As a sales leader, you have most certainly heard the words “Customer Success,” especially if you are a sales leader for a subscription-based technology company. Some companies tout customer success as the critical driver of their growth. Many others, however, are missing the Customer Success opportunity and, as a result, limiting their revenue-generating potential.
So, what is customer success? And why should a sales leader invest in it?
Access our downloadable Customer Success Best Practices Reference Guide here to understand customer success best practices across SBI’s revenue growth methodology.
Customer Success Is a Revenue Enabler
The core mission of Customer Success is focused on enabling your customers to realize value from your company’s services or products. Customer Success uses proactive outreach rather than reactive outreach common to customer support models.
Many people talk about “delighting” the customer when describing customer success, but it’s not just about happy feelings. Customer Success is a revenue enabler. If your customers are not achieving the desired outcomes with your product, the likelihood that they will buy more of your product is much lower. If you want more upsells and renewals, you must focus on making your customers successful. That means showing customers how your solutions are adding value to their business on a consistent basis.
According to a Harvard Business Review article, “The Value of Keeping the Right Customers,” acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one. Existing customers are also likely to spend more on new products. SBI research indicates existing customers typically spend 16-41% more than new customers when trying new products or services. Selling velocity is faster, and you sell more. It seems like a no-brainer to focus on customer success. Still, when working with Sales leaders, I often hear many objections to investing in Customer Success.
Clients will say:
- “Customer Success seems like an extra cost.”
- “It’s a conflict of interest for a customer success resource to have a quota.”
- “We will deal with that once we have a stable product.”
These statements may be valid for a dysfunctional Customer Success organization. However, a high functioning Customer Success team will drive enterprise value far above the cost. Let me dispel the myths.
Why Customer Success Is a Revenue Generating Function
There is nothing fundamentally wrong with a customer success manager (CSM) helping a customer continue to use – or use more of – your product, so long as the additional product is helping the client realize business value from your product. It all goes back to the core idea here, Customer Success. For reoccurring revenue businesses, 70-95% of the revenues come from upsells (source: IgnitePost.com). Long term clients are ripe for upgrades and upsells. The more you sell, the stickier your product and the higher your margins become.
Why Customer Success Is Not “an Additional Cost”
Let use an example. Say you are a subscription company, and your ARR is $100M.
Benchmarks for this size company suggest you should be spending 3-10% of your ARR on your Customer Success function. In this example, that would $3-10M.
Say you are new to CS and want to err on the conservative spend side, so a $3M investment.
To offset that cost, your CS organization only needs to reduce annual churn by 3% or produce 3% in upsell/cross-sell from the customer base. That should be nearly impossible to miss. For reference, the benchmark is 10% up/x-sell in your average Customer Success organization and 20+% up/x-sell in a world-class Customer Success organization.
If you control churn and drive up/x-sell, you have already recouped the cost and increased the total ARR for the company. This ultimately increases your company’s valuation by multiples!
Examples of Customers Success Driving Growth During a Crisis
If you still do not believe me that Customer Success can be the growth lever, look at the Salesforce.com case study:
During the last recession, while many other companies were crumbling, Salesforce doubled its number of customers and tripled its stock price. In the 2007 Annual Report, Benioff’s letter began: “From the beginning, our number one priority at salesforce.com has been clear: customer success.” You can learn more about how Customer Success Helped Salesforce beat the recession here.
Ready to Stand-Up or Supercharge Your Customer Success Organization?
Watch our webinar for how to protect your revenue base and make your number through your existing customers. You can also contact one of our Revenue Growth experts through our Revenue Growth Help Desk to discuss your Customer Success strategy.