Why customer success is not a cost, but a growth channel

Philipp Wolf at UXDX Community: VR UX, Customer Success and Scaling Design Systems. Video: https://www.youtube.com/watch?v=7wLezJMN-YE

Readable transcript: edited from the recording's captions for readability (fillers and false starts removed, punctuation and section headings added). Wording is the speaker's own. Timestamps are positions in the video. Names marked [?] could not be verified against the audio.

Customer success is perceived as a cost center

[00:00:00] Excellent. All right, then, a quick introduction from my side as well. I'm Philipp, I'm the founder of Custify, and we are a customer success platform for SaaS businesses. Today I want to give you an idea of best practices in customer success, what customer success can achieve in a company, and how we can also prove the things we're going to talk about, and not just put some numbers or assumptions out there, but also have proof of it.

[00:00:35] Typically the problem we perceive when we talk to customer success teams is that the teams are seen more as a cost center, like a classic customer-facing team. That means the company typically doesn't commit enough resources to it. If there are budget cuts, they will typically also affect the CS team along with the others, and then this rather stupidly starts a cycle where nobody can win anymore. More on that in a second, because we will see what CS teams typically carry in terms of responsibility.

Most revenue comes from existing customers

[00:01:17] If we think about the revenue of a company and what the drivers of revenue are, the first thing you would typically say is, "Sure, it's new customers." Depending on whether you're a sales-driven or a more product-led organization, that could of course also be replaced with marketing, but it's new customers. That's what you would probably answer. If you think about it, however, the majority of the revenue in mature SaaS companies, and that's really up to 90%, comes from existing customers and their expansion, basically the fact that they stay with you and that they actually spend more money with you.

[00:02:01] The primary reason why CS is installed in most companies, still as of today, is because we want to lower churn. There's an investor meeting, or people look at the numbers, and churn just isn't looking good. So what do we do? We get a customer success team in place that helps to lower that churn. ARR, MRR, in the end it's all the same thing: the longer the customer stays with you, the more money you generate from them. Of course, customer success teams are tailored towards lowering churn. The question is, how do we know that they do? Because no other department in the company is actually better equipped to deal with this situation.

[00:02:48] There are a couple of things we recommend teams do, and it's the same as what you would do if you were A/B testing in your product to see which flows perform better in the checkout process, or similar things. In the end, it's A/B testing with a set of customers that get a CS treatment and others that don't. Of course, and I recommend this anyway, you can also run surveys and interviews with your customers. That can be NPS surveys or CSAT surveys, and it can also be analysis of the customer ratings you probably get. If you're more in B2B, it's probably G2, or it can be Trustpilot or Google, in the end. What do customers say about you, and how do they mention not just the product but also the experience they get? Overall, the experience I have as a customer is typically not just your product. It's everything else on top of that: support, and people proactively reaching out to me, like CS teams.

Negative churn, the golden standard

[00:03:56] Churn is one thing. You probably already know that the golden standard is not just getting churn as low as possible, but getting it to a negative number. What does negative churn mean? Negative churn happens when you not only lose no more customers, but existing customers spend more money with you. How that happens depends a bit on your product or service. They add more seats, they buy more services from you, they upgrade their plan, they expand the integrations, they buy more products. That depends, but in the end an existing customer spends more money with you.

[00:04:39] If you think about it, that's a bit tough to understand in the moment when you look at numbers. If you look at this graph here, where it says "time," I should say that the end of this graph is a long time. This is not something you see in a week. If you look at monthly numbers for half a year, you would see almost no difference in your numbers, maybe a couple of thousand dollars plus or minus eventually. But if you zoom out, one year, two years, three years, how much a business grows is significantly different depending on the churn it faces. Logically, because negative churn means that if you don't add any more customers, the existing customers still spend more money with you. That means you could stop adding new customers through your marketing or sales channels, and your company would still grow.

[00:05:40] This is something where, in customer success departments, we typically talk about moments. The question is: when does this expansion happen? When does a customer do this upsell? Very often, when you have a customer success team, it's after a touchpoint with the customer success manager. That's something you can measure: when does a customer upgrade or upsell? Was it just out of the blue, or was it related to a touchpoint with CS?

