Over the past two and a half decades, Cloud-based software delivery has transformed the marketplace with Software as a Service (SaaS) becoming the default way that customers purchase almost any software. This has changed the dynamics between vendor and customer and spawned new disciplines and functions within vendor companies known as customer success.
As SaaS models continue to mature and specialize, a new business model is rising in which customers are paying for services at the point of consumption rather than via periodic seat subscriptions. As a customer success leader, you need to be prepared for the implications of this change. Read on to learn what some of them will be.
Forget the Renewal
In traditional SaaS subscriptions, the renewal is the beating heart of the business and the very reason for the existence of the Customer Success function. Early-adopting SaaS companies found that, without customer success, customers, who weren’t invested in any one solution any longer, could easily switch from one offering to another. This resulted in churn that drains existing business faster than sales could replace it. Meanwhile, they also found that retention could result in soaring CLTV, revenues, and company valuations. See the incredible rise in Salesforce’s market cap.
However, in a consumption-based subscription, the renewal becomes a non-event, but only because consumption takes the place of the renewal. Each stream of consumption becomes a series of “mini-renewals” as the customer makes usage decisions regarding your product.
Leverage SBI’s Customer Success RACI Tool to identify those responsible, accountable, consulted, and informed for various tasks in your company and determine your probability of making your 2020 number.
Be Even Closer to Your Customers
In customer success, it is always true that it is best to take an outside-in perspective to build partnerships with your customers and fit their needs to your solutions. You and your team need to think like your customers and see the challenges and options that they have to understand how best to help them choose your solution now. You also should be providing insight into your business on how to adapt to emerging insights from customer interactions.
In a consumption-based model, an outside-in perspective becomes even more salient. This is because many customers are coming to believe that it is best to pick and choose which pieces of their infrastructure go into which 3rd party solutions versus staying in-house for a variety of reasons (e.g., efficiency, security, cost, etc.). This means that the complexity of your customers’ solutions increases compared to an all-inclusive software subscription which your company manages.
To manage this complexity, you will need to intensify your efforts to understand your customers’ needs, or you won’t know which levers to pull to support their utilization of your product. This will also lead you to a much more nuanced and customer-centric understanding of forecasting since it can be spikey compared to a traditional all-in subscription model. More on that below.
Finally, consider shifting your team’s ideal talent profile to be more technically focused. In some cases, this shift could lead to a much closer understanding of your customers’ businesses and an edge in driving consumption.
More Strategic Customer Success
The customer success team in a consumption-based business model can expect to be more closely associated with revenue, given that the relationship between your actions and revenue will become much more direct than before. This will lead to more visibility and more opportunity for strategic consideration in your organization.
This is not to say that traditional, enterprise-model SaaS revenue is un-effected by customer success efforts. Actually, this isn’t true at all, and many, many companies have come to understand how important customer success is over the years. However, in a consumption-based model, customer success’s function will be closer to the revenue. Therefore investors, boards, and leadership teams will all be more likely to notice both the value and activities of customer success teams as a result.
This is a big opportunity for your team to become an even more strategic aspect of your business. And I’m sure you’re thinking it isn’t a moment too soon!
It’s a cliché to say something is all about communication. However, this might be the biggest operational adjustment for customer success in an organization that’s switching to a consumption-based model given the complexity and intensity of the efforts needed to support it.
Communication between Sales and Customer Success becomes even more crucial in a consumption-based model since there is no longer any predictable relationship between purchase and revenue recognition. In fact, it may be that the motions begin to merge. For example, compensation plans between sales and customer success might become aligned.
Regardless, it will necessitate closer and closer communication between your teams. Customer success will have to resell the customer on the value and use of the product at every turn, and sales will have to pay ever closer attention to what customers need to succeed.
Consumption-based models are spikier and more complex. So, to predict revenue and understand what usage is good for a given customer, you will need to get an intimate understanding of your customers’ needs. This means taking advantage of operations’ insights and expertise in tracking consumption at the granular level.
So, bring operations into your planning proactively and develop a partnership with them to better predict your customers’ usage patterns. Be ready to adjust KPIs and assumptions as you observe the business from operations’ perspective.
Given the consumption-model customer who is empowered to come on board quickly (and also to leave quickly), the likelihood of a support incident channeling into a quick call to a CSM or sales rep rather than established support channels goes up. This is not truly a new thing in and of itself, focusing customer success time on higher-value activities is an ongoing challenge for leaders.
However, there is much higher potential to lose business at any point in a consumption-based model. Hence, as you attempt to mitigate the loss of higher-value commercial effort through shifting customers to support channels, you need to be able to trust support thoroughly. This is where close communication becomes essential. Understand what is happening with support and make sure they are getting the development and resources needed to serve your customers seamlessly. Consider creating a support team ramp into customer success that both bolsters your recruiting of proven customer-centric talent and improves support’s strategic understanding customers’ needs and motivations.
Take SBI’s Customer Success RACI Tool and Gain Insight into Making Your 2020 Number.
Making the Switch
Is your business changing to a consumption-based SaaS model? Could you use a hand in understanding how this will affect your organization or your team’s talent profile? Do you need help understanding the right relationship between sales and customer success to best to produce maximum customer value? Get started by evaluating your own Customer Success strategy using this diagnostic. Perhaps it’s time for a visit to SBI’s Studio in Dallas for objective help and advice on your situation and your path forward. Contact SBI and let us tailor our Revenue Growth Methodology to your specific needs.