The Need for Customer Success

ScaleX Ventures
Oct 4 · 8 min read
Arda Köterin, Co-Founder and VP of Customer Success, speaking at ScaleX Founders Summit 2019

Customer Success Teams are in almost every SaaS company, but why? This is because Customer Support is not enough on its own and has changed the way of understanding the customer.

Competition is the main driver for the need of a Customer Success Team. OpenViewPartners’ SaaS benchmarks show that the average growth rate of smaller companies who are starting out ($1–2.5M in ARR) are slowing down to 64% from 100% compared to just a year before, proving it is getting even harder to build initial traction in the early days of a startup.

This is the result of increased competition.

According to Price Intelligently’s research (who serves more than 3000 SaaS companies including Atlassian, HubSpot, and Medium) the average number of competitors in any given SaaS market increased from around 1.5 in 2011 to 9 in 2016, a sixfold increase in 5 years. Increased number of companies providing similar products affected customer’s willingness to pay to drop to almost a quarter for some features of SaaS products in 4 years.

It is now 5–25 times more expensive to acquire a new customer.

Research, done by the inventor of the Net Promoter Score, Frederick Reichheld, shows that a simple “5% increase in customer retention produces more than a 25% increase in profit.” He then continues to explain, why this disproportionate increase is happening;

“Why? Return customers tend to buy more from a company over time. And they’ll often pay a premium to continue to do business with you rather than switch to a competitor with whom theyíre neither familiar nor comfortable.”

This is backed with the separate research done by Price Intelligently as well, in their findings, improving the acquisition part for the company by %1 impacts the growth by an average of 3.32%. However, improving the retention part by 1% impacts the growth by an average of 6.71%, more than double the impact.

Customer Success is becoming the new norm.

Why?

86% of buyers are willing to pay more for a great customer experience

73% of buyers point to customer experience as an important factor in purchasing decisions

65% of buyers find a positive experience with a brand to be more influential than great advertising

By the year 2020, customer experience will overtake price and product as the key brand differentiator.

72% of businesses say that improving customer success is their top priority.

62% of organizations view customer experience provided through contact centers as a competitive differentiator.

Satisfaction does not necessarily bring retention.

Professor Theodore Levitt from Harvard Business School who popularized the word “globalization” in the business world and proposed a definition for the corporate purpose: “Rather than merely making money, it is to create and keep a customer” in 1983, said;

“People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!”

One of the best analysis of satisfaction/retention relation made by Thinkific:

Satisfaction/Success Matrix by Thinkific

At Thinkific, for example, our product is a software platform for creating and selling online courses. One of the metrics we look at to determine if a customer is achieving success with our platform is their number of active enrollments (students enrolling in their online courses). If a customer is actively enrolling new students into their courses, this tells us that the customer is getting value from our product. They’re using it for what it is intended to help them achieve.

Customer Success is proactive when Customer Support is reactive.

Jill Avery who is a senior lecturer of business administration at Harvard Business School explains the necessary proactivity using HubSpot example;

“When the economy crashed in 2008 and the company’s churn rate shot up, HubSpot delved deep into its churn data to see what it could find out about which customers were more likely to leave and when. Using that analysis, the firm targeted customers they suspected might cancel and offered services, like extra training on particular features, to convince them to stay. “They worked to eliminate roadblocks to usage so that customers could unlock the value of the product.”

Customer Support KPIs can be measured by effort, the number of emails sent, etc. Customer Success KPIs are measured by results.

The difference between the two is so subtle however effects are tremendous, underlined by Alex Bitca from Relently,

“By keeping the two departments interchangeable, many organizations are finding themselves stuck fighting fires instead of building a long-term vision.”

The Customer Success Team’s KPIs should be; Portfolio Growth, MRR Retention Rate, Account Retention Rate, Referrals, Increase in Product Adoption, Lower number of Support Tickets, Faster Onboarding, Number of Monthly Onboarding, Improved Customer Status (Happy, Just Retained, Risky), Improved Product Stickiness. Every metric should be well defined and tied to overall business metrics, so every customer success team member would know the effect of what they are doing in the overall business.

Achieving these KPIs requires an understanding of the customer from each customer success team member. Steven Grijzenhout who is the Head of Customer Experience at Miro and previously worked in and managed Customer Success in both Miro and Optimizely, says that;

“Curiosity, customer empathy, and discovery skills along with great communication skills are important to find out what a customer is trying to achieve and how you can align your plan according to it.”