[00:06:08] The best practice these days in CS is really that CS carries a number, as we call it, so they also have a revenue responsibility. I wouldn't call it a selling mentality, but a recommendation mentality within the CS team is getting more and more popular. When I'm in CS, I know your account very well. I know what you're actually looking for. We eventually even have QBRs defined. And then I can help you specifically, and recommend other services or other things in the product that you might not have right now but that I know you can use, because I know your account. So it's an easy sell from that perspective, if you think about it.

Turning customers into advocates

[00:06:54] Now, customer advocates. What is that, first of all, and how do we get there? The first thing, of course, is that a customer signs up and there's the overall first experience, and this has to be met: I have to get value from the platform. The next step is that I really get loyal to you. That means if I have the chance to switch, or if a competitor reaches out, I'm going to stick with that particular service. I go to the same restaurant over and over again. Think about it: you go out on a Saturday or Sunday on a weekend, and you go to a particular restaurant. Why? Because you liked the experience the first time, but you go there over and over again because it's just great. That means you don't choose other restaurants. And the last step is that you recommend this restaurant to your friends and family.

[00:07:34] To go back to the CS and customer world, that's when the customer recommends you to their network. They are open to doing webinars with you, open to recommending you to friends and family, open to recommending you to other business partners or even their own customers. That's what we want to get in the end, because this is another great growth channel either way. Customer success can help with that. Great products of course help with that as well, and great user experience overall helps as well, but CS teams can help. Just one small disclaimer before you reach out to find those advocates: make sure you really pick the right ones, the ones that get a lot of value, because just because they log into your platform doesn't mean they're really getting value.

[00:08:27] I think I skipped a slide, one second. Oh, it's right. The other thing is: how do you prove that CS leverages these advocates? There's something called a voice of the customer program. Maybe some of the audience are already doing that. If not, it would lead a little too far for this presentation today, but feel free to google "Custify VOC." There's an entire, larger blog article we have on this topic. In the end, it's a program that you can, or probably should, implement in the environment you're in anyway. It helps you really listen to your customers, understand the value they get from you, and understand why if they don't get the value. It helps you create ratings, reach out to them, write papers, and do interviews and webinars with customers. Those things are all possible with a voice of the customer program.

The customer life cycle and fast onboarding

[00:09:25] Depending on what kind of environment you are in, freemium, try-to-pay, or sales-driven without any trials and starting directly, the cycle of a customer is typically still similar. What happens first is that there is some kind of interest: there's a need, I'm looking, I'm reaching out, I find the name. Then of course there's the purchase. The purchase is either done in a sales-driven organization with the sales team, or, if you're thinking of a product-led organization, simply by me signing up and putting my credit card number in. Then it's about getting the implementation done, if that is a step. If you have a more technical product, I need to activate some integrations, I need to set something up, I need to connect with my Google Calendar, all the kinds of things that might be necessary for me to actually start onboarding in the product.

[00:10:15] The onboarding is then a question of support. Reactively: I have a question, I don't understand how this works. Or I have a customer success team in the background that already knows this customer has a problem and reaches out proactively: "Hey, John, I just realized that you're probably struggling a bit setting up this particular module. Let me help you with this." And of course, a great product experience in a more product-led growth environment can also help, or should help, the customer with onboarding. That can be guided tours, FTUEs, first-time user experiences, and so forth, to help the customer through onboarding to the first value.

[00:10:55] Once I'm getting the first value, it's about adoption and expansion. I'm adding more users, I'm exploring more functionalities of the product, and I basically spend more money with you. That's exactly what we talked about earlier, if you remember, which is really essential when you think about the golden standard of negative churn: that I actually spend more money with you. I would say there's one thing missing here, which is certainly also the product. Success, support and product are all playing in harmony.

[00:11:34] In the end, of course, a renewal comes up. It doesn't matter if you're month-to-month or on annual plans, annual contracts or even longer contracts. At some point in time the question is going to be: do we stay with you or not? That is the renewal process, and in more high-touch environments where we have customer success teams, those are typically always involved there. Faster onboarding and faster value creation lead towards the feeling of "This is the right fit. I can get the value, and I'm willing to spend more money with you." So faster onboarding is really a critical point in any kind of user experience: you need to get to the value as quickly as possible, at least the first value.

