Jan 3, 2023

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How to show that sales is not the only path to revenue growth

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This is a guest article by Ali Cudby, founder and CEO, Alignmint Growth Strategies, which helps companies develop customer relationships that drive long-term loyalty.

Customer Success is not a cost center. So why do companies see it that way more often than not?

Here’s the usual story: Company prides itself on being “sales driven.” The sales team is credited for winning revenue, while the Customer Success team is expected to retain the revenue.

Sales closes a customer that’s unlikely to succeed (for any number of reasons.) Lo and behold, they churn.

Sales got the revenue credited to their numbers. The salesperson got their commission. And Customer Success? They got the headache of serving this customer, the justification exercise when the inevitable issues came to light, and the “ding” for the churn. Even though the customer was never a fit for the company, Customer Success was left holding the bag.

This story is all too familiar, but it makes no sense. In fact, it’s bad for business.

The reality is that Customer Success has the important job of building solid customer relationships. Solid customer relationships drive long-term engagement, which is where customer value lives.

If a customer churns after one year—especially in B2B SaaS—that means the company spent time, energy, and money serving that customer only to lose money on them. Customers don’t actually become profitable until later into year two or even year three. It’s the Customer Success team’s job to shepherd those customers and help them realize the value of their purchases.

That means the Customer Success team manages the sustainable growth of a company. It also means that churn is expensive.

To unpack the impact of churn on a company, it’s important to understand the drivers of customer churn.

Why do customers churn?

Churn isn’t usually caused by a big mistake. It’s very rare that it’s accompanied by a made-for-movies dramatic moment, complete with a “You’re fired!”

Actually, it would be a lot easier if that were the case. If you can fix your churn problem by identifying one big booboo, you’re in great shape. If only life was that simple!

The reality is that customer experience is the sum total of every moment a customer engages with your company. It’s cross-functional, from marketing and sales to customer support/success/service and even your billing department.

Every time a customer hits a snag, it hurts. Kind of like a paper cut. They may not even notice the first one or two. But eventually, they add up. Those paper cuts *sting!* And once a customer notices the paper cuts, it’s hard to recover. At a certain point it’s churn, baby, churn. Death by paper cut.

The great news is that avoiding those paper cuts is simple. Companies can use cross-functional plays to deliver a customer experience that promotes retention and growth.

Plays deliver many advantages to Customer Success teams. Here are just a few:

  • Align strategic thinking so every team member understands why the play represents a key moment in the customer’s journey
  • Present a “single source of truth” so all team members work from an approved template for emails, presentation decks, and more
  • Share best practices that lead to continuous improvement
  • Capture the most important data for analysis and learning on the backend

When Customer Success teams use plays to manage and enhance a customer’s experience, everybody wins. CS teams become experts at what they do, which inspires confidence. They deliver a better experience. Customers are shown the exact steps needed to maximize the value of their purchases. Ultimately, positive experiences with customers who recognize the value of their purchases lead to retention. In fact, renewals become a no-brainer. That means sales is not your only path to growth.

Reimagining a company’s path to meet and beat revenue targets is a significant shift in thinking. The role of CS in delivering financial results has not been codified in many companies. That’s precisely why making this argument the right way is so valuable.

So, let’s say it again for emphasis: sales is not your company’s only path to growth.

Prove the financial contribution of Customer Success to the C-suite

Instinctively—logically—the financial upside of CS makes sense. In the real world, however, most CS teams have to prove to the C-suite that they generate revenue. So, show them the money. Literally.

A “cost of churn calculator” allows you to isolate churn and demonstrate what happens to your company’s financials when you improve net revenue retention. The “Churn Virus Calculator” (free at churnvirus.com) is one such tool. You input a few basic pieces of information about your business:

  • Current churn rate
  • Current ARR
  • Goal ARR
  • Projected number of years to hit the goal

The calculator shows you the financial impact of churn. Graphically, you see the impact of churn on:

  • One-year revenue
  • Cost of customer acquisition
  • Revenue/CAC ratio
  • Revenue at your projected goal time frame
  • Valuation at the time of exit

In real-time, you can see how the numbers change as you improve churn from your current churn rate to 100% NRR and 120% NRR. You can use these numbers to show your company’s executives that churn is the single biggest driver of your company’s financial growth.

When your CS team is managing churn, it means you are managing that driver. It only makes sense to invest in training to ensure your team’s success. The calculator makes the argument for that investment easy to understand and visually compelling. It also underscores the importance of CS as a growth engine for your company.

Customer Success is a revenue growth engine

When your department is a growth engine, that’s diametrically opposite to being a cost center. It transforms the conversation. It also underscores the importance of having Customer Success represented at the highest levels of company governance, including board meetings.

Showing that you’re a growth engine gives you, as a CS leader, the fighting chance you need to earn your seat at the table. With this status, you’re in the ideal position to get the investment to train your team and keep your customers.

If you’re fighting for the budget to upskill your team in 2023, show your C-suite the money! Use a cost-of-churn calculator to make a numbers-based argument that demonstrates the financial impact of converting churn into retention and growth. Then, ensure your team knows how to deliver CS best practices consistently. Your result?

  • Customers get more value from your company’s products and services;
  • They renew like crazy; and
  • Are so thrilled with their outcomes that they refer their friends.

Sales is not your only path to growth, but they have simple numbers at their disposal. Gather your numbers. Demonstrate the financial value CS delivers. Apply the tools and training to align your team and make customer renewals a no-brainer.

Determine the root cause of customer churn

While it’s true that churn is inevitable, an uptick in customers leaving you indicates a serious problem for your business. A combination of informed segmentation, KPIs, and qualitative feedback is key to rooting out any churn problem. Find out how to use these factors to find out where your churn is coming from and better predict it in the future using this seven-step guide to performing a customer churn analysis.

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