Investing Appropriately in Customer Success

//Investing Appropriately in Customer Success

Investing Appropriately in Customer Success

By | 2019-05-09T21:41:30-04:00 May 8th, 2019|Customer Retention|Comments Off on Investing Appropriately in Customer Success

Why and How to Find Budget for Customer Success Software

There’s no longer a debate in the recurring revenue economy about the value of existing, loyal customers.

Retaining more customers who serve as advocates and contribute to your growth rate produces more total ARR over time. Consider the simple math comparing a company with a 90% retention and 20% growth rate with another company whose retention rate is 100% and whose growth rate is 30%. By year ten, the company with the higher retention rate has more than double the total ARR of the other company.customer success software

Additionally, there’s little debate about the important role strong Customer Success leadership plays in retaining these highly valued loyal customers. SaaS Capital research (illustrated below) points to the 6% swing in retention rates for companies with and without Customer Success leadership.

 

Impact of Customer Success on Net Retention

customer success software

“The sustained improvement in retention associated with a Customer Success leader (6 percentage points) will improve total revenue, growth, and profitability leading to an expected 74% increase in enterprise value in 5 years.” (SaaS Capital)

So, why are businesses still debating why and how to charter their Customer Success teams, and how to allocate budget to support the work they do?

As the top priority in reducing gross churn, the McKinsey report, Grow Fast or Die Slow Focusing on Customer Success to Drive Growth, advises to “invest appropriately in building a high-performing Customer Success Organization.” New customer acquisition is not emphasized as a priority.

Let’s explore this counsel in two parts.

Do you have a high-performing Customer Success Organization?

There are many metrics (KPIs) to use to assess the performance of your Customer Success organization.

  • Retention rates
  • Churn rates
  • Survey data (NPS)
  • Usage rates
  • Number/types of support tickets
  • Net MRR Churn
  • New Biz MRR

Which of these metrics your organization relies upon to assess the performance of your team depends upon how the team is chartered to begin with. If you don’t fully know the charter of your organization, try answering these questions to hone in on the priorities of the team:

  1. Will the Customer Success organization have responsibilities for traditional support activities?
  2. Will the Customer Success organization be responsible for adoption?
  3. Will the Customer Success organization be responsible for renewing the customer subscription?
  4. Will the Customer Success organization be responsible for upselling and cross-selling to existing customers?

You can only set your team up for success if you understand and operationalize their charter with KPIs that are properly aligned with that charter. High performance–and subsequent profitability–depends upon the clear communication and accountability around this alignment.

Once you’ve come to consensus about your Customer Success charter and created KPIs upon which performance will be measured, you can then begin to assess the sustainability and potential profitability of the model you have in place.

How can/should you “Invest Appropriately”?

If you have a high-performing Customer Success organization, then you should be willing to invest in your team and give them the tools and resources they need to optimize their effectiveness. The challenge is knowing what “appropriate” investment entails. Areas that warrant consideration in investment include:

  • Expertise and Training. This includes hiring the most qualified service-minded team and continuing to train them in both the industry they serve and the use and applications of your solution.
  • Capacity/Distribution. This involves optimizing the number and types of CSMs assigned to the number and types of accounts. It requires continuously assessing the value of the expertise and services your team provides, as well as the time and effort it takes to fulfill their responsibilities. These things should be evaluated on an ongoing basis to optimize the efficiency of the team as your business grows.
  • Technology. This includes both the continuous improvement of your own technology, as well as the technology/software they need to do their jobs effectively and efficiently*.

*When–and how–should you invest in a Customer Success Platform to support your high-performing Customer Success team?

So, you’ve determined that your Customer Success Organization is high-performing, and you’re considering investing in a Customer Success Platform to optimize their performance. Here are some Do’s and Don’ts to consider when making the decision:

  1. Do analyze the costs and savings associated with adopting new software. Will the Customer Success platform replace existing software such as a CRM, marketing automation tool, collaboration tool, or support ticket software? If so, reconcile the timeline for those transitions and the savings associated with replacing any software application.
  2. Do use the platform to continuously assess the VALUE your team is able to deliver. If your goal is for your Customer Success team to be self-funded (by monetizing their expert services), then you have to have a means for measuring and evaluating the work they do. Seek to understand the savings you gain in adopting a Customer Success Platform that allows you to create greater efficiencies for delivering services to your customers. (Note: To do this optimally, you will need software that provides time-tracking and strong workflow management capabilities.)
  3. Don’t calculate the ROI of the technology investment alone. Incorporate the overall effectiveness of the Customer Success team when determining the anticipated and actual return on your investment. This involves aggregating and analyzing the data around performance indicators, work/capacity, and net results in key metrics (churn, retention, growth, etc.)
  4. Do consider the cross-functional adoption of the technology. Whether it’s in the original purchase or a vision for the future, broader use of Customer Success platforms can create more efficiencies and savings. Does the CS platform offer a 360°view of your customers? If so, it might replace your CRM eventually. Does the CS platform enable automated work management? If so, it may replace a variety of project management and collaboration tools. If the platform will ultimately be used by other business units aside from Customer Success, then the costs can be allocated across those budgets.
  5. Do understand the administrative costs of adopting a Customer Success Platform. Who will be the primary administrator for the software? How much time and energy will this role involve? When selecting a Customer Success platform, take time to understand the workload and expertise involved in administration, and then properly allocate the responsibilities of the key person involved so that they are a good fit for the role and aren’t overtaxed by their other responsibilities. Ease of administration and configuration are keys to selecting a Customer Success platform.
  6. Don’t underestimate the time and energy involved in selecting and then implementing the software. Time is money. Proper budgeting for the money, time and energy involved in vetting software is critical. Aside from the risks you run of purchasing the wrong software, there are risks in not fully understanding the resources you’ll need to identify and purchase the best software.  (Consider the process one of our customers took to make their decision.)
  7. Don’t be naive about the cost of change management. Implementing a Customer Success platform is a major undertaking and involves substantial changes in how teams are organized and function. While the long-term benefits and savings of adopting a Customer Success platform are substantial, these cannot be realized without growing pains. Job descriptions, KPIs and responsibilities will change. The disruption of poorly planned change management can be costly. Consider a pilot with a Customer Success platform as a way to ease your team into the new organization and technology.
  8. Do develop a sustainable model for funding your technology investments. Don’t be short-sighted in modeling your budget and funding. Take into account all of the above imminent and future costs, and the projected savings as you build your framework for the long haul. Remember that consumption models and definitions for high-performance shift, so jumping in without a long-term plan for funding your technology investments is risky.

Customer Success is no longer an idea. It’s a reality. Even SaaS start-ups and non-tech companies are chartering Customer Success teams to focus on retaining and delighting their customers. While the debate about the value of Customer Success may be moot, the discussion about how to budget for the team and technology is a hearty one. “Invest appropriately” may be trivializing the approach to determining when and how to invest, but the intention is spot on. Don’t invest in talent or technology until you’ve built a case and a culture to properly support them. Then, when you do, know ALL the costs, savings, and efficiencies associated with investments in helping your team perform at its highest level.

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Bolstra