Why CSAT is a Vanity Metric: Tracking GRR and NRR Instead

Introduction: Measuring What Actually Matters

For decades, CSAT has been the main benchmark to assess Customer Success performance. Companies valued high levels of customer satisfaction since they were convinced that happy customers turned into loyal customers automatically. Despite the importance of customer satisfaction, modern recurring revenue business models understand that satisfaction cannot ensure retention and revenue growth.

With the development of subscription models, including SaaS, management focuses on metrics that indicate how customers retain and bring profit to the business. Investors, managers, and Customer Success professionals put more effort into measuring Gross Revenue Retention (GRR) and Net Revenue Retention (NRR).

The reason why CSAT is a vanity metric becomes apparent when organizations understand what should be done to achieve sustainable growth. Rather than collecting feedback from clients, companies can analyze whether they retain their revenue, reduce churn, and create upsell opportunities.

The Problem with CSAT

The first problem with the use of CSAT is that high customer satisfaction does not necessarily lead to customer loyalty. In other words, the customer might have had a great experience with the customer support team, and at the same time be reluctant to renew the subscription due to a change in priorities or a decrease in the software budget.

There is another problem related to the use of CSAT, as the metric can give a false sense of confidence. Namely, CSAT will always look good; however, the company might be unaware of any risks regarding the customer. For instance, the account might be showing a decline in product usage, engagement, or interest in a competitor's product.

The third issue is associated with the fact that CSAT measures the opinion of the customer at a particular moment in time. As a matter of fact, customer opinions might be changing fast depending on a number of factors such as changes in business objectives, changes in leadership, etc. Therefore, it is a snapshot measure that does not evaluate the strength of the relationship.

Gross Revenue Retention (GRR)

In order to get a better idea of what CSAT vanity metrics are, organizations should appreciate the significance of Gross Revenue Retention. GRR is an indicator that shows what percent of recurring revenue is retained from existing customers over a certain period, not including any expansion revenue. It describes how well a company manages to retain its customers and prevent revenue leakage.

GRR is not a satisfaction survey but a metric that evaluates the loyalty of customers via financial measures. When people continue renewing contracts every year, they express their trust in the benefits they get. This means that Gross Revenue Retention is a good indicator that Customer Success teams help their customers realize value.

Customer retention becomes crucial because the acquisition of new customers costs more money than the maintenance of existing ones. Organizations with high Gross Revenue Retention have stable recurring revenue, better forecasting, and grounds for sustainable growth.

From the point of view of a Customer Success leader, GRR is a metric of the quality of relationships with customers.

Net Revenue Retention (NRR)

Whereas GRR calculates the retained revenues, Net Revenue Retention gives an even broader outlook on the topic. It is important to understand the idea of NRR when explaining why CSAT is a vanity metric, as it demonstrates both customer loyalty and account growth.

Net Revenue Retention is used to measure recurring revenue from the existing customers, considering the renewals, churn rate, downgrades, upselling, and cross-selling. The key idea here is to answer the question: Do existing clients invest in your company?

The best SaaS companies usually demonstrate NRR above 100 percent because the expansion revenue is higher than the lost revenue due to customer contraction. This shows that not only do customers stay loyal, but they keep growing along with the business, using your product.

Upselling and cross-selling are important components of the NRR calculation; however, only the right combination of the two leads to customer expansion. For the customer to start upselling and cross-selling, he should receive some value from your solution first.

NRR is considered one of the best ways to measure the quality of revenues as it shows good relationships with customers, successful adoption and renewal, and business value.

Building a Metrics Framework That Drives Growth

Understanding that CSAT is a vanity metric doesn't imply that customer satisfaction surveys need to be discontinued. The company must establish a well-rounded performance framework incorporating both the voice of the customer and operational and financial metrics.

Customer Success managers will have to track product adoption, customer health score, executive buy-in, onboarding performance, support trends, along with GRR and NRR. These are the operational metrics that allow one to uncover leading signals about customer success prior to renewals.

In parallel, financial metrics will help maintain the alignment between the Customer Success department and overall business goals. Monitoring GRR, NRR, renewal rate, and expansion revenue shows what role customer relationships play in growing recurring revenue.

On-going performance tracking also allows proactive decision-making rather than reactive decisions made when it is too late, and the customers have already decided to leave. The combination of customer experience metrics and financial performance metrics gives a much clearer view of account health than satisfaction surveys only.

Conclusion

The knowledge of why CSAT is a vanity metric allows companies to concentrate on the right key performance indicators, which actually ensure long-term business success. The fact is that customer satisfaction is important since it gives insights into service quality and customer perception. But satisfaction cannot predict renewals, prevent churn, or measure revenue growth.

While the Gross Revenue Retention metric illustrates how well companies retain their recurring revenue, the Net Revenue Retention metric shows whether customers expand their investments over time. Thus, GRR and NRR give a clear picture of the level of customers' loyalty and value realization.

The most modern Customer Success teams should stop measuring themselves based on the survey results. In combination with the operation insights and both GRR and NRR, it will allow making better decisions, improving customer results, ensuring sustainable revenue, and developing a reliable retention engine.

In other words, the best Customer Success teams are not those that have highly satisfied customers. They are those who consistently renew and expand their customers and allow them to get value from the business each year.

