Over the past several years, Gainsight has turned to the field of information and statistical reporting to aid in traversing change and building out new paths.
One of the leaders in research, advisory, and consulting is Forrester. Their unique insights stem from hundreds of thousands of surveys with respondents who are consumers, heads of business, and technological leaders. Forrester’s rigorous methodologies produce objective results, which is why we and so many others trust them.
In 2020, Forrester presented some eye-opening results in a report titled “US Tech Budget Outlooks In A COVID-19 Recession.” They stipulated that US tech spending would decline “by 5% in 2020 and slipping a further 0.1% in 2021.” A great contributor to that finding was spending or lack thereof in response to the COVID-19 pandemic. Consequently, companies were looking for any way to control financial instability, especially the loss of customers. The best means to prevent churn? Customer success!
Retention and More
According to the 2020 Forrester report, The Business Case For Customer Success Management, customer success plays a critical role in retaining customers. By implementing customer success ideology and methodology into an organization, businesses could:
- Track customers’ progression toward their goals.
- Intervene to remove barriers between customers and their goals.
- Link customers’ value realization to business success.
Gainsight highly agrees. In fact, in our 2022 Customer Success Index, we found that “CS responsibilities tie directly to business goals and revenue.” Churn reduction and product adoption were top priorities, indicated by 83% and 81% of respondents, respectively, and 45% of companies actually let their CS org drive renewals and other expansion efforts. Kellie Capote, Chief Customer Officer at Gainsight, weighed in on why companies were relying on the CS team to achieve goals in this area.
“Reducing customer churn remains the primary responsibility for customer success, but increasing product adoption is an emerging responsibility, underscoring the value of customer success as a growth driver,” Kellie stated in the Gainsight Customer Success Index.
Investing in Customer Success
Investing in CS, especially in SaaS, is necessary to help customers reach their desired outcomes while guaranteeing the renewal of their agreements and retention. In fact, the cost to retain customers is much lower than the cost of new customers’ logos. According to a KeyBank Capital Market (KCBM) 2021 Survey, the spend to acquire $1 of new Annual Recurring Revenue (ARR) from a new customer was $1.67 in 2020. Existing Customer CAC Ratio Fully-loaded S&M spend to acquire $1 of ARR from upsells and expansions was $0.63.
To ensure the efficacy of CS means investing in it. That can be expensive, so many finance leaders and CEOs are hesitant to put big money into what many consider a cost center. Here are the reasons why so many companies discount the effectiveness of CS vs. cost:
- High headcount
- Specialized personnel
- Specialized technology
According to the Forrester report, CS orgs and teams account for more than 10% of business employees. Taking into account that these same employees are indeed specialized as CS professionals or professional services consultants who often must have specific domain knowledge. As for the specialized technology, CS software is meant to monitor customers and aid CSMs in mitigating their problems. But if a company needs to show that its investments in people, processes, and technology are worthwhile, then to Forrester, CS leaders need to have a well-prepared framework and integrate four elements into their business case for customer success.
- The costs of developing and implementing a customer success program.
- The business benefits of a full-scale customer success program.
- The likelihood customer success will improve business performance.
- The future value of a customer success program.
Integrating these elements into your business CS program may have their costs, but they also have a definite ROI. Gainsight learned that companies spend anywhere from 3% to 20% of revenue on customer success. In fact, the Index stated that “Companies that reported the highest Net Revenue Retention Rates (NRR) also reported investing 10% of revenue in their CS and CS Ops teams (75th percentile). Simply put, investing in CS increases revenue and the value of businesses.”
Ground Your Business Case In Business Performance Expectations
The Forrester report proves that there are great incentives for beginning a CS program. However, there is a caveat to this revelation—you must ground your business case in business performance expectations. Forrester suggests that “Emerging CSM teams must help the business identify how the program will boost business performance, as well as how the business will track this improvement.”
Customer success leaders described to Forrester that their programs had to be built around the ways it improved their company’s business. There were four distinct measurable and quantitative factors to this process:
- Develop baseline key performance indicators (KPIs).
- Align specific aspects of the investment to improved outcomes.
- Collect data over an initial phase or pilot program.
- Use real data to build out the business case.
Gainsight echoes the necessity for this type of justification. Moving forward, though, as you build out the use cases and need to prove ROI, there are some effective tools to justify the use of CS. Many organizations (63%) shared that success plans are their top tool to manage customers. Quarterly business reviews (QBRs) came in a close second, with 62% of companies identifying it as the tool most used to manage customers. What was incredibly interesting was that 40% of respondents found that customer education and training programs were an essential means of engaging and managing customers.
Kellie Capote shared her view that “Understanding the ROI of CS is much easier when the budget is separate from Marketing and Sales operations. Establish a CS budget to identify efforts that directly impact your revenue and customer growth.“
Looking to 2022
Forrester’s findings in 2020 were quite revealing. Imagine the surprise and relief to hear about tech growth in 2021 and 2022. In a 2021 blog post titled “Forecasting In Uncertainty: Q1 2021 Data Confirms The Strength Of The US Tech Market”, Forrester stated that the “US tech market would grow by 6.6% in 2021 and 7.0% in 2022.” Additionally, they stated that “Spending on software will lead the expansion with 10% growth in 2021 and 12% in 2022.” This is quite the rebound.
As for Gainsight, we are excited to hear this news. We too are excited to share our positive findings. We discovered that 95% of companies interviewed have a CS organization in place, proving the maturity of CS. Equally important are the investments companies are making to grow the impact of CS. We saw that investment equals 6% of revenue at the median, with a range of 3% (25th percentile) to 10% (75th percentile).
We at Gainsight are looking for the next phase of the CS field, both in thought and practice. With research firms such as Forrester accumulating research and statistics and revealing them to the CS community, we know we have solid evidence that we are all moving in the right direction.