[00:12:24] How can we prove that the CS team has an impact on that? Again, A/B testing is one option. We have some segments in our customer base, tech touch, for example, and high touch, and for some of them there are CS meetings, a CS treatment in general, and for others there are not. Then we measure: we look at the time to value, we look at feature adoption, these things. Is there a difference between the two? Typically there is, so that's how we can prove that this actually happens.

Health scores and customer retention cost

[00:12:57] Of course, improved customer success metrics will also automatically lead to a higher company valuation. What do I mean by that? There are different kinds of metrics, and as you see here, logins per week are probably not the correct metric, and neither is the time people spend in the app, because that's not the reason people pay you money. If you have those numbers there, they are not the right numbers. But value-related numbers, which in customer success terms, or in our application, we call health scores: customer health scores are typically tied to the value someone gets, and they have a direct impact on churn, on NRR, and on CRC.

[00:13:44] CRC is something you might not have come across yet as an abbreviation. So what is CRC? CRC is the equivalent of customer acquisition cost, but after they are with you, after they are a customer: customer retention cost. How do customer retention costs occur? In short, it's the money you need to spend to retain those customers. That's roughly how the number gets calculated. CRC is becoming a more and more important KPI that we see our customers measuring, and also investors asking for.

[00:14:39] In the end the question is how much money you spend on this customer. That includes, of course, infrastructure and product-related costs, but it also includes customer support costs and the costs of a customer success department, what it costs to renew the customer, and whether there's even an entire renewal team assigned to that. That all plays into CRC as a key KPI. This is just a small excursion, in case you come across it, because we see that term and that number popping up more and more when people talk about customer success and the KPIs around it.

[00:15:23] Of course there are tactics and there are tools. I just mentioned health scores, but there are plenty of other things in a customer success team that are relevant. Just to tell you a little bit about how we work with our customers: Custify helps you really drill down and understand what my KPIs are, what my health scores are, when a customer is healthy, how long my onboarding takes, which customer segment is treated automatically, probably with some emails and chains of emails, and which ones I'd better call, and what my renewal revenue at risk is. It helps you really understand which customers to focus on, and why. All of this is of course possible if you add a lot of tools in parallel, but from an efficiency perspective, when we talk about an entire team, this is typically something you want to have as efficient as possible.

Aligning expectations early

[00:16:22] I'm there for questions in a second, but just so you know: the CSMs and the companies really need to keep their expectations in sync. This of course applies not just to customer success but also to any product team. What are the responsibilities of a CS team? Those things should be in line, and they are not always in line. I can tell you that, because we work with a lot of CS teams out there. Naturally there are different expectations. So the KPIs you report on as a CS team, or the KPIs you are responsible for, should be aligned early on, so that clear reporting is possible and a clear measurement of success is possible.

[00:17:11] I hope I could give you a bit of insight into why customer success is not just a cost center but also very much involved in the success or failure of a company, and in the key KPIs of a company. I'm happy to answer any questions we get from the audience. I'm not sure if I'd see them popping up somewhere already.

Q&A

[00:17:38] Host: No, you won't see them, unfortunately. If people can just enter them either on the UXDX side or on whichever platform you're using, and write in your questions there, I'll put them through to Philipp. But while we're waiting for people to write in their first questions, thanks for that. Particularly the point about sales: I always think it's unfair that sales get all the big bonuses when people are toiling away building the products and nurturing the customers and everything, and then the sales guy swoops in at the end to get the bonus.

[00:18:15] Philipp: Well, to defend sales a bit, having myself been involved in sales, at least at the beginning of Custify, it's also tough. But I totally agree. That's why we see, in most state-of-the-art SaaS companies, that the customer success team has a revenue number assigned to them. That can be renewals, that can be upsells, of course, but there is some sort of revenue responsibility there. In most smaller teams the renewals aren't done by sales anymore; they are really done by the CS team. Surely in larger organizations you would eventually see an entire renewal team that does it, but in terms of responsibility, who is responsible for renewing this customer, whether they're involved in the process, et cetera, these days it's very often the customer success team.

