Customer Success is transformative and has gained significant importance over time, which is clearly evident when one looks at the Google Trends graph below.
Great companies are focusing on mastering the ‘software’ part of Software as a Service, although, the new generation of great companies are recognising the need to emphasize on the ‘service’ implied in SaaS.
Customer success is driving exponential value for both the seller, as well as his customer. In fact, it’s the value that we drive for the customer that ends up driving the value for the seller.
Simply put – What goes around, comes around.
So, what do we mean when we say “drives value” for the seller? How is Customer Success impacting a company that embraces it as its sole purpose such that it influences everything they do?
Before we understand why, we need to drill this in our heads that: Customer Success is NOT Customer Support.
That being said, here are 5 different ways Customer Success would be putting the Value of a Company in the driving seat:
Customer Success helps a company in generating more revenue. Here is how:
- When you are able to retain your customers for longer and they do not churn, by the end of the quarter you end up having more customers and hence more revenue.
- When you don’t have to offer discount/offers to retain your customers, your quarter ends with more revenue.
- Your customers moves to a higher pricing plan, buys add-ons or more seats, introduces your product to other departments in their company, your ending the quarter with more revenue.
- Your customers recommend/refer your product to other companies, your revenue grows even more.
Increases Customer Lifetime Value (LTV)
So how does Customer Lifetime Value (LTV) fit into this picture?
When we talk about valuation of a company, the only thing we ever hear is multiples of current revenue, but even though current revenue is important, it’s what multiplied to it that matters the most and that’s the LTV.
Straight-up, investors are looking to invest where they see an increasing trend in LTV. It’s but obvious that when they invest today, they want it to be worth a lot more in the future. Increasing LTV, through customer retention, Upsells, Cross-sells, etc., is extremely beneficial from their point of view.
Here, Customer Success remains the best way to retain customers for longer durations, even if they stick around without an increase in the amount they pay us, our LTV still grows.
For any SaaS company, churn is a nightmare.
Churn is that disease that will kill your SaaS company.
To understand how hard churn could hit you, we need to understand the impact that churn brings to a company.
In the diagram below, I have taken a simple example of a SaaS company who, let’s say is in its third year and the recurring revenue for renewals is around $10m , and now when the same company is in its sixth year, it now has $100m to renew. Assuming that the monthly revenue churn rate is 2.5%, the annual churn would be 30%.
Taking a peek into the smaller chart on the left, when a business is small, the amount of money they lose due to churn is only around $3m. Not an alarming number, and this gap can easily be filled up with new sign-ups.
However, when you look at the larger chart on the right hand side, when the business grows, the amount that is being lost to churn becomes sizeable, and scouting for an additional $30m in new sign-ups, to remain at the same revenue level as the previous year becomes an immense problem.
However, Even if your product fails to add that extra umph, you have your awesome Customer Success team to wow your customers 🙂
Affects the Total Available Market (TAM)
When your churn rates are out of control, you’re doing nothing but shrinking your TAM.
Let’s say you have a TAM of 200k customers and your churning 20k customers per year, your TAM after a year will now be 180k. What’s worse, the customers you lose are unlikely to come back again. They are gone. You have to now remove them from your TAM.
If you’re churning 20k customers per year, don’t forget these customers are not leaving with good feelings and neither would they keep those feelings hidden, they will vent it out through negative reviews on blogs, your apps, and across social media. This would possibly reduce your TAM by at least 50%.
If you focus on Customer Success, they will ensure on building an environment for your customers to grow and help achieve their Desired Results, which in turn will grow your TAM, rather than shrink it.
Overall Account Growth
Customer success is a team of unicorns that know how to provide top-grade customer service while also lurking around like hawks to prey on an up-sell and cross-sell opportunity.
They as a team are extremely comfortable in tackling customer requirements/requests as they are closer to the clients and know their businesses in and out, this in turn helps in expanding the accounts which has a significant impact on the evolution of the SaaS revenue model.
Now, let’s look at it this way, when you are able to build revenue from the existing customer base, you could cut down the effort and money that’s put into acquiring new customers, and not only stay in business, but actually continue to thrive and grow.
From an investor standpoint, looks picture perfect, right? Instead of putting money into something that they will have to initially stop from shrinking, they are now investing into something that could sit there and grow. Boom!
CEOs and Executives Must Focus on Customer Success
I’m sure you can see why if you’re a CEO, CPO, or CFO, you should not be looking at Customer Success as a low-level departmental function, but as a strategically important initiative for the value of the company and the value to your shareholders.