Last updated on June 16th, 2023 at 06:47 pm
Though the pandemic isn’t exactly in the rearview mirror yet, we are beginning to understand the effect it’s had on B2B businesses across the country—and around the world. One of the biggest paradigm shifts we’ve seen is an increased appreciation for the customer base. Subscription-based SaaS companies are focusing on customer retention and expansion as a new, more durable revenue stream in the face of market uncertainty and increased earnings diligence.
As any revenue leader will tell you, it’s easier to expand current customers than to close new ones. That means investing in customer success (CS) isn’t a nice-to-have anymore or even merely a high priority. It’s now absolutely essential. And, in fact, customer success is the critical growth engine driving NRR (Net Revenue Retention) for these companies.
A quick level set on what customer success is (and what it isn’t)
Probably the simplest way to understand CS is to look at the difference between CS and account management. Account management is accountable for customer expansion as the primary goal; it assesses the needs of client accounts and then pitches and sells products that will fulfill those needs. Customer success works to keep those customers happy as its goal, and in turn, reduces churn and facilitates similar expansion.
Because of this distinction in goals, each team approaches the customer differently. Account management is about being reactive and solving problems for customers to keep them in “status quo mode.” Customer success is about proactively taking care of customers by providing guidance to help them achieve their desired business outcomes. It’s an ongoing partnership anchored in an outside-in lens focused on delivering value and an exceptional experience for your customers.
As Gainsight CEO Nick Mehta says, “The difference between account management and customer success is like the difference between a backyard telescope and the Hubble.”
Here’s why it matters
Investing in and operationalizing your customer success team is the number one way to increase your net retention revenue (NRR). In fact, even if you keep your sales, marketing, and product efforts static, you’d see improvements to your NRR if you invest in customer success.
And it’s not just your current bottom line that’s affected: NRR is also the top metric that SaaS investors look at when making decisions about where to put their money.
According to The Customer Success Index, 2022, a new study by Gainsight, companies that invested 10% of revenue in their CS and CS Operations teams saw the highest NRR rates. And 63% of companies said their customer success organization “owns” their NRR performance. (Considering customer success wasn’t even a thing two decades ago, that’s a really big deal.)
Here are my top five recommendations for how SaaS companies can drive NRR through CS:
1. Demonstrate the ROI of CS to increase corporate spend in CS and CS Ops team
According to The Customer Success Index, companies that invested 10% of revenue in customer service saw the highest NRR. So if your executive leadership team isn’t up to speed with this data, it’s time to call an all-hands.
Get the organization to understand that CS is a growth engine that can be a force multiplier for your business, with a compelling framework and data to support it. Show them the stats that investing in CS doesn’t just increase your revenue; it also increases the overall valuation of your business. We’ve found that each percentage point increase in NRR is associated with a ~0.7x change in a company’s revenue multiple. This means that for a $1B revenue SaaS company, a mere 1% increase in NRR could translate into more than $700M in enterprise value.
CS Operations (CS Ops) also needs to be a cornerstone of this conversation. Like with sales and revenue operations, if you want to drive operational excellence and scalability within your CS organization, you need to have the right CS Ops org structure in place. This is critical to nail all three dimensions of people, process, and technology.
Some great examples of successful companies that invest in CS and reap rich rewards are Snowflake (169% NRR at IPO), Twilio (155% NRR at IPO), and Zendesk (116% NRR at $1B ARR).
2. If your customer success organization isn’t owning NRR yet, it’s time.
Long gone are the days of Customer Success solely being about “churn management” and customer retention. This limiting viewnegates the power of your customers as well as the real, positive impact that your team is having on NRR.
As mentioned earlier, 63% of companies said their customer success organization “owns” their NRR performance. And this data mirrors what we’re hearing from our customers, which is that product experience and customer success connect directly to revenue.
In many companies, CFOs “roll up” two separate forecasts – one from a CSM team and one from an Account Management or Renewal Rep team. While having two views can be helpful (e.g., based upon health score versus judgment), it often results in the inability to forecast in a coordinated manner.
When CS owns NRR, it becomes the single voice for revenue from existing customers.
It’s important to create a company-wide customer success culture to ensure success for all. By orienting the organization around this philosophy, it naturally makes sense that NRR should be a metric owned by CS yet impacted by all. Being able to tie the high-value activities of your CS organization to leading and lagging outcomes across the company is key.
3. Focus on having more direct revenue responsibility, in particular with the renewal motion.
While the organizational stage and maturity of your business can dictate the various customer-facing roles and responsibilities you need, what is a constant is, at minimum, having your CS teams involved in the renewal forecasting process. They are laser-focused on your customers and often have the longer-lens view on renewal probability and risk.
