Contract Utilization Score

What is a Contract Utilization Score?

Contract utilization is a metric used to measure the value of a customer relationship against the agreement they have with a particular business. Utilization scores are important to understanding how successful your ongoing customer relationships are and can be incredibly helpful in helping you manage them more effectively.

A Contract Utilization Score is based on contractual elements such as the customer's annual recurring revenue (ARR), their contract term length, and the features and services purchased under the agreement.

It assesses each individual customer's actual usage of contracted services compared with what’s promised in their agreement. This helps businesses identify potential opportunities for increasing customer value and identifies customers who are at risk of not being able to use all they’ve committed to purchasing under their contract terms.

Tracking a Contract Utilization Score includes cost savings from avoiding over-provisioning; improved financial forecasting; increased visibility into underlying customer health; and stronger long-term customer relationships by helping identify opportunities for accounts that may need additional attention or resources.

In addition to these overall benefits, various other advantages can help provide deeper insights into customer success operations. For example, Contract Utilization Scores can be beneficial in identifying upgrades for existing customers or when sales teams should equip themselves with additional information before negotiating new contracts with prospects or upselling existing customers on additional commitments.

Overall, tracking a Contract Utilization Score gives your team greater visibility into customer usage across contracts and subscriptions so you can make better decisions around how best to support your customers - both continuously throughout their lifecycle and strategically when upselling or renegotiating contracts.

How Is Contract Utilization Score Measured?

To measure Contract Utilization Score, SaaS companies must first identify the various items or features in their product that a customer has opted in for during contract negotiation. These can include different components, such as additional training sessions, support services, and new products. Once the key items have been identified and quantified during contract negotiations, Customer Success teams use them to track the progress of individual accounts over time.

CUS is measured by adding up all the items/features a customer purchased per month and then dividing this by their total contracted amount for the same period. This allows Customer Success teams to constantly monitor the usage of contracted features against what was paid for each month - if they have a large discrepancy, it may indicate churn risk, or potential upsell opportunity.

Customer Success teams also rely on trend analysis when tracking CUS - this means they look at how an individual account’s utilization has changed over a set period (i.e., month-on-month). High increases may signal an upsell opportunity, while low reductions may warn of potential churn risks. By monitoring CUS as both an overall score and through trend analysis, Customer Success teams can monitor their key performance metrics and pivot strategies accordingly effectively.

What Factors Affect Contract Utilization Score?

When it comes to evaluating Contract Utilization Score, there are multiple variables at play.

The number of active Users is one key factor, as this shows how many people within the customer's organization are actually using the product or service.

Ideally, a high number of active users indicates that the customer is getting value from their contract and could be an opportunity for upsells down the line. Similarly, feature usage volume measures how often customers use certain features or options in a product or service and can help provide insight into customer engagement.

Purchase History is another variable in determining utilization score; customers who have purchased additional services beyond their initial agreement with the SaaS provider can indicate that they themselves see value in whatever products/services they're purchasing and maybe a low churn risk.

Lastly, Customer Reviews form an important piece in understanding CUS scores, as satisfied customers will likely result in more positive reviews, higher ratings, and more likely upsell opportunities going forward.

By looking at each of these factors individually and holistically, SaaS companies can better understand how customers are actually engaging with their products/services and where potential upsell opportunities exist, as well as identify any red flags that could signal increased churn risk.

From there, Customer Success teams can create strategies or even use automation to increase engagement while identifying risks before they become reality.

When Should a High or Low Contract Utilization Score Trigger an Action?  

Regarding tracking customer contracts, Contract Utilization Scores (CUS) play an important role in determining customer success outcomes. CUS helps Customer Success teams understand how customers use the paid items/features within their contracts. With that knowledge, they can identify potential opportunities to upsell and avoid churn or downgrades.

High scores indicate an opportunity for upselling, as customers are getting value from their current product usage. This is a great sign for further revenue expansion from the account. On the other hand, low scores should be a warning sign for Customer Success teams - indicating that customers may not be getting value from their agreement or product usage and thus should be monitored closely to prevent churn or downgrades.

To ensure customer success outcomes, tracking CUS and adjusting strategies continuously is important. High scores open opportunities for upsells. Low scores should Prompt Action by Customer Success teams, who will need to reach out immediately and find ways of bringing more value from their contract as quickly as possible to retain that customer.

Tracking CUS is an efficient way of measuring overall customer growth progress.

It should always be part of any Customer Success team’s strategy when dealing with existing accounts – monitoring both high and low triggers to take proactive steps before the overall performance of an account is negatively impacted.

What Are the Benefits of Having a High Average Contract Utilization Score?

Having a high Contract Utilization Score (CUS) is usually seen as a positive indicator, showing that customers are finding value in their SaaS product.

A high CUS means that customers utilize the features and items they paid for - often more than they originally anticipated when signing up. This can be hugely beneficial to a company since it allows them to increase customer lifetime value and overall revenue.

As well as being financially beneficial, having a high usage rate also demonstrates that the customer is engaging with the product regularly, meaning there's less of an opportunity for them to churn or downgrade their contract in the future.

Customer success teams should use CUS scores to identify upsell opportunities and create strategies for retaining customers over time.

CUS scores are also useful for benchmarking customer segments or cohorts and understanding how satisfied customers may be at any given moment.

This information can help SaaS companies gain valuable insights into which specific product features resonate with different customer types, allowing them to make informed decisions about certain aspects of the product development process or marketing tactics.

Overall, having a high average Contract Utilization Score is extremely advantageous for SaaS companies looking to maximize their return on investment and reduce churn risk; therefore, it's one metric that should be monitored regularly by Customer Success teams.

How Can Customer Success Teams Optimize Contract Utilization Scores to Reduce Churn Risk?

To optimize Contract Utilization Scores (CUS), Customer Success teams must focus on understanding each customer’s needs and taking necessary measures to ensure those needs are being met.

This involves carrying out detailed account reviews, engaging with customers regularly, and getting feedback on how their needs are addressed. From this, Customer Success teams can tailor their approach to optimize the CUS score of a particular customer based on their individual usage models.

Customer Success teams should also effectively automate usage tracking across accounts to get accurate and timely insights into CUS scores and identify trends across different customer segments or services they offer. With automated data collection, CS teams can more accurately analyze and determine where customers may be falling short with their current contract utilization level, so they can provide resources or assistance when needed.

In addition to the above mentioned strategies, Customer Success teams must communicate with customers about upcoming renewals or upgrades before a new billing cycle starts.

This way, CS teams can review any changes in the customer’s usage patterns or upgrade available features that would add more value for them and help improve CUS score before the renewal/upgrade date. Finally, providing personalized support during onboarding processes is also beneficial for ensuring high CUS scores by minimizing the struggle users experience when using a product.