During a recent TSIA webinar, Peter Armaly, VP Research for Customer Success, presented his thoughts on “The State of Customer Success”. With 30+ years of experience in supporting, enabling, and driving success with customers throughout his successful careers at BMC Software, Eloqua, and CA Technologies, Peter has a wealth of information.
In this blog post, we’ll recap what we think are the highlights and framework pieces of Peter’s presentation, but you can download the entire “State of Customer Success” guide by visiting:
3 Industry Trends Affecting Customer Success
First, Peter introduces 3 major trends that are changing the environment of customer success (with our own commentary supplied). They are:
1. Subscription Model Forcing a Huge Focus on Need to Drive Adoption
For SaaS and subscription based companies where recurring revenue is the most important number for the business, “keeping customers” is critical to success. If you lose a customer, you not only need to make up for the customer lost, but you need to continue growing month over month (or at least quarter over quarter). The subscription model forces companies to focus on adoption of products and services, because without adoption (read: value), customers will inevitably churn out. So for SaaS and subscription based companies, they need to make their customers successful and help them see value. They can do this by ensuring their company has:
An Adoption Framework
An Adoption framework that helps customers get a return on their technology investment (RTI). An adoption framework helps to answer questions, such as “What does good adoption look like? How do you assess the adoption rate of customers? Who is responsible for driving adoption of customers?” and so on. The adoption framework helps the “customer side” of adoption by not just focusing on the supplier driving adoption to keep the recurring revenue up. But rather, this framework shifts the conversation to the customer where the customer itself is motivated and drives adoption so that their company realizes the full financial impact of the new tech within their business environment.
Predictive analytics that help customer success teams be proactive with customer needs instead of reacting to fire drills. These analytics helps companies to see trends and put data and reason to the numbers where reason didn’t exist before. Predictive analytics can take the form of a Customer Success Management platform, which is a software platform used by customer success professionals to manage, retain, and grow their customer base.
Data-driven people who care about the numbers, such as customer health, churn, retention, product or service adoption, and so on. Hiring the right customer success leaders and CSMs is crucial for your customer’s success, and there are several characteristics to look for when hiring the right team members, chief of which is an individual that manages and measures customer outcomes.
2. Cost of Sales is Forcing a Rethink of Account Coverage Models
In his webinar, Peter suggests that subscription based companies should “rejig” the way they’ve worked for the last 30 years as the cost of sales is changing. The changes are caused by a few factors, including:
- Decline in product revenue
- Traditional investment in Sales not paying off as it once did
- Customer journey now requires a commitment to deliver value at each intersection, regardless of customer size
- Customer activity and behavior can be technologically tracked and represented, and therefore predicted
It Costs Less to Keep Current Customers Happy
Because of the new costs and declining revenue, it’s important for subscription based companies to take a long, hard look at how they can “rejig” their processes, in Peter’s words. According to a Pacific Crest 2014 Private SaaS Survey (referenced in the webinar), it costs very little to acquire incremental revenue from existing customers. In fact in the survey, it costs $.18 to acquire every new $1 of revenue from the current customer base. In the same way, it costs just $.12 to renew an existing customer for $1 of revenue. But on the other hand, it costs $1.07 for each new customer (while the contract value is still $1, so yes, a $.07 loss in year 1). As illustrated here, the acquisition costs for new business is significantly higher than keeping current customers engaged with the product or service and either renewing at the current level, or increasing their subscription cost.
You can quickly see the benefits of a strong customer success strategy that keeps customers happy. Peter breaks it down to say that growing existing customers makes economic sense (by a factor of at least 6, again according to the Pacific Crest study). The trick in maximizing this customer growth opportunity is to do it at scale. But just hiring “more frontline people” won’t do the trick. It’s important for these subscription based companies and SaaS companies to invest in new processes, new technology, and new methodology.
3. Pressure is On to Make XaaS Business Models Profitable
Peter suggests that the time is now for XaaS (meaning Software as a Service, Platform as a Service, etc…) companies – essentially those with subscription models – to consider a new business construct. Here’s what he suggests:
- Customer success should be a business imperative equal to [new business] sales; harvesting revenue from engaged and successful clients is key to profitability. This is key for XaaS companies of all shapes and sizes!
- Executive team needs to realize the value of focusing on Customer Lifetime Value (CLV), and the peril in being blind to it
- Spending should align with the effort required to serve the customer through the stages of their journey
We agree with Peter, customer success is king in SaaS. The best SaaS brands and companies are built on customer success as the key strategy for growth and long-term sustainability.
Here are a few questions to consider:
How is your subscription company making changes to how customers and customer revenue and growth is viewed – or are you? For subscription based companies, the pressure is on to be profitable, and quickly, and the proof is in the numbers that customers hold the key to revenue growth. How will your customer success organization take responsibility for customer growth, adoption, and renewals?
For more information on how to elevate customer success in your SaaS business, check out these recent ClientSuccess resources:
Learn more about how ClientSuccess can help your company develop a strong customer success methodology and strategy with easy-to-use customer success software by requesting a 30-minute demo.