How to Calculate and Increase Your Customer Growth Rate

In customer success, we tend to look a lot at churn, retention, and revenue growth, but we often forget about one key metric: customer growth rate.

Often, it’s one of the best ways of gauging your growth as a company, and it’s also one of the easiest metrics to calculate.
Today, I’m going to talk about:

1. What customer growth rate is and its benefits for SaaS
2. How to calculate your customer growth rate, along with a free spreadsheet you can use
3. How growth rate holds up against other SaaS metrics, plus some benchmarks to measure up against
4. Some essential steps to growing your customer base and improving your growth rate

What Is the Customer Growth Rate?

Customer growth rate is a percentage metric representing how many customers you’ve gained (or lost) during a certain period compared to the number you had at the start. Typically, customer growth rate is measured on a yearly or quarterly basis, but it can be a monthly KPI.

Why Is Customer Growth Rate Important? Benefits for SaaS Businesses

There are several key areas CGR can help with:

1. A key indicator of business health. How much your customer base is growing year over year, or quarterly, can tell you a lot about your business, particularly in its early stages.
2. Measure business and product traction. Now, depending on how your growth rate looks, you can tell if your product is something your target audience truly needs or if it needs significant adjustments.
3. Get a sense of your potential revenue. Based on your growth rate, you can also project your revenue over the course of a year, the payback period for a customer, and the time it takes you to break even. Being able to roughly predict your ROI can help you plan better and stay afloat.
4. Highlight areas that need improvement. Your customer growth rate will also help you zero in on areas that need improvement, such as marketing, sales, or customer success. Sometimes your product might be underperforming due to poor marketing or sales practices; other times, maybe you need a bit more customer centricity and support.

How to Calculate Customer Growth Rate

Customer Growth Rate Formula

The base customer growth rate formula involves subtracting the customers you had at the beginning of the period from the customers you have at the end, then dividing the result by the number you had at the start.

Another way of looking at the customer growth rate, with the same result, is:

Is this the same formula? Yes. Normally, the customers you’ve gained or lost are already part of the customers at the end of the period, so the results of the subtractions in both cases will be equal.

That being said, some businesses choose to work with the second version because it’s a bit clearer that both growth and churn are factored into the equation.

For example:

Let’s say a company starts the year with 1000 customers and ends it with 1250. They gained 300 new accounts and lost 50. Applying the formula would get us:

Another use case for the second formula is to root out anomalies. By only using the number of customers gained and lost, you’re removing any customers who are in the middle of a renewal, payment dispute, or have a payment issue. While this may not be an issue for smaller companies, larger ones will almost always have a few customers stuck between stages at any given moment.

Customer Growth vs Customer Churn Rate

Customer growth rate could be looked at as the opposite of the customer churn rate. While customer churn rate tells you how many customers you’ve lost as a percentage of your customer base, customer growth rate tells you how many you’ve gained, also as a percentage of your customer base.

Read more about reducing your churn rate in our Customer Churn Guide.

Customer Growth Rate Calculator

To use this calculator, make a copy of this spreadsheet and fill in the missing data (cells in light blue):

What Is a Good Customer Growth Rate?

In SaaS, it’s always useful to look at others’ performance before judging your own. However, you should always be mindful of your business size when looking at benchmarks:

A comparison of how fast your SaaS business is growing versus others’ growth rate is only relevant when you are comparing similarly sized businesses. A growth rate of 30% for a $5 million SaaS business is below the median, while growth of 30% for a $20 million SaaS business is above the median. Despite identical growth rates, the smaller company might be worth 3 times revenue (as a relative laggard), while the larger might be worth closer to 10 times revenue (as a champion among its peers).

– 2024 Growth Benchmarks for Private SaaS Companies, SaaS Capital

That being said, here are some recent benchmarks sourced from the same study, grouped by ARR and SaaS funding stage.

7 Simple Steps to Improve Your Customer Growth Rate

1. Listen to What Your Customers Want

The first step to improving your customer growth rate will always be to ensure a consistent level of service for existing customers. For CSMs, it’s likely your best avenue to have a noticeable impact on growth, which typically falls under sales and marketing.

I always recommend working with a strategy in mind:

• Listen to your customers. Throughout the customer journey, you should be gathering feedback. Whether it’s through customer surveys, calls, or simple Slack messages, it will let you know how your product is serving their needs and what they expect from you.
• Understand their needs. Depending on your industry and each specific customer, their needs might be different from what they express. I always recommend doing a service gap analysis, or at least part of one, to see if there’s a disconnect there.
• Categorise feedback. Next up, sort the feedback you receive to determine what’s actionable, critical, product or service related, and who the stakeholders are for each point.
• Create a feedback loop. Every bit of relevant, highly-actionable feedback should ideally be transformed into a product update and make its way back to the customer. That means implementing it and then reaching back out to thank the customer for their input and show them the result.

