Recognition of Customer Success is growing rapidly, yet it requires more than just a new department, new hires, and new titles. The shift to a Subscription Economy and the corresponding shift in Power to Customers means that businesses need to embrace Customer Success just to keep pace, let alone thrive. Yet in many instances, Customer Success is still viewed as an offshoot of Sales or Support. For Customer Success to produce revolutionary growth it needs to be championed by the C-Suite as a distinct profit center. Here’s what it looks like when Customer Success is implemented incorrectly, and how to get back on track.
What Happens When Customer Success Reports to the VP of Sales?
Many Sales teams are rewarded based upon the overall revenue or Gross Profit Margin (GPM) of new business. Once the prospect signs the deal and becomes a customer, they proceed through onboarding and Sales shares everything they’ve learned with the Customer Success Manager. Everything looks rosy and they’re ready for a bright future together, Customer and CSM riding off into the sunset together…
Until the partnership fall off the rails.
If Customer Success is an extension of Sales and they’re rewarded for the same activities as Sales, then it will be very difficult for them to earn the complete trust of their Customer.
Just because we have something to sell doesn’t mean they’re ready to buy. This is the crux of Customer Success: it’s our goal to help our Customers achieve all their business goals, and most of the time this has nothing to do with selling. Trust comes first, before any upsells, cross-sells, or expansion plans. If we place sales before trust, if we elevate our quota above their long-term business goals, we are asking begging for trouble.
The Customer has been through a long series of complex negotiations with Sales. They’ve championed this new solution to their executive team from early on. Finally, they sign on the dotted line, there’s cake and champagne as they’re welcomed into the family… and in the midst of the celebration the Customer Success Manager sidles up to them and asks them to buy more. Really?!?! The entire party goes silent as a spotlight shines down on the CSM and the camera zooms in for an awkward, uncomfortable close-up. That’s how embarrassed we should feel trying to sell our customer something “new” two seconds after they buy our original service. For shame!
Customer Success needs to be grounded in service, not selling. Here’s what to do if your Customer Success team currently reports to the VP of Sales:
Solution: First, decouple Customer Success from Sales. Members of your Customer Success team definitely need to share certain attributes with Sales: confidence, product knowledge, and a bias for being proactive. But these are all simply part of a CSM’s broader talents for strategic planning, cross-functional communication, and collaboration. Their primary goal is to help their Customers succeed, and oftentimes this goes far beyond the business needs addressed by the product. This is why CSMs need to be rewarded based on retention, adoption, and advocacy, and it’s also why we need to strike the word “quota” from their vocabularies.
Then, tie your Sales Team’s compensation to GPM of new business and recurring revenue from that account. Give them skin in the game! Sales need to consider the Lifetime Value (LTV) of that account, and not simply the one-time commission payout. Is this an Ideal Customer? How likely is it that they will churn? There are many things that Sales can do to influence the outcome of these questions.
What Happens When Customer Success Reports to the Director of Customer Support?
Members of Support are the unsung heroes of your organization. In many ways they’re playing a constant game of Whack-A-Mole: They’re always “on,” there’s always a fire that needs to be put out, and the calls just keep coming.
It’s natural that Support is graded on efficiency and speed-to-resolution. The number of tickets open, the length of time they’ve been open, and the Customers who called in those tickets all figure into this equation. We can easily use these metrics to resolve crises more quickly.
These are also the exact opposite standards by which we grade Customer Success.
At the moment a Customer calls in flaming mad, it’s already too late. Fixing the problem – reacting to the call – is the goal of Customer Support. This is a Tactical decision, yet Customer Success is Strategic and Proactive.
Customer Success is tasked with answering the following questions instead:
- What steps can we take to make sure this crisis doesn’t occur again – both for this customer and for all customers?
- What could we have done during onboarding / implementation / our last QBR to prevent this from happening in the first place?
- Has Support tracked this type of problem in other customers before this call? How can they transmit this data to Customer Success more effectively?
Both Support and Customer Success are vital business functions, but for each of them to be effective they need to operate separately. Here’s what to do if your Customer Success team currently reports to the Director of Customer Support:
Solution: Customer Success needs to work closely with Customer Support, but if anything Support is part of Customer Success, not the other way around. Just like our example with Sales, Support needs to be invested in the long-term trajectory of the customer who’s calling in. Fix the problem but also, take the opportunity to gather as much data as possible for Customer Success. Just like Sales, Support needs to understand LTV of each Customer who calls in. Knowing the context of their last conversation with Customer Success will also help tremendously.
It may even be helpful to include a retention component in the compensation plan for Support. Support’s touches are shorter and of a different nature than Sales’, so this factor could be treated as a quarterly bonus vs a major salary component.
The more our customers understand that everyone on our team is committed to helping them achieve their business goals, the easier it will be for them to stay with us, refer us new business, and champion our solution if they move to another company.
What Happens When Customer Success Reports to Executive Leadership?
Customer Success is an entirely new business function. Not since the advent of IT have companies had to make this type of fundamental shift in how they structure their business. Yet simply creating a new department and promoting your rising stars to lead it is not enough.
Executive Leaderships Needs to be Invested in Customer Success Before Anyone Else
Customer Success needs to be a distinct business unit, but this is only the first step:
- Executive Leadership needs to grant the same amount of Power to the VP Customer Success as they do to the VP Sales, Director of Support, Head of HR, and VP Product:
- Power to weigh in on the company’s budget as it pertains to growing recurring revenue of the existing customer base.
- Power to request additional resources to enhance recurring revenue, from hiring new Customer Success Managers to implementing new Technology.
- Even Veto Power to decide whether or not a Customer is a good fit – before they sign.
- Executive compensation needs to be tied to retention and growth of the existing Customer base. What happens if we don’t focus on retention? In 2005, Salesforce was signing new customers left and right and its market cap was accelerating past $500 million. Everything seemed awesome… until they dug a little deeper and realized that their churn rate was 8 percent per month. Pause for a moment and let that number sink in. As quickly as they were gaining new customers, the odds of those same customers leaving within the next 12 months were close to 100%. Fortunately, the CEO of Salesforce, Marc Benioff, took drastic steps to staunch this mass exodus, and in doing so Salesforce jumpstarted the modern Customer Success movement. Marc Benioff and his entire team realized that if they didn’t take immediate steps to reverse the trend in churn, there wouldn’t be anything left to save. This decision had to come from the top.
The saga of Salesforce turned into a Success Story instead of a Cautionary Tale, and we’re all better off because of it. Yet Salesforce is just one among countless examples of SaaS companies waking up to the realities of the Subscription Economy. Customer Success is not a catchphrase or fad. When we focus all our energy on making sure the right Customers sign on with us, and they stay with us, and they continue to purchase more from us with each passing year, then Customer Success is revealed as one of the primary engines for tremendous growth. Only when Executive Leadership realizes this and rearranges the company’s culture and structure accordingly will it make sense for Customer Success to report directly to the C-Suite. Anything less than that will only frustrate members of your Customer Success team and distract everyone else while the main challenges of serving your existing Customer base go unmet.
Is your entire company invested in Customer Success? Now is the time to begin.