Who has skin in the CS game, the pain of bad-fit customers, techniques to combat involuntary churn

Recognition of Customer Success is growing rapidly, yet it requires more than just a new department, new hires and new titles. The shift to a Subscription Economy and the corresponding shift in Power to Customers means that businesses need to embrace Customer Success just to keep pace, let alone thrive. Yet in many instances, Customer Success is still viewed as an offshoot of Sales or Support. For Customer Success to produce revolutionary growth it needs to be championed by the C-Suite as a distinct profit center.

Here’s what it looks like when Customer Success is implemented incorrectly and how to get back on track:

• When CS reports to the VP of Sales: Many Sales teams are rewarded based upon the overall revenue or Gross Profit Margin (GPM) of new business. Once the prospect signs the deal and becomes a customer, they proceed through onboarding and Sales shares everything they’ve learned with the Customer Success Manager. Everything looks rosy and they’re ready for a bright future together, customer and CSM riding off into the sunset together…until the partnership fall off the rails.
  • The Problem: If Customer Success is an extension of Sales and they’re rewarded for the same activities as Sales, then it will be very difficult for them to earn the complete trust of their customer. Why? Just because we have something to sell doesn’t mean they’re ready to buy. This is the crux of Customer Success: it’s our goal to help our customers achieve all their business goals and most of the time this has nothing to do with selling. Trust comes first, before any upsells, cross-sells or expansion plans. If we place sales before trust, if we elevate our quota above their long-term business goals, we are asking for trouble. Customer Success needs to be grounded in service, not selling.
  • The Solution: If your Customer Success team currently reports to the VP of Sales, you need to first decouple Customer Success from Sales. Members of your Customer Success team definitely need to share certain attributes with Sales: confidence, product knowledge and a bias for being proactive. But these are all simply part of a CSM’s broader talents for strategic planning, cross-functional communication and collaboration. Their primary goal is to help their customers succeed and oftentimes this goes far beyond the business needs addressed by the product. This is why CSMs need to be rewarded based on retention, adoption and advocacy and it’s also why we need to strike the word “quota” from their vocabularies. Then, tie your Sales Team’s compensation to GPM of new business and recurring revenue from that account. Give them skin in the game! Sales need to consider the Lifetime Value (LTV) of that account and not simply the one-time commission payout. Is this an Ideal Customer? How likely is it that they will churn? There are many things that Sales can do to influence the outcome of these questions.

• When CS reports to the Director of Support: Members of Support are the unsung heroes of your organization. In many ways they’re playing a constant game of Whack-A-Mole: They’re always “on,” there’s always a fire that needs to be put out and the calls just keep coming. It’s natural that Support is graded on efficiency and speed-to-resolution. The number of tickets open, the length of time they’ve been open and the customers who called in those tickets all figure into this equation. We can easily use these metrics to resolve crises more quickly.
  • The Problem: These are also the exact opposite standards by which we grade Customer Success. At the moment a customer calls in flaming mad, it’s already too late. Fixing the problem – reacting to the call – is the goal of Customer Support. This is a tactical decision, yet Customer Success is strategic and proactive. Customer Success is tasked with answering the following questions instead: 1) What steps can we take to make sure this crisis doesn’t occur again – both for this customer and for all customers? 2) What could we have done during onboarding / implementation / our last QBR to prevent this from happening in the first place? 3) Has Support tracked this type of problem in other customers before this call? How can they transmit this data to Customer Success more effectively? Both Support and Customer Success are vital business functions, but for each of them to be effective they need to operate separately.
  • The Solution: If your Customer Success team currently reports to the Director of Customer Support, know that both teams need to work closely together but if anything Support is part of Customer Success, not the other way around. Just like our example with Sales, Support needs to be invested in the long-term trajectory of the customer who’s calling in. Fix the problem but also, take the opportunity to gather as much data as possible for Customer Success. Just like Sales, Support needs to understand LTV of each customer who calls in. Knowing the context of their last conversation with Customer Success will also help tremendously. It may even be helpful to include a retention component in the compensation plan for Support. Support’s touches are shorter and of a different nature than Sales’, so this factor could be treated as a quarterly bonus vs a major salary component. The more our customers understand that everyone on our team is committed to helping them achieve their business goals, the easier it will be for them to stay with us, refer us new business and champion our solution if they move to another company.

