What Does “Customer Success” Mean For SaaS Businesses?
Customer Success is the recurring revenue business’ answer to churn. A newly discovered weapon against a problem that had previously being accepted as a fact of SaaS life. Just as the sun rises and sets every day, so must 2.5% of all customers churn every month. That’s just the reality of subscription business models, right?
Well not anymore. Customer Success is here to kick churn’s out the door!
What Is Customer Success
Once we’ve worked hard for something, we don’t want to give it up. And that’s a good thing, because acquiring a new customer can be five to 25 times more expensive than retaining an existing one.
Customer success is all about preventing that loss, and retaining existing customers. Luckily, software business have discovered that the correct way to do this is not to tie people into long contracts. Instead, the industry has realized that the customers who stick around are the ones who are successful.
If a customer can clearly see an additional $15,000 revenue per month as a direct result of using your software, and your software costs $1,500 per month, guess what? They stick around. Because business folk are all great mathematicians, and $15,000 – $1,500 = $13,500 profit for them.
Not all SaaS products are designed to increase cash profits for their users of course. Some are designed to directly impact a different business function. Save time. Save energy.
Perhaps your product is a project management tool for software teams. You might argue that the value benefit for your users is to increase the overall team productivity (although I’d argue that most value benefits of B2B SaaS can eventually be traced back to a profit/revenue increase). The value you sell all over your website is “Be more productive”.
But how confident are you that every single customer is achieving a higher level of productivity since paying for your software?
In my opinion, the mission statement of a Customer Success team should be:
“To maximise the actual value benefit of our customers as a direct result of using our product”
Now right now you might be shouting “Well Obviously!” and your marketing team may already understand the importance of customer success and have incorporated a marketing strategy that promise to achieve this exact result.
But honestly, if you look really hard, once that customer has completed their free trial and entered a credit card, do you actually take a proactive approach to discovering how much value they’re actually getting from your product?
And notice I said “…actual value…” because sometimes a customer can initially perceive to be receiving value, so they stick around for a few months and keep paying. But 3-4 months later, when the effects have rippled through their business and they notice zero increase in their revenue, they might start to ask just how much value your product is really providing. It looks pretty and displays fancy charts, but how does that translate into business value?
Customer success is about ensuring your customers realize greater success in their business. If you can guarantee that, you’ll reduce churn.
Which Business Functions Does Customer Success Own?
Typically speaking, customer success will primarily exist in 3 core areas:
- Up-Sales and Renewals
Onboarding Users and Free Trials
Customer Success teams should own the onboarding experience. Educating the customer about the product, slowly easing into more complex features, hand-holding through the setup process, webinars, screencasts.
The onboarding flow is designed to demonstrate to the customer the value they can receive from this product within a 14-30 day window.
In some circumstances (large enterprise) where perhaps the “customer” is a VP who will probably never use the product, the sales rep will own that relationship, but the onboarding team will be working with the actual users of the product within the company. In this case, they aren’t working within a finite free trial window, but the process is the same.
If you can get the team successfully using the product, then when their VP asks for a review after 3 months, it’ll be a positive one and she will continue the subscription (or renew the contract etc.).
Whenever a customer opens a support ticket, it usually means your product’s engineering, user interface or help documentation have failed. Most people will try to help themselves, and when they can’t anymore, then they’ll open a support ticket.
While a support ticket is open, a customer is no longer being as successful. They might even have to logout and leave the product entirely until the ticket is resolved.
Customer Success teams own support because it allows them to:
- Be Proactive: Resolve issues before they’re even issues by monitoring in-app usage
- Success-focussed: Don’t just fix the issue, but take the opportunity to go above and beyond the issue so that the problem because and increased benefit
- Loop in feedback: Instead of thinking about issues as bugs or problems, the customer success team will see blockers preventing their customers from being successful. This change in mindset is powerful for helping to inform design and engineering about which priorities matter the most
- Repurpose: Once a support question has been answered, the customer success team can get straight to work on creating a screencast or setting up a webinar to answer that question for all customers affected.
