The CS Glass Ceiling
Since Customer Success is a relatively new field, most companies lack a clear approach for understanding the necessary costs and allocating funding for it. Conventional wisdom from software license models dictates that a business function either supports product development, or sells the offering. Finance departments would prefer that it’s either one or the other. Budgets for Support, Engineering, and Product Management have traditionally been applied to COGS (Cost of Goods Sold), but that money quickly runs out when extended to cover further functions. Customer Success can turn to help from the Sales budget, but must address the worry of diluting it for little return.
A Hybrid Function
Customer Success is a hybrid function in the customer facing ecosystem. CSMs take on increasing responsibility for shaping and offering ‘success services’, proactively looking for ways to optimize accounts, retain existing customers, and expand product subscriptions. Customer Success sees new, valuable recurring revenue opportunities that Sales teams often miss in the rush of nurturing a new lead. Increasing pressure from investors in Saas companies to turn a profit means all potential revenue streams must be activated and fully exploited.
Securing renewals enables the SaaS waterfall Finance predicts. Often a substantial effort, it simply sustains the revenue you already had – sometimes less. Lengthy renewal battles with aggressive customer procurement departments often take as much time, energy, and resources as new business sales!
Tapping Uncharted Streams
Customer Success has to prove that its unique customer engagement gives access to previously unseen and untapped revenue streams which will drive growth, escape the ‘sales give services away’ issue, and drive holistic recurring revenue offerings that stand up for themselves and add value to customer adoption.
Identifying new opportunities from existing accounts can be achieved by creating new segmentation and coverage models, deployed throughout the Customer Lifecycle – and governed by portfolio management of customers based on their potential.
Customer Success leaders have to make the case that this is a vital new business, enabled by evolution of the ‘go to customer’ world. Customers want deeper, value-based engagements from fewer providers, and reward those who can make it happen. The popular perception that Customer Success creates competitive differentiation via superior customer experience is true, but doesn’t tell the whole story. It also needs to be thought of in terms of a gross margin opportunity – a P&L.
This needs buy-in from the CFO, as with any line of business. Customer Success, taken to its full potential doesn’t already exist under another function. Often, SaaS companies have decided funding Customer Success should come from COGS, complemented from other budgets. Executive teams may land on different formulas depending upon their need for account retention. However, if Customer Success leaders can emphasize the further growth opportunities for gross margin (ongoing customer retention AND new revenue opportunities from the customer base), CFO support will be easier to come by.
Here’s a suggested flow for conversation with the CFO:
Quarter 1: Present vision of how Customer Success will make an impact on gross margin by increasing retention AND growing customer spending – enabled by proactive management of the customer lifecycle.
Quarter 3: Present investment required, as well as the retention and growth impact (expressed in portfolio dollars, not customers).
Quarter 4: Move towards P&L model. If you can, provide a forecast for new Customer Success products of services, as well as enabled up & cross sells.
Quarter 5: Compare cost of revenue growth from existing customers (i.e. retention plus new), with the cost of brand new customer acquisition. (It should be much lower!).
The business of Customer Success must evolve, led by flagship products, new markets, and astute customer segmentation.
Unlocking opportunities requires positioning Customer Success as a business venture, with its own P&L, led by a holistic view of customers and how they want to invest. The principle – ‘customers will invest more to be satisfied and successful’ – is a mindset shift.
Those customers may be segments of your existing account base, but the ‘business of Customer Success’ will identify, target, and provide value propositions which attract increased investment.
In a recent discussion with an executive from a leading SaaS company, he lamented, “80% of SaaS companies don’t get this.” As Customer Success moves to a ‘global enterprise’ scale, the fastest growing companies will shatter the glass ceiling created by the ‘Customer Success is post sales’ dogma.