Customer Success is not an option in a recurring revenue business. It is not a nice-to-have. And it’s not something you do because you want your customers to like you. It’s something you do because it generates growth.
That’s right, growth. In the recurring revenue world, growth comes from three sources:
1. Increasing new business bookings
2. Reducing churn rates
3. Increasing contract values from existing customers
Note that #2 and #3 are the direct result of an effective Customer Success organization. They will not only provide insurance for your existing revenue base but will grease the skids for upsell and cross-sell to your install base.
The second law of thermodynamics basically states that the natural tendency of things is to move towards chaos, not order. I think this law applies to customers as well. Left to their own devices, the natural tendency of all customers is going to be towards churn.
Think about some of the most common causes of churn:
- Your champion leaves the company
- The customer is never properly onboarded or trained
- New features and functionality aren’t adopted
- The ROI of the solution is no longer recognized (or never existed)
None of those reasons are fixed by the customer’s natural tendencies. In other words, they need help. So, if the natural tendency of customers is towards churn, then Customer Success is much more like a Sales organization than a Support organization. They are truly responsible for ensuring, and insuring, the retention of customers and their associated $$.
In a reasonably mature recurring revenue company, the bookings coming from the install base quickly approaches, and then exceeds, the bookings coming from new business sales. This alone should be enough to get the CEO’s attention.
Now CEO’s tend to be a pretty smart lot by and large. There’s a very good chance that they understand the above facts even better than the Customer Success team does. After all, they are ultimately responsible for the growth of the company and it doesn’t take that much brainpower to figure out that churn and/or lack of upsell are inhibitors to growth.
To quote Chris Cabrera, CEO of Xactly, from our recent Pulse 2013 conference – “Not paying close attention to retention/churn is a going-out-of-business strategy.”
So what is needed to get an investment, or increased investment, in Customer Success? Someone with the guts to stand in front of the CEO and make the case. The ROI is simple and huge even with conservative assumptions.
It comes in three ways:>
1. Saving customers
2. Identifying upsell opportunities
3. Scaling the team
ogy, to go with great people, can yield results in all three of those areas.
Early identification of at-risk customers will give you the opportunity to save them. Uncovering new upsell opportunities speaks for itself. And applying technology intelligently to automate previously manual processes and increase efficiency has been proven to work millions of times.
So, what are you waiting for? Get out your pencils and your spreadsheets and start making some assumptions.
Could you save 20% of your churn each year?
Could you find a few dozen upsell opportunities each quarter, both Services and product?
If you automated several of your manual processes, like closing the loop on survey feedback or churn analysis or alert management, could you move your customers-to-CSM ratio from 80 to 90 or from 150 to 165?
What if you had no New Business Sales organization, marketed only to your install base, and only provided the other necessary functions to keep customers (Support, Training, Success, Engineering)? What size and kind of business would you have?
Bruce Felt, former CFO at SuccessFactors (purchased for $3.2B by SAP), said that his install base business at that time was a 70% NET margin business.
Do you know any shareholder in the world who wouldn’t be happy with that? I don’t.
If your company ARR is $50M and that’s a 70% net margin business, it is throwing off $35M in cash every year. Almost anyone would gladly invest significantly to keep that business thriving.
And $35M is only the tip of the iceberg. If your Customer Success results are world-class, that $50M is going up by 20% every year which means that you have a $100M business in less than four years WITHOUT EVER SELLING A NEW CUSTOMER. And therein lies the reason that investors LOVE SaaS companies.
The bottom line is this – Customer Success is not an afterthought and it’s not a Support organization. It has revenue-driving impact, and additional investment in it can often be justified with a very conservative set of assumptions.
Don’t be afraid of it, be proud of it. You are the lifeblood of your company and your CEO knows it. He’s just waiting for you to come in and prove it to him.
Another quote, also from Chris Cabrera at Pulse 2013, when he was asked which he valued more, Sales or Customer Success, was this – “You are asking me if I’d rather have my right arm cut off or my left arm cut off.” How about neither?