Yesterday I attended Gainsight’s #PulseEurope conference in London. There was a lot of excellent speakers and panellists (yes, I wad one of them!) and a plethora of discussions, ideas and debates around the power of customer success and how critical it is to businesses today. Let’s start with a really, really, really powerful figure that you can use with your own CEO:
80% of b2b SaaS revenues are directly attributable to customer success, not sales
This startling number came from a number of businesses, including some Fortune100 businesses, and is based on the fact that without customer success, the predictability of renewals, cross-sell & up-sell would all but evaporate.
We started the day looking at how the old sales funnel has changed. In the past, a high volume of marketing activity generated a smaller amount of leads, which in turn led to a even fewer conversions, hence the funnel-shape to the old sales model. Customer success transforms this into an egg timer shape, where those converted customers can be driven to adopt, driving an ever greater number of users through expansion and increasing the overall renewal revenue. Furthermore, customer success is driving secondary growth (up-sell & cross-sell of additional products and services) and tertiary growth, in terms of a greatly increased business valuation for those looking to seek additional funding. Customer success is at the forefront of helping business move from a churn avoidance model to an advocacy and upset model – the subscription economy is ensuring that we focus on evolving mature relationships rather than just closing a deal then chasing the renewal a year later.
Nello Franco from Talend & Chris Bates from Clarizen hosted a panel on aligning customer success with your board. We further discussed the 80% revenues driven by customer success, and how to present this to the board. Customer success gives an accurate churn / retention / risk view and allows a business to create a plan to control them. The fact is, customer success is cost justifiable, you need to work out how in your business you show the ROI (return on investment.) Start with categorising your churn – for example, “lost to competition” is an outcome, not a reason for the churn. The actual drivers can be ascertained from your success team – poor product performance, lack of features, uncompetitive price, difficulty in adopting the product. Success can then often bridge the gap with customers until the business fixes these issues. With regards renewals and retention, there are too many complex definitions with so many disclaimers. The panel proposed the following:
Renewals = all contracts due for renewal within a given quarter – % revenue did not renew
This focuses on presenting ACV (annualised contract value), without adding in cross-sell / up-sell numbers. It’s also important to calculate retention on a constant currency basis (FX rates may vary from last year to this year, clouding real performance.) So where to count cross-sell / up-sell? Nello Franco recommended reporting it as new ACV.
Segmenting your data into cohorts (regional, product-based, customer segment or business sector, channel) is extremely useful to see where your REAL churn is happening. Once again, customer success identifying the reasons and planning the fix is meaningful and significant for the board report, as it shows targeted actions by valuable resources to increase revenue.
Chris Bates expanded on the impact of net revenue (using the above formula) has on the business valuation. The positive impact of customer success on LTV (lifetime value of customer) is easily reported, using the following:
New booking + (Additional booking from existing customers – Churn) = Net bookings
Whilst sales drive new bookings, both the later numbers come from customer success. Chris pointed out the importance of implementation success for customers, and reminded us to factor in CAC (customer acquisition cost) into our LTV calculations (pushing out the break-even point.) Successful implementation is (statistically) proven to drive a longer tenure (due to better adoption) and a strong sales / customer success partnership in progressing cross-sell & up-sell.
The final point Chris raised was about the strategic prioritisation of your success budget to maximise ROI. No matter how basic a model, you need to be able to demonstrate the difference customer success makes against the net revenue generated. Overall, there’s a lot of number crunching to be done, but if you’re determined to get board buy-in to success and further investment in the team, its critical to get these metrics in front of the board.
To wrap up this weeks blogs, I’ll leave you with Gainsight Chief Customer Officer, Dan Steinmsan’s comment that customer successes not just a part of your organisation, it’s a business philosophy and a structured discipline – this really resonated with the audience, including numerous CEOs and venture capital firms.