In fact, our research shows that 45% of companies give their customer success team ownership of renewals. This can show up as CSMs owning the renewal transaction; it’s also more common for renewals teams to report into CS now.
Imagine your company sees sales as “owning all revenue.” Your customers spend most of their time with your CS team but sales come in during renewal conversations and walk away with all the credit for a successful renewal. This not only results in an extremely fragmented customer experience, it also creates friction within the organization. The fact is that most of the customer’s lifecycle is spent with CS and it’s through the efforts of the CS team that the company wins customer renewals.
In addition, CS teams are also the first to identify expansion opportunities. So be sure to give them credit where credit is due.
4. Invest in digital-led customer success to scale your CS efforts and drive better business outcomes.
One of the hottest topics that comes up in my conversations with CS executives is “How do I scale our CS efforts”? Leveraging digital-led motions can not only impact your bottom line by automating processes that don’t require human intervention, but they can also be an incredibly powerful vehicle to drive better outcomes for your customers.
In fact, digitizing the customer success process is critical to driving NRR and renewals. Digital tools are essential to gathering comprehensive, real-time data that lets you know not just whether your customers are renewing, but whether they are adopting your product. Then you can dive in deeper on the why: what were the factors that seemed to be correlated with the better customers versus the ones that didn’t work out better? Where are we spending our time well? Where are we wasting our time? If we had another dollar to spend next year, where should we put it?
For example, if a customer is using a product, or specific functions of a product heavily, then it may be time to offer them an upgrade to a more scalable tier. Similarly, if a customer is approaching the license cap, an automated offer for more seats can be built into the digital customer success tool.
One of the most significant areas of opportunity is using digital-led data tools to predict and forecast churn. Fifty percent of companies surveyed in The Customer Success Index reported using basic product analytics, such as Monthly and Daily Active User trends in conjunction with their relationship to predict potential churn. This reveals an opportunity to use more sophisticated digital tools, such as enhanced product analytics, in-app engagements, coupled with assessments on the business value received to improve retention, as well as drive adoption and expansion. It’s important that your customer success org evolves from a 100% human capital structure to one that uses data,analytics, and automation to deliver value to your customers and increase NRR.
In the digital era, users are expecting intuitive journeys and the ability to self-serve where possible. By better understanding your users through product analytics and leveraging technology to tailor their user experience, you can deliver against the promise of an exceptional customer experience.
5. Align your organization around a common value framework to drive end-to-end outcomes.
Though your customer success organization should own the NRR metric, it doesn’t mean your team alone is responsible for it. It’s imperative to align the organization around a common language and value framework to prescriptively drive customers to value realization. This process needs to begin in sales discovery and get seamlessly captured and carried through the onboarding and customer success management phases of the lifecycle. I’ve found that establishing this to be the connective tissue across functions that orients the broader organization around a value-driven, customer-centric driven strategy.
At Gainsight, we have a value framework called “Operationalizing Outcomes.” I think of it as our common language that’s used across the entire customer journey. So for every customer, sales captures a set of six business goals and challenges which then gets neatly translated to what we go scope and implement from a professional services perspective, which then becomes more of a validation exercise when the CSMs take over the relationship and move it forward. And once we accomplish the first set of things, we assess and validate that we’ve met the success criteria and delivered the desired outcomes.
Another way to break down silos is to create a “voice of the customer” program to ensure we’re aggregating and socializing customer feedback to the teams (like product, for example) that can actually make long-term positive changes. The key here is to make sure you have a structured feedback process for product roadmap and development, as well as ongoing feedback for improvements for increasing adoption and value,
With the right processes in place, you can respond to customer feedback (like NPS, customer effort scores); our research shows that the companies that really lean into these types of programs and processes have some of the best NRR rates out there.
Conclusion
Today, it’s clear that NRR is the key metric for SaaS companies that want to succeed in a hyper-competitive modern economy. Most companies realize that customer success is their number one growth engine—for growing client value, growing revenue, and growing shareholder value. That means CS is the critical lever in reaching your target NRR.
I believe there’s no better way to ensure you’re hitting your NRR goals and creating a thriving company than making sound and strategic investments in your CS organization.
Kellie Capote is the Chief Customer Officer at Gainsight. Kellie has spent the last five years involved in building and leading the success organization at Gainsight. In her current role as CCO, she leads the post-sales organization at Gainsight that includes the CSM, Support, Professional Services and CS Ops & Scale orgs.
