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In Part 1 of this blog series, we discussed two of the four key imperatives that software customer experience executives can use to help them develop and operate a new MCR model for the next stage of cloud services growth: Monetizing Additional Offerings and Embracing New Delivery Channels. Read on as we outline two additional imperatives that will help you get to the next level: Proactively Managing Customer Success and Rethinking Professional Services. If you haven't yet read Part 1, please review here.

Key Imperatives

3.) Proactively Manage Customer Success. 

Another key element of succeeding in delivering an outstanding customer experience for the cloud is proactively managing customer accounts and ensuring customer success. This is a new mindset versus waiting for the annual renewal to come due and reaching out to the customer 60 days before the renewal date. This often involves creating a new ‘customer success management’ function in addition to account management and customer support―potentially adding additional fixed costs to the business. 

SaaS companies can better manage these additional costs by a) proactively managing every customer touch point to ensure product usage/business success, b) identifying new customer needs and follow-up on new leads, and c) enabling the customer success function with CRM and other technologies.

Companies should actively engage with customers and perform quarterly check-in calls on adoption or training needs, demonstrate new features and applications, offer best practices, recommend new features, etc. The idea is to better understand the relationship between the customer and the company’s offerings—instead of being focused on blindly getting a renewal. Traditional CRM technologies that integrate sales and support information are getting even more useful as customer profiles are augmented with product usage and community/social media information. 

4.) Rethink Professional Services.

Lastly, professional services need to remain a significant and essential part of the business model. However, cloud companies need to rethink the traditional scope of professional services -- beyond initial systems integration and end-user training – with an offering portfolio that can support a customer throughout the customer life cycle. This will require new offerings to be developed and new skills sets to be retained. 
New offerings for cloud include packaged offerings designed to speed deployments (e.g. data migration/import) and interactive/engaging training content to ensure product usage. Post-implementation and performance improvement services should be considered that help the customer maximize solution value/ROI and proactively support the on-boarding of new users and upgrading to premium tiers. The ultimate goal is to ensure that the service portfolio helps the customer achieve business outcomes, and that they are being used on an ongoing basis, and not just at the point of initial sale. In the end, the company also needs to decide which of these should be delivered by in-house resources and where to leverage 3rd parties. 

Tying it Back to Cloud Economics

Leading subscription players are tracking and targeting improvement around four key subscription metrics: Customer Acquisition Cost (CAC), Average Revenue per User (ARPU), Churn, and CAC Payback Period. There is not one single formula across these key metrics that ensure profitability – for instance, a company can be very aggressive in customer acquisition (company F in the figure below, a leading SaaS marketing platform) but very low churn offsets acquisition cost and creates a positive Customer Lifetime Value.

Another Company, Company P below (a leading security SaaS provider for SMBs), offsets a higher churn rate with a lower cost acquisition payback model. Investments that are made in the MCR functions need to tie back to the economic model being targeted to build for the overall business. Based on recent research conducted by Waterstone Management Group, companies are able to drive targeted improvement in customer life time value by comparing themselves to relevant benchmarks across a number of dimensions (see Figure 1). These compares will guide decisions on new initiatives and investments within MCR functions. 

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churn rate

Software and subscription businesses will get increasingly more sophisticated around how they manage and grow recurring revenue. As they do, MCR functions will be a key source of value and require greater levels of focus than they’ve received before. Key questions that customer experience executives need to be asking themselves are shown in Figure 2. They can help you to identify opportunities for performance improvement.

business and operating model  
Neil Jain

About Neil Jain

Neil Jain is a partner at Waterstone Management Group, with more than 15 years of experience formulating growth strategies and improving operations for technology companies. At Waterstone, Neil has successfully led a number of client engagements across the software, hardware, and telecom segments with businesses that range from emerging high-growth companies to the Fortune 100.

Singu Srinivas

About Singu Srinivas

Singu Srinivas, a partner at Waterstone Management Group, has nearly 20 years of experience working with Fortune 500 and smaller high-growth technology companies. His experience has centered on creating growth strategies, developing go-to-market capabilities, and enhancing the operational effectiveness of B2B and B2C technology companies, as well as the services arms of manufacturers, retailers and ISPs.