Some of you may have heard this story. Boy walks into a store, puts a coin in the telephone, makes a phone call, trying to convince the person on the other end to buy his grass cutting services. He talks about why his services are the best, what he can do, the wonderful recommendations that he can provide to this prospect if they hire him. Person on the other end says, “Sorry, I am happy with who I have.” The storekeeper hears the conversation, gives the boys some tips on prospects and the boy says, “she is already my customer.” I was just checking up on her to see how happy she is with my service’
“When a brand connects with their customer, that in some ways is the easy part, the hard part is keeping the customer at the center after the success/profits comes flooding in. Success can breed complacency, success can breed arrogance.”
I was intrigued by the Gainsight article by Nick Mehta on the Five Organizational Models of Customer Success. Particularly, it left me with the question- what are the dynamics created in each of the models described?
Often in early stage companies, the Firefighter CSM model results in a good customer experience at an unreasonable cost to the organization. Happy customers are good, but happy and profitable customers are even better. The tensions arise in bandwidth, customer prioritization in terms of dedicated service and much of the time, the loudest customer with the largest amount of revenue contribution at stake wins.
Customer retention becomes critical and often, as Nick highlights, the question is – ‘Who will own Customer Success at your company?’
A 2% increase in customer retention has the same effect as decreasing costs by 10%. (Leading on the Edge of Chaos - Emmett & Mark Murphy)
Often investors want to look at billings and incremental changes in billings in a SaaS business. Though when you boil it down to a particular organization like Sales for example - New ACV (annual contract value) or in fact (getting closer to reality)–
New MRR/ACV, which measures the increase in MRR from new customers in the current month, is often one of the key metrics for a growing SaaS Sales organization.
Sales-Oriented CSM models are often found in companies with low product complexity and do carry a bit of a negative connotation amongst customers. Here’s why – I sold you something a year ago, I am knocking on your door a month (or two) in advance to get a renewal. Here’s why this scenario is a high possibility - because the sales person is often incented (in a growing SaaS org) on new ACV and not Account Management. CAC ratios are based on new ACV. Philipe Botteri has great insights on renewal ratios here in his recent blog.
“From a customer’s perspective the right to up-sell a customer has to be earned rather than pushed.”
Customers are interested in the adoption of your product in my organization, what value my teams derive from this solution (show me hard ROI), what business problem have we solved after deploying your solution, what your future roadmap look like and how it will benefit us. This requires a solution oriented, consultative account management effort.
Sales-Oriented CSMs can create the tension of balancing new ACV growth with customer retention. Often savvy investors look beyond a single number and dive into the breakdown of new ACV versus renewals, churn, expansion and many times share the viewpoint that - renewal and expansion cannot be fillers for shortfall in new ACV. A filler strategy can sometimes create product-related tensions to drive short-term value extraction, i.e. this change to product is required to secure this particular renewal versus a long-term value-add in a development plan to build value.
B2B and in particular enterprise customer renewals are engagement driven, i.e. touch points, interactions, incremental value-add beyond the software/service/product that is provided. Service-Oriented CSM models, found in companies with product complexity, provide the level of engagement required and tend to sway the customer to increased reliance on services rendered. The challenge becomes balancing between paid service engagements versus providing account management services to customers to ensure there is a renewal. This often leads to a higher touch model with higher cost of renewals. (Average Enterprise cost of renewals is in the 7 to 9% range)
Integrated CSM models are becoming more and more prevalent within organizations, particularly those that are in hyper-growth mode. The key here is to have a single point of contact focused on the unrelenting pursuit of superior customer experience with transparent accountability, at every level of the customer organization.
Customer Success is the elixir that drives growth. There are many stats you can find out there. However, if there’s a single function in your organization that can double or triple your existing business, while protecting the crown jewels, it is this one.
As a driver of customer success and a customer myself, I believe that if there’s a unified customer experience, trust and influence, value-add beyond what was originally sold to them, customers will renew.
A good customer experience is a critical driver of financial success, and loyal customers after all, are worth up to 10 times as much as their first purchase.