The important thing to remember is that in many SaaS businesses, one support call can wipe out the entire profit margin of that customer for that month, maybe even longer. Customer success teams know that they need to reduce support tickets, but while achieving an overall net-positive effect on their customers experience.
Up-sells and Renewals
Because customer success teams have access to so much data and information about each customer, such as how they use the app, how that’s translating to business value for them, who the product champions are within the company etc. they are the most informed to know when is the right time to get an up-sell from that customer.
Because even if we have reduced our churn to 1%, we can counteract that further with negative churn. Which means our revenue increases from our existing customer base is greater than the amount we lose from lost customers each month.
If your customer is only paying a 5 seat license, but you know that over the last year their marketing department has grown to 13 people, then you know that they will be more successful if they upgrade to a 15 seat license (leave room for growth). This is not pushy sales. You’re genuinely trying to help their business out.
Customer Success Metrics
“Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.” – H. James Harrington
We need to understand the basic metrics around customer success so that we can understand, control, and improve on them in order to achieve customer success. The problem is, the most obvious metric is actually one of the least useful:
Churn % (Revenue and no. Customers)
Churn is a trailing metric. Which means by the time it has happened, the customer has already left and there isn’t much you can do about it. At the end of the month when we know our churn rate got worse, from 1% to 2.4%, there’s not much we can do about those extra 1.4% of customers. All we can do is look backwards at the month, see where we went wrong, and put changes in place to not repeat those mistakes
It’s important to track churn as a % of number of customer accounts lost, and churn as a % of recurring revenue lost.
If we’re churning a high number of customers, but hardly churning any revenue, then that paints a picture that we’re losing a huge number of our very small users (maybe hobby or developer accounts) but we’re keeping around our bigger business and enterprise customers. From there, we can look at whether we can make our smaller customers more successful and perhaps learn from what we’re doing with the bigger customers.
Product Utilisation %
If a customer account is only using a handful of the features of your product, then generally speaking, they aren’t being as successful as they could be. When tracking this, it’s useful to add context and weighting to each feature, as it may also be a product development issue.
Consider this: 90% of your user base engage with your Messaging feature, every single day. However, only 8% of your user base engage with your file upload feature on a daily basis. The correct action in this case is not to repeatedly spam the other 92% of users about your file upload feature. Instead, you should speak to your customers and find out why they enjoy the messaging component so much more than the file upload. Maybe they think it sucks, maybe they never noticed that tiny file upload button.
From those conversations, customer success can either inform product development, or they can implement a product feature awareness campaign.
Account Health Score
Product utilisation contributes to an overall Account Health score, which is a leading metric. If an account is beginning to look unhealthy, you usually have a few days minimum but potential a few weeks to recover the account before it churns.
It can be difficult to quantify account health, and therefore have metrics like % monthly change in average account health, however various apps and tools can do this for you. Other factors that contribute to a health score include support tickets, bugs encountered, frequency of logins to the product, open and click rate on emails and social media mentions of the product.
NPS (Net Promoter Score)
An NPS is really a very complicated way of asking how many of your customers say they would refer your product to a friend. The important thing to remember about these scores is that what a customer says they will do, and what they actually do, are very different.
Referrals (no. Leads and Revenue)
Much more meaningful than an NPS score is actually measuring the amount of referrals an account has given. If they have yet to refer a single lead, then there’s a good chance they aren’t experiencing maximum success from your product. You don’t want them to just like your product, they need to love it!
Measure # of referrals on an account (give them a promo code to give to friends) and measure the referred $ revenue on an account.
Customer success is a huge area, and something I hope to be blogging about in a lot more detail over the next few months. While this post hasn’t dived into any particular aspect in great deal, it’s the introduction to the topic that I wish had existed a few years ago when I started exploring the topic myself.
If you have any specific questions, tips or opinions on customer success, please join in the discussion in the comments below. It would also be great to know a bit more about which parts in particular to cover in future posts.