Targeting SMBs? Customer Success could be your most important asset for scaling.
Customer success sits in the sweet spot between sales, marketing and customer support. It is not glorified customer support. Leveraged correctly, customer success teams can become significant revenue drivers.
Many fail to notice that customer success also acts as a quasi-sales team by becoming the most significant contributor to second-order revenue.
Customer success teams start their work somewhere after leads become customers. This has different shapes at different companies but generically stated: customer success teams help ensure customers see the value proposition of your product. Naturally this reduces churn. Churn is a well-understood focus area for software companies so most understand that piece of the customer success pie. Many, however, fail to notice that customer success also acts as a quasi-sales team by becoming the most significant contributor to second-order revenue.
Second-order revenue
Second-order revenue is money made from existing customers. This comes in the form of upgrades for additional features, higher pricing tiers or add-on services. If you’re selling boxed software you may consider customers who purchase an updated version to be second-order revenue. One note, renewals in SaaS are the expected action so a renewal itself is not second-order revenue. However, any already accrued second-order items such as add-ons which are renewed could be counted.
Jason M. Lemkin wrote a great article exploring expectations around second-order revenue, see: CLTV Isn’t The Whole Story. Don’t Shortchange Second-Order Revenue.
Here’s why customer success is critical
For software companies that target SMB customers, second-order revenue is likely one of the largest levers that you have in executing on a long-term growth plan.
Consider for a moment what growth looks like for young businesses. After product market fit, while iteration on the product should always continue, the critical piece is a growth model that allows for scale. For small companies targeting SMB customers, this almost always involves several of the following: content marketing to build authority, attending, speaking at or sponsoring trade shows and purchasing advertising within the vertical. The critical piece to understand is that as you aim to grow larger, each of these things becomes more expensive.
On top of growing marketing costs, you have to contend with the economics of a low price point and natural churn. SMBs are price sensitive, they go out of business or may grow out of your business. Churn creates a gap that needs to be filled by subsequent growth. If your churn remains the same as a percentage, the vicious cycle is never the less created. Growth requires not just some new customers but making up for a growing number of lost customers.
This is where your customer success team steps in, leveraging their ability to deliver second-order revenue to save the day. When a customer success team member reaches out to a customer shortly after purchase, they have the opportunity to prove out the value proposition promised by your marketing. This takes a couple of forms:
- Concierge onboarding.
- Training and consultation.
- Don’t underestimate the EQ factors of knowing there are humans on the other end of the machine.
- Customer success teams gain a “pulse” for which marketing is likely to work for various customer segments.
If the product is actually a fit and these steps work, the increased authority engenders those customers to believe that upgrades to their current plan are also likely to be high value. Your goal should be to build a customer success team that can, at the very least, make up for the losses of churn. A correctly equipped team can often add to the bottom line.
