Willy Loman, the salesman in Arthur Miller’s famed play, died figuratively before he physically died because he lived in an old, outdated paradigm (both professionally and personally). We don’t wish this same kind of professional death on anyone, so we offer our take on the evolution of account management, with the hopes that those looking to establish strong customer success teams can build roles that are valuable (and profitable) and sustain a vital workforce.
If you’re a XaaS solution provider, traditional Account Management as we’ve known it is dead, or should be. This didn’t happen overnight. It actually began when applications started moving to the cloud for their provisioning. This move enabled companies to begin selling their solutions as subscription services, and it gained steam by the mid 2000s. The net result of this was that the average initial sales price of these XaaS solutions was dramatically reduced – seemingly overnight. There are a few interesting by-products of this paradigm shift – some that benefited the vendors and others that benefited their customers.
Good for the Vendors: Predictable Revenue Stream
- While it’s true that the vendors suffered an initial revenue hit when they began to transition from selling their solutions all up front (in the auto world, this would be like selling you a new car) to subscription services (think auto leasing), the vendors quickly realized that their ordinarily bumpy ride of feast and famine sales began to smooth out with more predictable revenue, often times having pre-booked a large percentage of their following year’s projected revenue as a result of longer term subscription contracts (1-5 years).
- Another benefit from the vendor’s perspective is that over a long period of time, they are actually able to capture more of their customers’ wallet share IF they were able to keep their customer. NOTE: IF they are able to keep their customer. A typical cross-over period is anywhere from 3.5-5 years versus the old way of selling a solution and charging annual maintenance. Just like the leasing in the auto industry, customers who purchased subscription services build in definitive buying cycles that might not have ordinarily taken place before. Think of auto leasing. If you lease a car for 3 years, you’ll likely be in the market for another car at the end of that term.
Good for the Customer: Gains Control
While most vendors originally set out with the determination to lock in longer term subscription contracts (3-5 years), that simply has not materialized for the masses. One year contracts and even month to month contracts are not uncommon today.
- This puts the power squarely back into the hands of the customer as switching costs are driven significantly lower. If their vendor is not performing, the customer can switch without much risk as in days of old. This has put additional pressure onto the vendor to deliver high value much quicker in order to retain their customers.
- Additionally, with these lower up-front solution costs, customers no longer have a palate for spending large sums of money on consulting services and set-up fees to get their solutions operational. This has again placed more pressure on the vendor to find cost-effective ways to get their solutions operational. This means developing solutions that are much easier to implement with a minimal level of technical expertise. It also implies the need to be creative about offering solutions experts to aid in the implementation of a solution.
- Today, the average time to break even on a customer is approximately 18 months. In other words, any customer who does not renew for at least the second year of a contract, is a customer that your company has lost money on and you would have been better to have never had them as a customer in the first place. This clearly puts the customer in the driver’s seat, as the vendor must be quickly and consistently demonstrating value.
Who owns these relationships?
Account managers of old?
In the traditional model of perpetual licenses and maintenance contracts, Account Managers owned the customer relationships. These resources were essentially relationship managers, and the positions resided in the sales organization. Essentially, they were responsible for keeping the customer happy enough to renew their contract and, ideally, growing the customer’s revenue. Account Managers are, indeed, more service-oriented than their new business sales counterparts; however, their skillsets usually look more like a new business sales person than a consultant within their company. They are typically highly commissioned (for both upsells and renewals), and are trained in managing a customer through a sales process, not necessarily in onboarding and expanding a customer’s usage. This can become problematic as their customers’ expertise can often exceed their own product expertise fairly quickly, greatly lowering their ability to help drive adoption throughout their customers’ organizations. In other words, they offer very little value to their customer.
The other challenge with this model is the compensation model for account managers. They are often commissioned at a higher rate for upselling than for renewals. As renewals now have a greater impact on a customer’s lifetime value, this model can present a conflict for the organization.
Consider a scenario where an account manager has to prioritize between garnering a $50,000 renewal for which he earns 1% commission ($500) and a $10,000 expansion opportunity for which he earns 10% commission ($1,000). He will certainly focus on the expansion opportunity, while the company runs the risk of losing $40,000 in revenue. What’s good for the employee isn’t good for the company in this case.
Given the new model of lower entry point pricing and less consulting services, account managers who cannot drive adoption via consultative expert advice around your product, ideally within the vertical market their customer is in, are essentially high priced, under-achieving order takers that your company can no longer afford to pay given the aforementioned 18 month break even cost of new customers.
Keep in mind, there is still a need to cross-sell and upsell within the existing customer base, however, the entire process of renewing existing and servicing existing contracts simply does not belong in the sales organization any longer. Yesterday’s Account Managers, need to be replaced by Account Developers who are compensated strictly on cross sales and upsells within the account base.
Better yet, Customer Success Managers
Today, a new role, Customer Success Manager(CSM), has emerged within many XaaS companies. Done correctly, CSMs provide the missing gap of expert services needed to help your customers adopt your company’s technology within their organizations, providing a much greater likelihood for a successful renewal. The skillset of CSMs is quite different from that of account managers. In order for CSMs to provide the expert level of services required by their customer base, they need to be just that…the experts. In other words, they need to remain at least a step or two ahead of their customers, anticipating their needs and wants, as well as making appropriate recommendations that enable their customers to optimize their usage of your company’s products and services.
While CSMs have to have strong consultative talents, they also have to be comfortable managing renewals. In this new paradigm of customer success, this process should no longer involve intense negotiations. Renewals become more organic as the relationships between CSMs and customers have been collaborative and value-driven for both sides. In this model, the CSM is simply completing paperwork.
(Note: if a CSM identifies opportunities for expansion and upselling, it’s really best practices to turn that back over to a sales person to negotiate so as not to strain the relationship with the customer.)
Who makes a great CSM?
If not a salesperson (aka – our former account managers), who, then, should we look to fill the CSM role? We do recommend that you start by looking within your organization for these elusive unicorns. They have “horns” made of strong relationship skills, rich product knowledge, and (ideally) specific industry expertise for your customers. You may look within your professional services team first, as they certainly have the industry knowledge and relationship skills. Or, perhaps your pre-sales folks who know product well, and have great communication skills can be properly trained in specific industry areas. Then, there’s always your customer base. Those customers who love using your product may make great CSMs for your team.
Is Account Management REALLY dead?
Are your Account Managers headed toward the same virtual demise that Willy Loman suffered in his career? Not necessarily. If they are willing to develop their strengths, there’s likely a roll for them in this XaaS model. There’s still the need for account development and expansion, which happens within the sales team. But, account management has now become Customer Success Management, and this requires a new set of talents, as these resources are responsible for the heavy lifting as it pertains to keeping a customer on the right path to success and ultimately towards maximizing customer lifetime values. Figuring out what “Willy” is good at, and possibly re-training him can give him (and the rest of your team) a new lease on his career.