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“Should customer success managers (CSMs) own the contract renewal process?” is perhaps one of the most commonly asked questions by Customer Success organizations in TSIA’s membership community. This also appears to be a hotly debated topic in the customer success blogosphere.
However, I would encourage a different approach to this question: Should your Customer Success organization own some portion of your company’s revenue? The answer to this question is “yes”. In this post, I’m going to share the reason why, and offer 3 tips you can use to get started.
Data from TSIA’s Customer Success Benchmark shows that companies that allow their Customer Success organizations to have direct revenue responsibility have higher product subscription growth rates and lower Sales and Marketing costs. Further, the customer success managers (CSM) in this cohort have a 3x percentage point improvement in dollar retention rates.
Here are 3 ways that your Customer Success organization can have direct revenue responsibility.
If you are not monetizing your customer success capabilities, you are missing out. Based on feedback gathered from attendees of a recent Technology & Services World conference, 46% of Customer Success organizations have fee-based offers for their customer success capabilities.
Back in our initial 2015 Customer Success baseline survey we found 49% of organizations were monetizing customer success. And even as recent as our last major members-only study on best practices in low-touch customer success, we found 42% of those organizations had monetized customer success.
All in all, the data demonstrates this metric has remained steady the last four years. But therein lies the problem—more companies should be monetizing customer success. When you see the entire data set to coincide with both technology supplier and customer benefit, this should no longer be a debate.
There is a 27-point Net Promoter Score (NPS) increase for companies that monetize customer success.
There are obvious benefits to the technology supplier, including revenue and margin. Additionally, this is the easiest and most direct funding model. Even more impressive is the amount of revenue that this “protects” in underlying subscription and/or maintenance. There is a healthy and viable market for the right portfolios that focus on “accelerated” quantifiable customer business outcomes. Some technology suppliers have absolutely cracked this code and others have a 100% monetized model.
What many Customer Success organizations don’t consider are the customer benefits. A good example is demonstrated by the increase in customer loyalty for those organizations that indeed monetize a portion of their customer success. There is a 27-point Net Promoter Score (NPS) increase for companies that monetize customer success. These highly consultative adoption-based activities are viable and differentiated in today’s marketplace.
At the beginning of this blog, I stated a common question I receive is whether customer success managers (CSM) should “own the renewal process”. With the over 250 TSIA member companies I have helped over the last few years, the way I typically answer that is by broadening the conversation by stating the following:
Put the right resources at the point in the customer journey that delivers the best customer experience in the most cost-effective manner.
In other words, I have responded both “Yes” and “No”, but more often than not, the response is “It depends”. To answer this question appropriately, context is important. Here are just a few of the important variables to think about before deciding this:
So if you are from a company that has $10M in total revenue and one application and two CSMs, then sure, go for it. Your CSMs can own the renewal, but my guess is that like a utility infielder, those CSMs will be playing several different roles inside the company. But if you are from a multi-billion-dollar software company and you operate in a hybrid model managing 10 or more applications, some on-premise and some in the Cloud, more than likely the commercial responsibility is going to sit with a well-established renewals organization. But should that Renewals team be part of the post-sales Customer Success function? Absolutely.
Regardless, your CSMs should know the disposition in your accounts. In TSIA’s Customer Success benchmark data, CSM disposition is tied for first when it comes to the most frequent components of a customer health score calculation.
But should that Renewals team be part of the post-sales Customer Success function? Absolutely.
The most important question that your company needs to ask isn’t about the renewal ownership—it’s about the efficiency of managing all the commercial costs (acquisition costs, retention costs, and expansion costs) with limited company resources. Ideally, that also drives a great experience. If you can make it easier on your customers by avoiding human interaction completely and implementing a credit card process for low ARR customers, great! However, we continue to see inefficient processes. An astounding 37% of companies continue to use account managers and Sales reps to execute the renewal, and upon further inspection, there is typically confirmation that this could be done more efficiently.
It’s important to distinguish two separate Expansion motions. There is the “easier” motion that involves selling more to your existing customers on the same piece of technology. Whichever meter you use for licensing purposes— such as user count—it’s incrementally growing that meter and it typically doesn’t involve a new sales cycle. This is upselling an existing customer on an existing technology. There is a more difficult process which is selling existing customers on new technology elements which we commonly refer to as “cross-selling”, which typically involves Sales organizations.
We don’t see either as a common practice…yet. In our 2017 Compensation Study we found that only 5% of the variable compensation makeup for customer success managers were tied to Expansion. TSIA is refreshing that study, which will be open until the end of May, and will publish results for our member participants in the early summer. We do expect that number to increase as more conversations continue to demonstrate direct responsibility for at least the upsell portion of the expansion revenue stream.
One broad technology category has an advantage in this revenue classification. We frequently observe platform-as-a-service (PaaS) providers that have Adoption and Expansion as interchangeable technology supplier life cycle stages. With each new use case on the platform, whether it becomes permanent or project-based, it represents an accretive revenue opportunity for your company. Therefore, this directly ties revenue responsibility to the Customer Success team. However, the cautionary statement is to ensure this is done efficiently. An important question to consider is how incentives should be split between Sales and Customer Success teams for both the initial customer acquisition versus the expansion on the platform.
For more in-depth research and industry trends on this topic and more, contact TSIA today to find out how membership in our Customer Success research practice can give you the resources you and your Customer Success organization needs to succeed.
Post Date: April 4, 2019
Phil Nanus, is the vice president of customer success research for TSIA. In this role, he works closely with member companies to deliver research and advisory programs focused on helping them optimize their customer success organizations and effectively deliver customer outcomes. Throughout his career, Phil has held various positions related to enterprise software and IT services, including global leadership roles in customer success, support, professional services, managed services, and cloud services. Prior to TSIA, he was the vice president of customer success at Infor, where he led a team of Customer Success Managers (CSMs) focused on driving customer adoption of their technology.
The Technology & Services Industry Association (TSIA) is dedicated to helping technology and services organizations large and small grow and advance in the technology industry. Find out how you can achieve success, too. Call us at (858) 674-5491 or we can call you.