Why customer success is now the master business metric

Tom Brennan Profile picture for user tom.brennan September 14, 2016
Customer success must become an enterprise-wide master business metric, ingrained throughout a company’s operations, argues FinancialForce's Tom Brennan.

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(© psdesign1 - Fotolia.com)
We are amidst the rise of a new way of managing businesses that prioritizes customer success as the most meaningful business metric. Customer satisfaction has always been a concern for businesses, so why the sudden obsession with customer success?

The tech industry was the first to broadly embrace the concept of customer success because of its early adoption of subscription-based and services-centric business models. When revenue is derived from recurring services that can be renewed or cancelled easily, customer success and adoption become the precursor to a company’s financial health. If the customer succeeds with your subscribed product or service, they renew or expand their subscription or usage. If they don’t succeed, you can kiss the revenue and cash goodbye. Technology businesses have never been more tied to the successful outcomes of their customers – which is a good thing for everyone.

The adoption of subscription-based business models and a customer success orientation is not limited to the technology sector however, it has spread to mundane and complex products ranging from razor blades to jet engines as a service. Consequently, customer success is becoming a true corporate ethos in many industries, not just the domain of the customer service department. To be clear, it is a wider, enterprise-wide concept that needs to be ingrained throughout a company’s operations.

Adopting the customer success religion

To prosper in this new services economy, all businesses will need to evolve to a more customer success oriented approach. Company cultures, organizational structures, processes, employee compensation plans, information systems and use of technology will need to change to accommodate a customer success orientation. Let’s see why and how.

Create a customer success mindset

Let’s be honest, corporate customer satisfaction initiatives have long provided a target rich environment for the likes of Dilbert cartoons (examples here and here). To work properly, customer success can’t be hollow customer satisfaction promises that are buried in company mission statements. Customer success needs to be a real, deeply embedded, day to day notion that courses through the veins of the business. People at all levels need to be goaled and measured by it. Customer success has to be the first goal and financial goals second because the two are inextricably linked - in that order. Otherwise customer success initiatives will rightfully earn their own place in a Dilbert cartoon. Leadership has to make it the focus of the business.

Get customer success metrics that matter

In a services based company, customer success metrics are the canary in the coal mine, predicting a company’s future financial health and allow companies to be more proactive versus reactive. Metrics like product adoption rates, usage rates, project status, and service call patterns are precursors to renewal rates, churn rates and net expansion rates from the customer base. Contract renewal forecasts should be weighed against measures of customer success to be accurate and predicable. Customer success metrics now deserve a place alongside bookings and P&L metrics on Executive dashboards to serve as leading indicators. The ability to pull information across all of a customer’s interactions becomes critical to get visibility to these metrics.

Think opportunity-to-renewal vs opportunity-to-cash

The ‘as a service’ model is forcing a longer term view of customer relationships. In the old ‘quick sale’ world, the opportunity to cash process is what mattered. In the renewals world, the opportunity to renewal process is emphasized. Rather than concentrate on Days Sales Outstanding, the critical questions become: Will the customer renew? Have they adopted the product? What is the usage? Have they achieved success? The cash will follow success.

Invest in customer success people

Companies that have adopted the customer success religion invest in people to ensure products/services are fully embedded into a customer’s business, such as customer success managers to monitor a customer’s progress through the whole customer journey. The customer success manager is responsible for knowing everything that’s occurring in the relationship, from delivery to finance to adoption. Ironically, this is what the customer wants. They don’t want to integrate with your company; they want one central contact.

In fact, many organizations are doing this and getting paid for it too. They have added billable professional services personnel to work alongside customers to drive successful adoption of a product/service. After success has been achieved, the professional services teams hunt for new use cases to expand adoption in a ‘land and expand’ approach similar to models used by business consulting firms.

Organize around the customer

For many years, companies have been organized in silos, separating those that sell a product or service from those that deliver it. In recent years, we are seeing companies combine sales, customer service and customer success organizations into one entity under a single executive. In this model, sales management can’t ‘throw problems over the wall’ to services teams and still meet their individual goals. The executive is still goaled on new sales, but also on customer success, renewal sales and expansion sales. In this organization structure, an executive doesn’t succeed unless customers succeed. ‘Won and done’ sales are not the focus.

Wrap your systems around customer journeys

Much has been written about customer journeys, which describe all the events and interactions a customer has with your company throughout the lifecycle of a business relationship. Yet, in most companies that journey is split across a variety of systems and departments, making companies appear disjointed to the customer and life difficult for those that serve them. Customer success managers don’t have access to all the information they need to assess a customer’s situation because data is spread across too many systems (which they often can’t access). Call center and service information is stored in CRM, project information is stored in a project management application, renewal information is stored in billing and contract apps, while receivables and credits are housed in ERP. This fragmentation makes it very difficult to assess and manage the customer relationship.

Combine systems of engagement, systems of record

This fragmentation problem extends to soft, conversational data with the customer and between departments too. Most companies separate the systems of engagement and systems of record (CRM and ERP). Customer transactions and customer conversations need to be tracked in context of one another, and then made available to everyone especially the customer success team. Regardless of what role someone is in (sales, receivables, service), they should be sharing their interactions with other departments. What a customer says or feels is more important context on why the customer isn’t planning to renew or why they aren’t paying their invoices. Laura Ramos, principal analyst at Forrester, says that brands will need to “make customer insights accessible to every employee - and partner - to enhance their interactions” if they want to thrive in 2016.

In short, customer success management is a team game not individual or single department game. By knocking down the walls and eliminating barriers between systems, companies can position themselves to truly understand the state of their customer.

Think about customer success as a marketing investment

Rabid supporters of customer success think of investments in customer success as investments in marketing. Selling to happy and successful customers is far more cost efficient than hunting down a new customer. For instance, in the financial services space, increasing customer retention rates by 5% can increase profits by 25% to 95%, according to Frederick Reichheld of Bain & Company. The costs of acquiring new customers has become prohibitive in some industries, forcing companies to take on a ‘land and expand’ model rather than always focusing on costly new customer acquisition.

The customer as a marketer

Referral marketing has long been a mainstay in many industries but it is taking on a whole new dimension in the internet savvy marketplaces we serve today. B2C marketplaces like Amazon.com have long used customer reviews to educate potential buyers on product strengths and weaknesses. Reviewers do the selling for you. This phenomenon has come to B2B markets such as the Salesforce App Exchange or independent B2B sites like G2Crowd. Companies are becoming more vocal and transparent about their experiences on a global scale. In this world, your happy customer base can become your best marketer, while your unhappy customer provides fodder for your competitors. Simply put, a focus on customer success can produce better marketing and sales results without spending a dime in either.

My take

In summary, customer success is now the master metric that companies need to focus on. It is the predictor of future revenues and business success, especially in the Everything as a Service business world we live in. To be clear, customer success is a higher level of calling than customer satisfaction efforts of yore. It is company wide effort that must permeate a company's culture, organization structure, information systems, investment allocations and processes. Businesses have never been more tied to the successful outcomes of their customers. Those that master the customer success mindset, will achieve recurring business success.

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