May 22, 2018
Innovation is the only constant in the tech industry. The subscription business model has totally transformed how software companies operate.
A great example of this is the rise of Customer Success as a critical function within every SaaS team.
Here’s a brief history.
The rise of SaaS shifted software revenue from one-time payments to recurring cash flow. With this change, the importance of minimizing churn grew. There were no more “one and done” sales. Instead, nurturing customer relationships became a top priority for maximizing customer lifetime value.
Yet organizations lacked a clear owner for this responsibility. It was ill-suited to sales teams with aggressive revenue quotas. It also was a bad fit for customer support teams. While they were close to existing customers, they served a reactive role (responding to technical issues, etc.). And so stepped in Customer Success.
But change has not ended there. Leading companies continue to innovate for better customer retention and lower churn.
In this article, we’ll highlight five business model innovations your company can steal to help reduce churn.
The Chief Customer Officer has become a critical member of the C-suite over the past decade. A quick search of Linkedin reveals that there are more than 1,600 CCOs in the United States right now. Unsurprisingly, >25% of them work in “Computer Software” or “Information Technology and Services”.
Chief Customer Officers have brought customer advocacy into board-level conversations. CCOs must align marketing, sales, and product efforts around a great customer experience. This is vital for other departments with limited customer interaction.
But CCOs aren’t all fluff. They also take on revenue responsibility, focusing on maximizing value from existing accounts. SaaS businesses fall apart if customer churn gets too high. That means renewal revenue is a number one priority for CCOs.
CCOs own expansion, upsell, and cross-sell revenue generation (the components of negative churn). These are easy to ignore in organizations with a strong “new sales” focus. But as markets mature and saturate, SaaS companies fight for a small pool of new business. This only increases the importance of negative churn as a driver of business growth.
There is more data about customers than ever before. Product usage, marketing engagement, support tickets – there is no shortage of information. What has been a problem is finding someone to sift through this information.
Business intelligence analysts have usually been the gatekeepers of strategic insights within companies. But their generalist knowledge limits their effectiveness when tackling department-specific problems.
To plug the gap, companies have begun recruiting dedicated customer success data analysts. These team members marry the analytic skillset with a Customer Success focus. As a dedicated resource, they enable Customer Success by providing:
For advanced Customer Success teams, the CS analysts are the brain guiding strategy.
Some companies have invested in dedicated sales teams to drive renewal efforts. These individuals are distinct from Customer Success Managers focusing on customer advocacy.
Instead, these Renewal Sales Representatives have similar compensation plans as new acquisition salespeople. They have aggressive renewal targets, and their total pay has a big variable component.
Compared to CSMs, these sales reps are more aggressive in pursuing customer renewals. Companies with Renewal Sales Reps reduce the burden on CSMs to sell. In fact, their CSMs may not have a quota at all. This can be a very good thing.
CSMs play the role of trusted advisor to clients. So if they become pushy trying to sign client renewals, it damages their credibility. And this damage can actually increase churn, as customers reduce engagement with “salesy” CSMs.
The holy grail for every CS team is a single metric that perfectly summarizes each customer relationship. The reality is… much less pretty.The holy grail for every CS team is a single metric that perfectly summarizes each customer relationship. The reality is... much less pretty. Click To Tweet
Many Customer Success organizations make some attempt at health scoring. This means one unlucky Customer Success Manager is stuck gathering customer data from different systems. Then she must dump them into a single spreadsheet to so the “scoring” can begin.
At this point, the CS team creates scoring weights for each metric. To do so, they rely on “gut-feel” or “intuition”. But the reality is that it is a total guess. And what’s worse, it is a guess that no one is checking.
The result is a health score that is mostly worthless. Few people trust it. And all it can predict are the most obvious churn candidates. The ones who aren’t showing any product activity.
There is no nuance in this score. No nuance to identify why customers are churning. No nuance to identify potential churners early. Early enough that your CS team can make the save.
This sad state of affairs is pretty common. While the process may rely on data, it is not data-driven.
But leading SaaS companies aren’t settling for sucky customer health scoring. They are making big investments in predictive capabilities.
HubSpot built a “Customer Happiness Index” (CHI) to predict customer outcomes. They first gathered lots of product usage and engagement data. Then they created a score that to predict a customer’s success using the platform.
How did they know it was predictive? They used probability modeling to create it, using regression testing to confirm effectiveness. They could identify which factors were important, and which should be ignored.
With this predictive tool, they would preemptively reach out to unhappy customers. The results? At one point, the CHI enabled HubSpot to retain 33% of previously unhappy customers. These are customers that would have otherwise churned – a big win for the business.
Companies without predictive customer health scores are missing out on the opportunity to see (and change) the future.
Some companies take the opposite approach. They don’t isolate customer retention selling to a single team. Instead, every salesperson is responsible for improved retention.Every salesperson is responsible for improved retention. Click To Tweet
Once again, HubSpot serves as a great example. During the company’s early days, they cut churn by 70% within 6 months after changing sales comp structure.
Sales reps with the lowest customer churn earned four times more per dollar sold than reps with the highest churn. By tying low churn to earnings, it forced sales reps to change whom they targeted and how they sold:
SaaS companies continue to innovate their business model to drive more growth.
Customer Success roles have become more specialized. Chief Customer Officers lead the charge from the executive suite. Customer Success Operations drive data-driven decisions among the staff. And Renewal Sales professionals lead the charge on ensuring existing customers resign.
On the process side, predictive health scores are being used to guide Customer Success efforts more effectively. And changes to the compensation plans have sales reps aligned with ensuring retention.
Keeping customers happy is an ever-changing struggle. Leading companies adapt to ensure they’re equipped to meet the challenge.