Magazine Article | August 1, 2018

The Building Blocks Of Customer Success

Source: Software Executive magazine

By Phil Nanus

Whether you’re building a new customer success team or streamlining your existing one, you need to consider the best strategy for funding, hiring, and framing this important element of your software business.

B2B software companies are marching toward a new subscription economic model, which is shifting focus from new customer acquisition beyond the initial sale and placing an emphasis on supplier goals of retention and expansion. This has led to a heightened interest in the creation of new customer success organizations, and the momentum continues to grow at an unprecedented rate.

Before you can plan ways to better serve your customers, you must decide what defines “success” for your organization based on your company goals. TSIA research has shown that the charter of the customer success function can include one or more from the following list:

  • ADOPTERS: Help customers extract a return on investment from offerings that have already been purchased.
  • RETAINERS: Make sure customers renew or repurchase existing offers.
  • EXPANDERS: Expand the footprint of company’s revenues by selling new offers to the same customers.

TSIA’s customer success benchmark data indicates that 90 percent of customer success teams identify their charter as adoption or retention.

A FRAMEWORK FOR CUSTOMER ENGAGEMENT

Customer success requires prescriptive time, event, and value-based interaction among customers, suppliers, and the offers, throughout the entire life cycle to ensure the promises of the suppliers’ technology and services offers are realized. This engagement requires a consistently positive experience with your company and software.

To better map out this life cycle, TSIA has developed a customer engagement framework called the LAER model, which is made up of four parts:

  • LAND: Activities leading to a prospect becoming a customer.
  • ADOPT: Helping the customer effectively use your offer to achieve their business outcomes.
  • EXPAND: Encouraging customers to buy more of your products and services.
  • RENEW: Persuading your customer to renew their relationships with your company.

Customer success typically gets involved after the sale has landed, but we’ve recently seen more engagement before the deal is closed. This has resulted in smoother handoffs from sales to the next team and a much faster time to value for the customers, with less time for the customer to wait to see their first outcome. Time to value greatly impacts a customer’s adoption of your software, as well as their decision to continue and ultimately renew, so it’s important to focus on shortening that time.

FUNDING CUSTOMER SUCCESS

In our 2018 TSIA Organizational Study, we found 90 percent of companies that identified themselves as primarily subscription providers (i.e., SaaS) have a customer success function. Typically, these companies are funding their organizations out of a base percentage of their offers either accounted as sales and marketing or cost of goods sold. The funding is typically tied to a core financial metric such as retention,churn, or expansion rates. At other companies, we see funding strictly tied to cost of services as they are primarily funding customer success through a monetized, or for fee, type model. With the ability to accelerate the customers’ return on investment, coupled with achievement of specified business outcomes, the ability to monetize the adoption-based capabilities is found in 49 percent of customer success organizations, based on our research findings.

The ideal funding model and source is different for every company, and the charter of your customer success organization will have the heaviest impact on the amount of funding needed as well as the best source.

Whether you’re building a new customer success team or streamlining your existing organization, here are some questions that will help you get started in building a funding model that works best for your company:

  1. What is the target financial model your company is attempting to achieve?
  2. Will the customer success organization be responsible for adoption?
  3. Will the customer success organization be responsible for renewing the customer subscription?
  4. Will the customer success organization be responsible for lead generation, cross-selling, and/or upselling existing customers?
  5. Is there an ability to accelerate adoption by monetizing the adoption-based customer success services?

HIRING AND COMPENSATING CUSTOMER SUCCESS MANAGERS

When it comes to finding your ideal customer success manager (CSM), here are three must-have skills to look for:

  • CUSTOMER SERVICE: This is the most important skillset needed for a great CSM, with the most common skills cited as being communication and presentation skills, as well as a history in account or relationship management.
  • TECHNOLOGY: A CSM needs to fully understand your company’s software from the user’s perspective, including its use within their unique operating environment, in order to help move customers from lowest level of adoption, which is consumption, to effective adoption, which focuses on achievement of customer-specific financial objectives and business outcomes.
  • FUNCTIONAL: If they’re to connect your software to your customer’s desired business outcome, then your CSM will need to understand some of the finer points of that customer’s business or industry.

In TSIA’s 2017 Customer Success Compensation Study, we evaluated three elements: salary data at the individual employee level, variable compensation levers, and compensation practices. There were two big observations from this global study:

  • SHORTAGE OF QUALIFIED LABOR. There is clear evidence of a labor shortage in the marketplace for customer success. The anchor for this assumption is the 29 percent increase in compensation from 2015 to 2017 for the role of customer success managers within the United States. The growth is focused around on-target earnings (OTE), which is defined as base salary plus variable bonus plus commission, if those elements exist. Further, LinkedIn recently posted that there were approximately 20,000 global CSM openings against 62,000 existing jobs representing an impressive 32.5 percent open job/existing job ratio.
  • ORGANIZATIONAL ALIGNMENT MATTERS. There is correlation between customer success reports and the growth of the team. Customer success organizations that reported directly to a C-level individual grew 11 percent faster than those that reported to a sales, services, or support executive.

THE ROLE OF CUSTOMER SUCCESS

At TSIA, we believe customer success is a services motion with a sales result. It’s all about the activities related to helping your customers achieve their goals through the effective use of your technology. While the promise your company offers extends throughout your entire organization, (e.g., your product management team conceives the promise, you have engineers who develop and build the promise, and sales sells the promise), it’s ultimately up to the customer success team to execute against that promise.

By focusing on what your customers hope to achieve with your offers, you are proving your value to their businesses, which is becoming increasingly more important than providing software and services alone. For some, this begins in a thematic customer-centric culture, but the ultimate destination should be aligned as a continuous engine that supports and grows the company’s recurring revenue, ensuring profits for years to come.

PHIL NANUS is the VP of customer success research for TSIA. He works closely with member companies to deliver research and advisory programs focused on helping them optimize their customer success organizations. Prior to joining TSIA, Phil was the VP of customer success at Infor, where he led a team of CSMs focused on driving customer adoption during their transition from on-premise to the cloud.