Understanding the customer serves the purpose of defining success for that customer, like they did in Thinkific (students enrolling in their online courses) and therefore enhances user adoption. Gartner suggests that is the main pillar of customer success and therefore starts from user adoption. That is why we mentioned that Faster Onboarding, Increase in Product Adoption and Improved Product Stickiness should be in Customer Success Team Members’ KPIs.

Kasey Panetta from Gartner explains this as;

“Recognize that the path to retention begins with strong user adoption. That means developing a focus on programs that educate clients and build relationships with potential customer advocates. The goal is to assist clients in using the product in a way that creates business value. To start, make sure new clients know how to get started and have concrete steps for implementation.”

Being proactive requires data.

So far in this article, we have talked with many different statistics, metrics and underlined the importance of data. We have talked about Customer Success Team KPIs, mentioned MRR Retention Rate Number of Monthly Onboarding, Improved Customer Status and more to keep track of. There is one more, Net Promoter Score that we have mentioned briefly earlier.

“How likely is it that you would recommend our company/product/service to a friend or colleague?”

NPS is a survey consisting of a single question measuring the probability of a customer referring a new customer. It is claimed that NPS can be used to measure customer satisfaction and future growth of the company. Simplifying a very complicated business dynamic into a single metric made it “easy” to measure and helped companies make more of their customers fill out the survey. This advantage made it widely adopted, reaching two-thirds of Fortune 1000 companies.

However, there are many scientific pieces of research proving otherwise, one being from Timothy Keiningham, Bruce Cooil, Lerzan Aksoy, Tor Andreassen, and Jay Weiner; “The value of different customer satisfaction and loyalty metrics in predicting customer retention, recommendation, and share-of-wallet”, stating that;

“Recommend intention alone will not suffice as a single predictor of customers’ future loyalty behaviors. Use of multiple indicators instead of a single predictor model performs significantly better in predicting customer recommendations and retention.”

Bob Hayes’s piece on “The True Test of Loyalty” also states that: “There is no scientific evidence that the “likelihood to recommend” question is a better predictor of business growth than other customer-loyalty questions.”

“The true enemy is indifference.”

According to Esteban Kolsky’s, CEO of thinkJar, research which was published on Huffington Post;;

“Only 1 out of 26 unhappy customers complain. The rest churn. A lesson here is that companies should not view the absence of feedback as a sign of satisfaction. The true enemy is indifference.”

It is the Customer Success’ job to have a holistic understanding of the customer

Customer Success’ position is unique between the company and the customer. Customer Success is result-oriented, they are focused on helping the customer be as successful as possible, this requires an understanding of the company, its product, services, technical infrastructure but also customer’s pain points, market, KPIs, and business dynamics. However Customer Support is transactional, the customer contacts them when they have questions or problems about the product and when it is resolved, the ticket is closed.

Benchmarks:

Gainsight is a customer success company providing tools for Customer Success Teams. They have over 30,000 customers including, Adobe, Tableau, Cisco, and Box. According to Gainsight’s benchmarks gathered over their customer base;

  • The most used segmentation method for customers is ARR.
  • Most companies have 3 segments.
  • The median amount of ARR that an Enterprise CSM manages $2–5M and 10–50 customers.
  • The median amount of ARR that a Mid-Market CSM manages $2–5M and 100–250 customers.
  • The median amount of ARR that an SMB CSM manages $1–2M and 100–250 customers.
  • Among the newly emerging roles, hiring a person for Renewals is critical.
  • This helps Customer Success Managers maintain a strategic advisor role while someone else is getting the sales part of the job.
  • Benchmarks show that the necessity of this role begins after having 150 customers.

Resources

  1. Customer Success: How Innovative Companies Are Reducing Churn and Growing Recurring Revenue
  2. Delivering Happiness: A Path to Profits, Passion, and Purpose
  3. The Trusted Advisor
  4. Farm Don’t Hunt: The Definitive Guide to Customer Success
  5. The Effortless Experience: Conquering the New Battleground for Customer Loyalty
  6. From Impossible To Inevitable: How Hyper-Growth Companies Create Predictable Revenue
  7. What Customers Crave: How to Create Relevant and Memorable Experiences at Every Touchpoint
  8. Chief Customer Officer 2.0: How to Build Your Customer-Driven Growth Engine

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ScaleX Academy

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ScaleX Ventures

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ScaleX Ventures is more than a traditional VC. Not just invests financially but also operationally amplifies entrepreneurs.

ScaleX Academy

Loads of entrepreneurial experience and plenty of practical advices offered to scale your business.

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