For SaaS businesses in general and Customer Success practitioners in particular, it is critically important to understand how customers perceive and measure the value delivered by a product or service. This post explores Value Realization in a SaaS context, and identifies key metrics that can help quantify value for a customer.
There are a number of measures that can quantify value delivered including Cost-Benefit analysis, ROI, NPV, Utilization, and Product Adoption. Regardless of the analytical framework, the only measures that matter are the ones agreed on with a customer at project initiation as established measures for success. These measures drive the Customer Success function towards helping the customer achieve value realization by staying on track with projects, and achieving business objectives.
For a customer, value realization is directly correlated with successful business outcomes, which are tied to the fundamental reasons the customer purchased the service. These business outcomes vary considerably across a customer base, although the core product or service offering remains focused. The need to track and communicate customer value based on business outcomes is a prime reason for the rise of Customer Success. A Customer Success Manager is not only a customer’s advocate within the vendor organization, but also a driver towards realizing and communicating value for the customer. To put it more simply, Customer Success Managers strive to achieve a product-customer fit that delivers business objectives and ultimately drives maximum value and return.
The Value Concept
Let’s take a look at the Value concept and the Value Realization cycle. The first and most important step is to determine the perceived value for a customer . Start with an investigation into what has been promised by the Sales team during pre-sale discussions.
The next step is to ask questions of (or survey) the customer during the onboarding process:
- What will constitute success with the product in the organization?
- How is their manager measuring their success?
- Do they have key milestones they want to achieve with the product?
- Do they have use cases that they want to be quickly enabled?
It is important to note that the concept of value may change over time. It is therefore necessary to measure and recalibrate on a continuous basis. There should be a constant communication on value and benefits, not just features. Never assume that customers will automatically understand the impact of new features or functionality. Value may also be people dependent, so when stakeholders change, it is important to measure the perceived value again with the new team. Expectation management is very critical, and in this area, experienced and efficient Customer Success professionals are able to shape customer expectations. Education and training are important tools for CS professionals to change the concept of the value derived from the product.
The Value Realization Cycle has five steps. The first is Value Definition, in which value is defined during the sales process with the promised ROI. Value Definition is followed by Value Delivery, in which value is delivered through implementation, integration, training, help content and support. The third step is Value Realization, the “AHA” moment by the user. After Value Realization comes Value Validation, in which the user confirms the value received, and the vendor gains approval from the larger organization. The final step is Value Optimization, in which you go beyond the expected value, and set grounds for price increases or upsells.
Value realized is most explicit when displayed in terms of revenue. Unfortunately, this is easier said than done. Usually this information is difficult to calculate, and data inputs are not easy to track. The change from the perpetual licensing model to the subscription-based business model has changed the metrics for Value Realization. Let’s take a look at two key metrics.
Key metric for Value Realization:
Time to Live (TTL) – Time from Contract Signing to Go Live (in Weeks or Months)
Key metric for Customer Success:
Time to Value (TTV) – Time from Contract Signing to X% Adoption (in Weeks or Months)
Value Time Frames
SaaS systems are inherently plug-and-play, with minimal time required to implement systems. If the time required to bring the service to life is high (measured in months, instead of days or weeks), the better part of a customer’s initial annual contract may be expended in integration, thereby delaying any received value from system procurement and purchase. In some instances, the customer pays for both integration costs, as well as opportunity costs as the project integration is delayed (i.e. resources and funds attributed to this project that may have been more fruitfully spent on other projects).
Under these circumstances, it is also difficult for a service provider to demonstrate value in a compressed timeframe, creating pressure for subscription renewals, and thus lowering their potential to create value for the customer and for the provider. A low Time to Life and Time to Value (metrics agreed on with the customer) benefit both the customer and the service provider, and set up conditions for recurring value production, leading to maximized customer lifetime value.
The VR End Goal
The best asset a Customer Success professional can give a customer is to proactively create value on their behalf, without the customer’s prompting. This can happen only when CS teams acquire a deeper understanding of the challenges of the customers, and set out their delivery to meet those challenges. In the end, realizing customer value is a function of delivering on established business outcomes, wrapping the delivery in consistent customer communication with metrics, at the right time, and through the right medium.