By Jeremy Gillespie
The other day, I was having a discussion with a leader in the Customer Success field and I heard something alarming: "Most companies still look at customer success as a cost center, not a revenue center."
For SaaS, eCommerce or brick and mortar businesses, the majority of their revenue comes from recurring revenue or repeat buyers. In my opinion, customer success should be seen as the largest generator of revenue in a company. Not only is that team responsible for retaining existing customers and increasing the revenue they pay, it also impacts new customer acquisition. Let's look at the economics of customer success and quantify the true impact customer success can have on the bottom line.
Growth is a function of both customer acquisition and retention. Up and to the right growth does not happen without strong customer retention. Unchecked, SaaS churn scales with the customer acquisition rate. The result is what's called a growth ceiling. Growth ceiling = customer acquisition rate / churn rate.
Value of Relationships
The good news is that a strong customer success team can raise the ceiling, so let's take a deeper look at how customer success can be a revenue engine for your business. Customer success is rooted in building strong relationships with your customers. As one of our contributors, Amin Akbarpour, recently wrote, customer relationships have value. This value is quantifiable because creating relationships creates loyal customers who:
- Have a lower likelihood of churn (increase LTV)
- Are willing to spend more (increase LTV)
- Are open to trying other products (cross-sell and up-sell revenue)
- Become brand advocates (referrals = increased acquisition)
The net result of building relationships with your customers is increased revenue and decreased costs.
Revenue Components of Customer Success
1. Reduced Churn
One of the first and most critical impacts customer success can have on revenue is through reduced churn. As companies grow more revenue comes from existing customers, which makes minimizing churn vital to the business.
To improve retention, it is important to implement customer engagement strategies. Make sure these strategies are tailored to specific groups of customers and mirror customer behavior. A common approach is to create high-touch and low-touch engagement models based on differing customer journeys.
2. Expansion revenue
The second phase in growth maturity is expansion revenue. Expansion revenue is developed through building relationships with you accounts, understand their definition of success, and engaging them in the proper manner. Once you understand their needs, you're able to approach up-sell and cross-sell conversations in a thoughtful manner with their real needs and goals in mind.
Happy customers are more valuable than average customers... If you make them. When customer success identifies brand advocates and empowers them to influence new sales, it's a win for both the retention and acquisition teams. The brand advocates have a greater sense of brand loyalty, and spend 2x more on products and services. In addition, when advocates influence new sales, you increase your acquisition rate and lower your cost of acquisition. Like I said, win-win.
The results will speak for themselves. If you want to expand growth, customer success is where you should focus your resources. As your company grows, more revenue comes from current customers, which places a greater emphasis on customer success driving revenue. The largest quantifiable impact will come from:
- Reducing churn through building an engagement strategy
- Expanding revenue with up-sell and cross-sell opportunities
- Empower customers to become advocates of your company
Make sure customer success is not looked at as a cost center in your organization. Yes, customer success is rooted in building relationships, which doesn’t sound quantifiable, but the numbers don’t lie. Use customer success to raise your growth ceiling and scale revenue growth.
Need help planning the metrics and goals that drive customer success revenue? The Success League is a consulting firm that works with customer success leaders who want to unlock the retention and revenue potential in their team. www.TheSuccessLeague.io
Jeremy Gillespie - Jeremy is a growth-oriented marketing geek, technology enthusiast and customer evangelist. He loves using complex data to build creative retention solutions. By leveraging technology, Jeremy excels at creating scalable retention marketing programs. He works for LinkedIn, holds a BA in Communication from the University of Pittsburgh and MBA from Point Park University. He is a proud former Pittsburgher, but currently lives in San Francisco, CA.