company ARR. And you can see you get more efficient the bigger you get. That's nothing too complicated, not sophisticated about that. And then we can look at all kinds of other metrics. How does your NR correlate to how much you spend? If you spend more money, do you generate more NRR?

25:24Things like that. Number nine, what can you do to get more efficient? So some people, if you have a growth stage company, especially now, nobody wants to just throw good money after bad, don't have infinite capital. And so people will ask you like, how much do you spend versus how much are you managing? So how much does a CSM manage? Dollars per CSM. This is the average in our data set, for example. They'll ask you about how many accounts is a CSM managing. And then they'll ask you, like, what else are you doing? We're a big believer that customer success is more than just having a bunch of CSMs.