Introduction: Measuring What Actually Matters

For decades, CSAT has been the main benchmark to assess Customer Success performance. Companies valued high levels of customer satisfaction since they were convinced that happy customers turned into loyal customers automatically. Despite the importance of customer satisfaction, modern recurring revenue business models understand that satisfaction cannot ensure retention and revenue growth.

With the development of subscription models, including SaaS, management focuses on metrics that indicate how customers retain and bring profit to the business. Investors, managers, and Customer Success professionals put more effort into measuring Gross Revenue Retention (GRR) and Net Revenue Retention (NRR).

The reason why CSAT is a vanity metric becomes apparent when organizations understand what should be done to achieve sustainable growth. Rather than collecting feedback from clients, companies can analyze whether they retain their revenue, reduce churn, and create upsell opportunities.

The Problem with CSAT

The first problem with the use of CSAT is that high customer satisfaction does not necessarily lead to customer loyalty. In other words, the customer might have had a great experience with the customer support team, and at the same time be reluctant to renew the subscription due to a change in priorities or a decrease in the software budget.

There is another problem related to the use of CSAT, as the metric can give a false sense of confidence. Namely, CSAT will always look good; however, the company might be unaware of any risks regarding the customer. For instance, the account might be showing a decline in product usage, engagement, or interest in a competitor's product.

The third issue is associated with the fact that CSAT measures the opinion of the customer at a particular moment in time. As a matter of fact, customer opinions might be changing fast depending on a number of factors such as changes in business objectives, changes in leadership, etc. Therefore, it is a snapshot measure that does not evaluate the strength of the relationship.

Gross Revenue Retention (GRR)

In order to get a better idea of what CSAT vanity metrics are, organizations should appreciate the significance of Gross Revenue Retention. GRR is an indicator that shows what percent of recurring revenue is retained from existing customers over a certain period, not including any expansion revenue. It describes how well a company manages to retain its customers and prevent revenue leakage.

GRR is not a satisfaction survey but a metric that evaluates the loyalty of customers via financial measures. When people continue renewing contracts every year, they express their trust in the benefits they get. This means that Gross Revenue Retention is a good indicator that Customer Success teams help their customers realize value.

Customer retention becomes crucial because the acquisition of new customers costs more money than the maintenance of existing ones. Organizations with high Gross Revenue Retention have stable recurring revenue, better forecasting, and grounds for sustainable growth.

From the point of view of a Customer Success leader, GRR is a metric of the quality of relationships with customers.

Net Revenue Retention (NRR)

Whereas GRR calculates the retained revenues, Net Revenue Retention gives an even broader outlook on the topic. It is important to understand the idea of NRR when explaining why CSAT is a vanity metric, as it demonstrates both customer loyalty and account growth.

Net Revenue Retention is used to measure recurring revenue from the existing customers, considering the renewals, churn rate, downgrades, upselling, and cross-selling. The key idea here is to answer the question: Do existing clients invest in your company?

The best SaaS companies usually demonstrate NRR above 100 percent because the expansion revenue is higher than the lost revenue due to customer contraction. This shows that not only do customers stay loyal, but they keep growing along with the business, using your product.

Upselling and cross-selling are important components of the NRR calculation; however, only the right combination of the two leads to customer expansion. For the customer to start upselling and cross-selling, he should receive some value from your solution first.

NRR is considered one of the best ways to measure the quality of revenues as it shows good relationships with customers, successful adoption and renewal, and business value.

Building a Metrics Framework That Drives Growth

Understanding that CSAT is a vanity metric doesn't imply that customer satisfaction surveys need to be discontinued. The company must establish a well-rounded performance framework incorporating both the voice of the customer and operational and financial metrics.

Customer Success managers will have to track product adoption, customer health score, executive buy-in, onboarding performance, support trends, along with GRR and NRR. These are the operational metrics that allow one to uncover leading signals about customer success prior to renewals.

In parallel, financial metrics will help maintain the alignment between the Customer Success department and overall business goals. Monitoring GRR, NRR, renewal rate, and expansion revenue shows what role customer relationships play in growing recurring revenue.

On-going performance tracking also allows proactive decision-making rather than reactive decisions made when it is too late, and the customers have already decided to leave. The combination of customer experience metrics and financial performance metrics gives a much clearer view of account health than satisfaction surveys only.

Conclusion

The knowledge of why CSAT is a vanity metric allows companies to concentrate on the right key performance indicators, which actually ensure long-term business success. The fact is that customer satisfaction is important since it gives insights into service quality and customer perception. But satisfaction cannot predict renewals, prevent churn, or measure revenue growth.

While the Gross Revenue Retention metric illustrates how well companies retain their recurring revenue, the Net Revenue Retention metric shows whether customers expand their investments over time. Thus, GRR and NRR give a clear picture of the level of customers' loyalty and value realization.

The most modern Customer Success teams should stop measuring themselves based on the survey results. In combination with the operation insights and both GRR and NRR, it will allow making better decisions, improving customer results, ensuring sustainable revenue, and developing a reliable retention engine.

In other words, the best Customer Success teams are not those that have highly satisfied customers. They are those who consistently renew and expand their customers and allow them to get value from the business each year.