• When CS reports to Executive Leadership (this is what you want!): Customer Success is an entirely new business function. Not since the advent of IT have companies had to make this type of fundamental shift in how they structure their business. Yet simply creating a new department and promoting your rising stars to lead it is not enough. Customer Success needs to be a distinct business unit, but this is only the first step.
  • Executive Leadership needs to grant the same amount of Power to the VP Customer Success as they do to the VP Sales, Director of Support, Head of HR and VP Product.
    • Power to weigh in on the company’s budget as it pertains to growing recurring revenue of the existing customer base,
    • Power to request additional resources to enhance recurring revenue, from hiring new Customer Success Managers to implementing new technology,
    • Even Veto Power to decide whether or not a customer is a good fit – before they sign.
  • Executive compensation needs to be tied to retention and growth of the existing customer base.
    • What happens if we don’t focus on retention? In 2005, Salesforce was signing new customers left and right and its market cap was accelerating past $500 million. Everything seemed awesome – until they dug a little deeper and realized that their churn rate was 8% per month. Pause for a moment and let that number sink in. As quickly as they were gaining new customers, the odds of those same customers leaving within the next 12 months were close to 100%. Fortunately, the CEO of Salesforce, Marc Benioff, took drastic steps to staunch this mass exodus and in doing so Salesforce jump-started the modern Customer Success movement. Marc Benioff and his entire team realized that if they didn’t take immediate steps to reverse the trend in churn, there wouldn’t be anything left to save. This decision had to come from the top.

Customer Success Around the Web

• The importance of becoming customer-centric to your company’s mentality: Many companies believe that the key to success is being product-centric because, after all, if your product is great, your customers will be happy, right? In reality, a good product is simply not a guarantee that your customers will be successful. A multitude of varied factors make up a customer’s experience with your product and company and as a result, SaaS businesses must transform their whole way of thinking from product-centric to customer-centric. But what does it mean to be customer-centric and how should this shift your entire company’s mentality? Dive into this read to understand customer centricity and learn how to become customer-centric.

• The acute pain of closing bad-fit customers: Harsh truth time: Acquiring bad-fitting customers is destructive to your business. But given that most salespeople don’t wake up in the morning and say “today I’m close ’em all and let Customer Success sort them out,” how do these bad-fit deals even happen? It starts with a lack of understanding around what a makes a prospect a “bad fit” and the impact balloons out from there, touching every part of the business from onboarding to product to support to CS to shareholders and, of course, the customer. This interesting post looks at how to help Sales truly understand what a bad-fit looks like, cutting the impact of bad customers off at the source.

• 11 SaaS retention techniques for involuntary churn: We love a good list of ideas to kick-start our thinking about new approaches to customer retention! This great list focuses on the dreaded involuntary churn due to failed payments, where good customers are lost unnecessarily because of solvable problems like expiring credit cards. Check out their 11 ideas for optimizing your process for recovering customers when payments fail – and some of their ideas are definitely out of the box (like that you should stop pre-dunning – gasp!).

Word to the Wise

This week’s wisdom comes from Stephen O’Keefe, Director of Customer Success at HubSpot, the world’s leading inbound marketing and sales platform that transforms the way businesses attract, engage and delight customers. In a recent interview about how Customer Success has evolved at HubSpot, O’Keefe provides an in-depth look into how HubSpot structures their CS team, what the team’s biggest challenges are and how they measure success (for the CS team and for their customers). The full interview is definitely worth a read, but his answer to one particular question – what do you think is the most powerful part of your Customer Success process? – really caught our attention:

“We have a tight alignment with folks who do onboarding. We have an implementation specialists group within our services organization that is responsible for the first 90 days or so. We partner with them very closely during that time to ensure that the customers are set up for success. We often do a joint kick-off call and a joint onboarding wrap-up call as well. [Additionally] We’re very focused on the business impact. While it’s important to us that the customer sets up and uses certain features, that’s not good enough. We want to make sure the software is driving the desired business outcomes.”

How could your Customer Success processes improve to be more focused on your customer’s desired business outcomes? It starts with understanding what a Desired Outcome really is and we recommend this fantastic read to kick-start your thinking.