Customer Success, the one word on the lips of every growth hacker, startup founder, and VC alike. And in a subscription business with ongoing customer relationships, customers finding success in your product is absolutely crucial for the financial health of your company. The practice of customer success is slowly gaining significant traction, but it is still relatively the new kid on the block. So, we spoke to Pam McBride of Amity to understand what exactly customer success is about and how it adds value to SaaS businesses.
Sravan: First of all, what is customer success and what does it mean to a SaaS business?
Pam: SaaS and other recurring revenue businesses are different because the revenue for the service comes in small increments over an extended period of time (the customer lifetime), creating a fundamentally distinct dynamic to a traditional software business (full contract value upfront, with some additional maintenance and professional service fees). This translates into three core stages critical to success for SaaS businesses: acquiring customers, retaining customers and monetizing customers. While most SaaS companies can fill the top of the funnel and find success in acquiring customers, in a subscription business, 80% of revenue comes after the initial close – from retention and monetization through upselling and cross selling. This is the key to a sustainable business model. Customer Success emerged to ensure that customers are continuously receiving value from the software they purchased, ideally by exposing them to best practices. Customer Success is a pro-active business process that allows a business to have actionable, real-time insight into their customer’s behavior. Increased adoption of SaaS software will result in trusted customer relationships, reduced churn and an ability to naturally expand the business relationship. The goal of Customer Success isn’t just to avoid churn, it’s to grow revenue by adding value. Small changes in a SaaS company’s conversion and retention rates can have large impacts on their top line, bottom line and capital efficiency.
Sravan: But how different is customer success from regular customer service?
Pam: Customer Success is proactive and fits somewhere between Sales and Support as the protector and grower of revenue. Salespeople aren’t equipped to prevent existing customers from churning, nor would disrupting their primary focus of closing new deals be of benefit. Customer service or technical support teams are too reactive – better suited to handling complaints and trouble tickets. The Customer Success team is
responsible for proper onboarding, ensuring the customer sees the ROI in the software and works cross-functionally to ensure the entire organization understands the importance of “customer” and to continuously provide feedback.
Sravan: So how does Customer Success impact growth for SaaS businesses?
Pam: SaaS companies need to reap the benefits of being a recurring revenue business because at the point when the business enters the growth stage, sales efficiency starts to slow down and new customers take up more time and resources to attain. And with 80% of a SaaS company’s future revenue coming from just 20% of its existing customers, delivering continuous customer value through the Customer Success function is paramount. By leading customers in a controlled, predefined deployment and operational life-long journey, Customer Success has a direct impact on growth.
Sravan: At what stage do you think SaaS companies should start investing time and effort into customer success?
Pam: Most often you’ll hear “as soon as possible” – some SaaS businesses will staff a customer success team before building out their sales. And we advocate that earlier is better because we view Customer Success as a key component of a SaaS business’ infrastructure. Understanding the behavior of the customer and proactively driving customer engagement benefits the entire organization. This outside-in view shapes everything from product development, sales and marketing to customer support and services.
However, early stage startups are typically focused on building a minimum viable product, winning first customers, funding and building brand awareness and it’s difficult to find room for Customer Success. And the reality is many businesses begin paying attention when they start feeling the pain of churn. But it’s more important to start than to start big – so hire a Customer Success Manager to focus on 5 to 10 customers for the first 10 weeks in the life with your software – and to focus on the right adoption. Customer Success with those customers of course won’t stop after 10 weeks but the adoption success of those customers can substantiate the role itself and eventually lead to a team of CSMs.
Sravan: And how do you think these (early stage/mid-range/enterprise) SaaS companies should frame their customer success strategies?
Pam: The Key Performance Indicators expected from a Customer Success mandate are reduced customer churn and higher recurring revenue growth. Therefore, customer success strategies should be framed around achieving these KPIs and in doing so through the following:
- Clear visibility of customer health and happiness
- Consistency of execution, leading to more predictable outcome of revenue and cost
- Complete focus on growth and renewal
- Stronger customer relationship and higher strategic and partnership discussions
- Overall increased leadership value in the eyes of your customers and partners
- Higher contribution from happier employees
Sravan: And what metrics do you use in quantifying customer success for a SaaS business?
Pam: Customer Success requires the most complete and comprehensive view of the customer integrating relevant data from a number of sources including – billing, support tickets, CRM systems and email, and those native to a Customer Success software platform like tasks, engagements, workflow and product usage. Since Customer Success is both an art and a science it requires both a qualitative and quantitative approach to metrics. The rise of Customer Success impacts all three of the most important high-level SaaS metrics: Churn, Lifetime Value and Customer Acquisition Costs (CAC). There are a number of insights that relate to these high-level SaaS metrics such as :
- Revenue at Risk
- Revenue Growth Rate
- Portfolio Forecasting
- Customer Health Score (a combination of factors that can include feature adoption, licenses in use, product activity levels etc.)
- Analytics relating to workflow, customer journey and subscription performance
- Team Effectiveness
These are just a handful and as a SaaS business and Customer Success organization matures additional insights will be required. It’s important to note that metrics should be tailored to your company – identify and track those that are highly actionable and meaningful.
Sravan: Awesome! So how do you see the part of customer success spanning out for SaaS companies in the near future?
Pam: SaaS companies will need to scale engagement of Customer Success and in some respects do so without adding headcount. That means if their existing CSMs have to handle a bigger book of business, they will require the right technology to support best practice implementation of Customer Success with an ability to automate, streamline and scale.
Customer Success is one of the core process of a SaaS business and must be implemented in a way beneficial to both the customers and the company. Want more on customer success? Visit Amity. Amity helps SaaS companies dramatically improve conversions, on-boarding, retention and growth to lower the Cost of Acquiring Customers (CAC) and maximize their Lifetime Value (LTV).