[00:19:10] Philipp: Which is great, because no one else in the company knows the customer as well as these people. That means the renewal is typically also much easier. Imagine someone from a sales team. Maybe it's a sales rep who sold them a year ago, and now the renewal is coming up. He's talked to probably 500 other prospects in the meantime, and now he should have this renewal conversation and, for the first time, just ask, "Hey, John, how's it going? I just wanted to check, because your renewal is next month. Any problems?" This can be a very awkward situation, where you don't know about all the problems they have, and it's not your job as a salesperson to follow up through the life cycle. That's why the renewal is really done much better by someone who's guiding the customer throughout the journey and knows their needs and the reason why they actually purchased your product or service. That's why this makes a lot of sense.

[00:20:10] Host: Great. One of the things you've touched on a few times: does this only work for specific types of products? I'm thinking it might suit a high-cost, high-value product, versus more of what would be called a product-led product, where it's more self-service.

[00:20:33] Philipp: Of course, the more you get into a sales-driven, high-value environment, the more naturally investment and attention the customer success team gets. However, a good portion of our customers are also product-led growth. Just because you have self sign-up and all that doesn't mean you don't need a CS department. That starts, first of all, with the fact that you most likely won't have just one plan. You might have three. If you think of a famous product-led growth company, Intercom or someone like that, there might be customers spending 50 bucks with them, but there might be customers spending 5,000 bucks a month with them. That customer certainly, even though you have a product-led growth business model, deserves someone on their side guiding them with questions, setting up QBRs and so forth. You don't want to lose that big account, so you want to build relationships, all the things a CSM does.

[00:21:33] Philipp: So naturally you're right, it depends a bit. But even for smaller ticket sizes, let's say you make 50 bucks a customer, there are specific use cases where a CSM can add a lot of value. It might not be the same impact, or in the same range, as someone with an onboarding team and support has. However, think about a customer who approaches your product at 50 bucks a month, with a monthly cancellation period, and they sign up and just never get to the first value. If you do the math: a proactive CSM can call this customer and say, "Hey, John, I just saw that you logged in, but you seem to struggle. Can I help you?" "Yes, I don't understand this. It doesn't connect to my Gmail." "Okay, have you tried this and that?" "No." "Okay, let's try it together right now." "Okay, great." It's a five-minute conversation. You help this customer over the leap, the customer gets value, the customer stays with you, and depending on your customer lifetime value, the call you just did might be worth a thousand bucks, those five minutes you spent with a customer. So just because you are in one of those groups doesn't mean that customer success is or is not a valuable discipline.

[00:22:49] Host: Great. And I think those are really good examples of why nurturing customers the whole time is important to everybody. One question I have is: where is the overlap between, say, a product manager or a UX researcher and customer success? Because often they're also responsible for similar activities.

[00:23:14] Philipp: I would say running user interviews and those things is clearly product related. Running these interviews, like "How do you use the product? Can you show me where you struggled?" and so forth, all those user interviews are a discipline clearly for the product team or product management. Now, overlap: the CSM is talking to the same customer, and in the end it's people talking to people. So the customer is going to say, "John, I don't know, I'm really struggling with this and this." "Okay, can you show me?" So the CSM knows this anyway, and many times both are correlated. They get feedback directly from our customers about the product, about the UX, about things that work or don't work.

[00:23:57] Philipp: Then there has to be a well-established process, however you organize it, between the CS teams, with the feedback they get from their customers on a daily basis, and the product team. You can run that by saying, "I'm having our product team reach out to get back to you, and you can explain it to them," or the CSMs record that call and move it forward to the product team. But you typically see a huge overlap between those teams when it comes to the UX and UI problems of the product and the adoption of the product, because naturally those people talk, and the CSMs get this feedback directly from the customer. So there's actually quite a huge overlap from that perspective.

[00:24:41] Host: Brilliant. Well, that actually brings us to time, so thank you very much, Philipp. I really enjoyed it.

[00:24:47] Philipp: It was a pleasure to be here. Thank you for having me.