Defining Customer Success in the Era of Big Data
The field of customer success has been around for decades, but only in recent years has the technology industry recognized the value of customer success initiatives. Top companies specializing in customer success analytics have raised approximately $96 million in funding to date, and that number is likely to grow as more companies enter the space.
The combination of big data and software as a service (SaaS) has created the perfect breeding ground for maximizing customer relationships through customer success programs, hence the sudden interest in this field.
Customer success has become quantifiable and analytics-driven, thanks to advances in big data technology, which makes predictive modeling of customer behavior possible. Additionally, SaaS is flourishing with consumers and enterprises.
In the SaaS space, customer success is essential. The SaaS business model only works if customers are consistently achieving their business objectives quickly. This is an extreme departure from earlier business models for software. In the old software world, the cost to acquire a customer was recouped when a contract was signed. Vendors didn't have to be concerned whether their product was making customers successful, because the product was already out of their hands. Thus shelfware, the software that companies bought and placed on the proverbial (or literal) shelf, was introduced. As long as companies kept signing contracts, shelfware kept being sold, with little regard to how customers reacted.
But shelfware doesn't exist in the fast-paced world of SaaS. If a company isn't gaining value today, it can and will terminate the contract at the end of a billing period—whether that billing cycle is a year or a month. This makes customer success crucial for SaaS businesses: Happy customers mean a growing business, while unhappy customers can mean corporate collapse.
What does success look like in the SaaS space? Several factors signal a successful, data-driven customer success program:
Low Churn Rates
Churn is a killer in the SaaS space, and a customer success program should be addressing churn rates, first and foremost. Even a small reduction in churn rates can lead to higher returns: For example, a 2 percent reduction in churn leads to a 20 percent higher multiple in valuation. After implementing a customer success program, the clearest indicator of its effectiveness is this lower churn rate. Don't just hope for this—expect it.
High Recurring Revenue/Upsell Rates
The opposite of churn isn't acquisition; it's retention. The cost to acquire an SaaS customer, especially an enterprise customer, can take up to 18 months to recoup, so existing customers eventually become more profitable because you've already covered their acquisition cost. If you're successful in SaaS, your recurring revenue from existing customers will have greater value than any new customer logos you can add to your Web site. Additionally, customer success should point out upsell and cross-sell opportunities for existing customers, which will also translate to increased revenue. According to Goldman Sachs, a 2 percent increase in upsell leads to a 28 percent increase in valuation—another reason retention should be a focus.
Change from "Firefighting Mode"
Though it isn't a quantifiable metric, an indicator of customer success done right is a shift from "firefighting mode" to proactive customer management. Most customer success teams are formed to fight some form of churn, but true customer success, when done correctly, doesn't just put out fires. It's a proactive department that engages customers, squashes issues before they become dramatic, and loops the voice of the customer into the organization in a meaningful way.
Shift in Organizational Behavior
The biggest—but perhaps most subtle—indicator of a strong customer success program is a change in organizational behavior. Customer success isn't the domain of a single department, after all; it can impact other aspects of the organization as well, including lowering the cost to acquire customers through advocacy. A 12 percent increase in brand advocacy doubles a company's revenue and growth rate.
Companies looking to attain true customer success must work to achieve it throughout the enterprise. Whether or not a department is directly involved with customer interactions, in the end, everyone in your organization benefits when customers continue to do business with you.
Don MacLennan is the CEO of Bluenose, a customer success platform geared to SaaS businesses.
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