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By Lauren Bensussen, Senior Marketing Consultant at Heinz Marketing
While the idea of customer success as a profit center is not new, it is regaining momentum and overtaking new logo acquisition as the main strategy for B2B revenue growth. I say this from my own experience over the past 4 years as a consultant for Heinz Marketing. Our clientele often come to us for help gaining new customers.
We of course help them with this endeavor, but after deep analysis, we almost always observe a large untapped opportunity for growth within their current customer base. In fact, letting the client know that we uncovered this goldmine can serve as the impetus for them to expand their business with us! As the kids like to say, “Wow, that’s so meta” 😉.
Anyway, it’s important to note that the case for focusing on customer expansion is based on data—data that not only tells the story of how Company X’s top customers by ARR (Annual Recurring Revenue), ACV (Annual Contract Value) or LTV (Lifetime Value) initially converted from prospects into customers, but of exactly how all of the touchpoints and interactions since then have contributed to upsell and cross-sell success.
There’s also a school of thought called PLG (product-led growth) that serves as a great strategy for expansion. With PLG, marketers use tools to leverage data that shows how employees at customer accounts are interacting with their product. These invaluable insights are used to inform future expansion strategies and tactics, ones that sometimes even originate in the product itself.
In this scenario, product users are maybe presented with a new feature or exposed to a new subscription level while they’re actively leveraging the product. PLG works because people are most open to optimizing their experience with a vendor when they’re already benefitting from said vendor in real-time.
And while it doesn’t take a genius to understand that happy customers = more business, it is essential to explore the functions within a revenue team that make this ‘equation’ true. In this way, we know which levers we can potentially pull to drive more and larger expansion deals. In B2B organizations, these variables include—but are not limited to—functions and roles like:
- Demand Gen
- Customer Marketing
- Customer Success
- Account Management
- Account Executives and/or BDRs
- Revenue Ops / Marketing and Sales Ops
- Sales Enablement
- Product Marketing
- Product Design
Are all these teams in your organization aligned and working together to drive revenue? More importantly, do the individuals in these roles even know each other? Do they maintain business relationships across functions?
If the answer is “No” or even “I’m not sure”, chances are they don’t. Which is why holding expansion strategy meetings where all essential functions are invited and encouraged to collaborate is a great place to start.
Another great place to start this journey is to read the research report, “Customer Success as a Profit Center” by Julie Weill Persofsky and Jacco J van der Kooij of Winning by Design. It was published just last year, but I have a feeling it will live on forever.
For all my busy B2B marketers and sales leaders inundated with meetings, deadlines, and the like, here’s my summary of the academic article’s key takeaways:
Takeaway #1— Customer Success should be thought of and modeled as a profit center, not a cost center.
What does this mean?
It means we need to alter the way we perceive the Customer Success function, so that we see it for what it is: a multi-purpose team that simultaneously manages the customer experience, drives customer loyalty, and fosters growth opportunities.
Managing an organizational mindset reframing like this one is not easy. It requires tons of stakeholder engagement across all the functions involved in driving revenue. To see it through, you must commit to driving consensus around the idea of CS as a profit center by providing all parties with data they would be silly to ignore.
Takeaway #2— When managed properly, the Customer Success team delivers exponential growth, not just additive growth.
What does this mean?
It means that if companies want to see outstanding results, they need to take a specific approach to managing their Customer Success team. Otherwise, they won’t see nearly as much growth as is possible. The approach that optimizes CS to drive revenue relies on—you guessed it—measuring on revenue metrics.
By focusing on “CLV, upsell rate, and new revenue growth through cross-sell and advocacy influence” CS teams become more aligned with the entire revenue engine. Traditional measures such as loyalty scores (e.g., NPS, C-SAT), CS headcount costs, and churn rate” can still be measured for their own intents and purposes, but they “do not focus on the impact and growth potential that CS can deliver.”
Takeaway #3— Lower churn and higher upsell leads to greater customer lifetime value without additional acquisition costs.
What does this mean?
This one is self-explanatory, but here are a couple of findings straight from the research that provide more color:
- “Finding #4—CS has a significant impact on net revenue. Not only can a five percent increase in retention can result in a 25 to 95 percent increase in revenue, but when focused on small upsells throughout the year and not just at renewal, you can double revenue.”
- “Finding #5—A well-defined, proactive process is the best approach to driving retention and expansion. Shifting to a proactive approach to managing customers as opposed to responding to “red” accounts will increase customer retention. While responsiveness is a key to customer satisfaction, proactive outreach is needed to resolve customer issues before they become problems.”
Takeaway #4— By focusing on higher frequency upsell opportunities, companies can increase their revenue from existing accounts by more than 40%.
What does this mean?
It means that the CS team should constantly be capitalizing on upsell and cross-sell opportunities, instead of waiting around for the annual contract renewal to arrive. It’s deceiving, but small monthly expansions have a greater impact on LTV than your typical large annual expansion.
“When you factor in the same upsell and retention metrics, yet focus on monthly increases, even with monthly churn calculated in as well, revenue potential increases by 41.6 percent over 3 years, if done on an annual basis.”
Takeaway #5— By basing the number of accounts per CSM on the time required for each account to be successful, rather than on revenue ratios, companies can double revenue from existing accounts.
What does this mean?
It means that churn prevention is key to expanding revenue at customer accounts. All too often, CSMs are over-assigned accounts, so much so that they don’t have the time or energy to provide great service to their customers. Instead, they spend time putting out fires with at-risk accounts and pray that their “healthy” accounts aren’t slowly churning in the background.
“Designing the ideal ratio of accounts per CSM requires calculating the optimal number of hours required to successfully manage and grow an account… Growth is only possible when CSMs have time to manage growth as well as limit churn.”
Takeaway #6—CS and company leadership should focus on maximizing profitability rather than productivity, in order to achieve exponential growth.
What does this mean?
This refers to how well company leadership understands the financial value of the CS function. “When a CEO is looking to cut costs, Customer Success is typically one of the first places they look. They often incorrectly assume that decreasing headcount will deliver cost savings, when in fact, it will ultimately decrease revenue by far more than the savings achieved from headcount reduction.”
The proof is in the math of it all. “Cutting [CS] headcount leads to reactive CSMs who don’t have time to focus on every account, making them less effective, not more productive.”
Bottom-Line
And that’s my boiled-down version of the research! If you need any more convincing, read the whole paper. It’s only 15 pages, and I promise you’ll have all the data you need to feel confident that Customer Success is a profit center.
This report suggests that, over time, the Customer Success function has the potential to outdo the Sales function in an organization’s quest for revenue. What do you guys think about this claim? How does that make you feel, and does it inspire you to do anything differently? Comment below to start the conversation.
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