The New Bottom Line: Customer Success
Dan Steinman, Gainsight
It's all about retention. We used to live in a world where retention, in the business-to-business sense, didn't matter much. The lifetime value of a customer was largely realized at the time of the first deal. While every CEO would openly discuss the value of their customers and the importance of customer success and satisfaction, the reality was that their company's bottom line really didn't depend on their customers being successful.
Enter the subscription economy, where survival is 100% dependent on your customers being successful and 90% of the lifetime value of a customer comes after the first deal. As a result, the term (and organization) “customer success” has also entered our lexicon. While customer success has become the popular organizational and individual title, it is more of a philosophy. Even if you have a Customer Success organization fighting the good fight on the front line, your company must embrace the philosophy 100% for it to work. Here are three steps to getting there:
Step 1 – Create and enforce a customer-focused philosophy for the whole company.
You can't just start by building a team; you need to start with a company philosophy. You must be truly committed to your customers' success. Think about ways to prove your commitment, or to reinforce customer-focused behavior across the entire company. It could be as simple as tying the executive's bonus plan, at least in part, to renewal rates or having the CEO send an email to the executive team stating his support for the efforts of every team to reduce churn.
Step 2 – Retention accountability must reside with one person.
Once you've enforced a customer-focused philosophy company-wide, you can take the next step, which is to assign the company's retention rate goal to one individual. Often that person is the VP of Customer Success, but the title matters little. The idea is that, just like for new business sales, there needs to be one person whose life revolves around making sure customers renew their contracts (whether the renewals are actual signatures or evergreen is irrelevant) and are buying more products or services from you. With the right company philosophy, or executive bonus plan in place, this person will carry a pretty big stick across the entire enterprise. Her real goal is not simply to fix or satisfy every customer to ensure renewal, but to identify product and process changes that reduce the number of customers who need to be “fixed” and are therefore ripe for upsell earlier in their lifecycle. This is no different than your sales VP demanding a product feature without which he cannot make his quota. Both roles have a significant execution responsibility, but also rely heavily on the entire company to ensure their success.
Step 3 – Build it.
Once you've completed Steps 1 and 2, you can start building your actual customer success practice. There are several fundamental actions you'll need to take early on. Your list should include at least the following:
1. Understand churn: You can't run a recurring-revenue business unless you understand your churn. Failure is the best teacher and there's much to be learned here. At a minimum, get a handle on:
a. Churn by segment (contract value, SMB vs. enterprise, industry, etc.)
b. When – churn rate distribution over time
2. Stratify your customer base: All customers are not equal. You can segment simply by contract value, but there are likely other variables you want to take into account, as well, such as opportunity (how big could they become) or brand recognition (Apple is more valuable than Acme even if its contract is smaller).
3. Construct a “customer touch plan” for each segment: In rough terms, think about these in the context of high touch, low touch and no touch. These aren't absolutes and “no touch” doesn't really mean no touch, but it may mean no one-to-one touch.
4. Create a customer lifecycle: This is a series of stages that depict the level of value a customer is deriving from your product(s).
5. Create a scorecard: Think about all the elements that would make for a complete understanding of every customer (NPS score, usage score, referencability, number of times renewed, current contract value versus initial contract value, etc.). Then figure out a way to score every customer. This will help you prioritize customer success resources and predict churn.
6. Have a hiring model: Do you want product experts or air traffic controllers? Domain expertise? Customer experience or fresh out of college? Define your model and your rationale, go with it and be prepared to adapt.
If you put all of these things in place, the metrics to define success will naturally result. Customer retention is the ultimate measure of your company's success, but the ability to accurately predict churn and steadily improve it by finding and fixing at-risk customers are marks of a functioning customer success team. Your scorecard and lifecycle will be early warning signals, while your touch plan and hiring model will be designed to keep customers out of the at-risk state or manage them effectively when you find them.
Building a great customer success team is a real challenge for companies today, but the value is huge. The lines are thin between thrive, survive, and die in the subscription economy and getting customer success right is your difference-maker. Failure is not an option.
Dan Steinman is chief customer officer at Gainsight.