Lastly, the lead CSM should ensure everyone on the team receives the feedback that concerns them – which leads me to my next point:

2. Work on Customer Success Alignment

Working on an integrated customer success approach shouldn’t be the sole job of the customer success team. To ensure your users are happy and your customer base continues to grow, you need to get everyone in your organization on board with your strategy.

Start by determining the goals for each account and then for your customer base as a whole. Create a scalable process for identifying the goals for each new account. Then, ensure you communicate those goals to all stakeholders, and particularly customer-facing teams – making sure they understand their role in securing them.

3. Close the Feedback Loop with Sales and Marketing

Ignoring sales and marketing is a common mistake in customer success. And when it comes to customer growth, they’re essential.

Marketing can help with gathering customer feedback, as they usually have both the means and experience to craft customer stories based on hard data, surveys, testimonials, and polls.

It’s typically the marketer’s job to create accurate user personas, so doing the same for current customers is easy. All CS needs to do is loop them into the conversation around customer feedback. And you don’t just get a better sense of customer feedback, you also get a better understanding of your current customers. Armed with fresh insights, they can find better ways of reaching lookalike audiences, increasing the potential for new leads and customer growth.

Sales, on the other hand, can use customer success data to improve their efforts, bring in better customers, and sell more product truth. Aligning with Sales can help you craft a better handoff process, leading to a higher chance new customers will stay with you and help improve that growth rate.

4. Use Churn Data in Sales

Sales departments can also use more modern tactics to improve the company’s growth rate. One such tactic consists of using customer churn data to prospect and qualify their leads, leading to more deals over time, but also more productive workflows and sales calls, as leads with a high churn score will be automatically weeded out.

Some simple steps to use churn data for sales prospecting and qualification:

• Make sure Sales gets accurate, relevant, and timely churn data.
• The sales team can then use that data to identify early churn indicators and patterns.
• Next, you should work together to create a churn scoring system (if you don’t already have one in the dashboard of your customer success software).
• Based on that churn scoring system, Sales should make or update their own lead scoring system that figures in those common churn precursors and patterns you identified.

Finally, Sales can then use that new system to qualify and segment leads before prioritizing them and reaching out. This should lead to a direct increase in your overall customer growth rate, as well as Sales productivity and retention rate.

5. Have a Strategy to Attract Referrals

According to a recent survey, referral leads are 3 times more likely to convert compared to paid marketing channels. So the next time you’re discussing ads, remember that a referral campaign might be a better way of spending your money, leading to a higher customer growth rate.

Some effective ways to attract referrals include:

• Incentivizing referrals. Customers who get something in return are much more likely to look for potential referrals among their network. The incentives could be anything from gift cards to free coffee or subscription discounts – it’ll be up to you to decide.
• Launching early access campaigns. For every new major update of your product, consider an early access period for loyal customers and their referred friends. That way, you’re rewarding customer loyalty, naturally incentivizing referrals, and you can even secure some expansion revenue down the road.
• Going product-led. Tactics include allowing customers to share in-product success moments and stories, designing specific marketing collaterals and templates for customers, and overall encouraging customers to promote your product in the moments when they’re most satisfied (use health score signals to identify and act on those in real time).

Whether you pick one of the methods above or others, working on a strategy is what will get your referrals over the line and actually provide some growth. Disparate referrals won’t move the needle enough to provide some clear growth by the end of the year, but a constant stream of referrals will.

6. Master Onboarding and First-Time User Experience

Your goal for any customer onboarding process is to simplify and streamline your first-time user experience, and then proceed to make users reach that coveted a-ha moment as quickly as possible.

Once the process is complete, they should know:

1. What value they want from your product or service.
2. What types of value they can get from your product or service.
3. How to obtain that value in a simple, repeatable way.
4. How to potentially get even more value from you, either by putting down the effort needed or through feature add-ons or subscription upgrades.

Onboarding is the moment everything comes together for a customer. Recent onboarding stats prove this could be the most important step in securing customer growth:

7. Ask Loyal Customers for Reviews

Last but not least, you should be asking your current customers for reviews. Even if you don’t have the bandwidth to launch a full-blown referral programme, asking for and incentivizing reviews could go a long way towards growing your customer base.

Some basic rules for getting more positive responses:

1. Target loyal customers
2. Be brief, concise, and to the point
3. Be respectful of customers’ time
4. Use health scores to determine the ideal moment to ask for a review
5. Make it personal (simple Slack message or personalized email)
6. Offer gifts, vouchers, swag
7. Always follow up

Summing Up

Your customer growth rate can be the life monitor of your business. Regardless of your current churn rate, if your customer base is growing, that means your product or service is still alive and people want it.

The only question that remains is how customer success, marketing, sales, and product can work together to up that growth rate.

Fortunately, professional CSMs always have Custify at their fingertips to dive deep into customer data, uncover hidden insights, and help take that growth rate to new heights. If you want an honest conversation about taking your CS team to the next level, consider signing up for a commitment-free demo and let us walk you through your next steps.