Subscription pricing is quickly permeating every facet of our lives. From software and services to razor blades and snack boxes – I count 14 companies to which I pay a recurring fee – companies are migrating from a single transaction model to a monthly or annual one. Companies depending on this recurring revenue model must embrace the emerging field of Customer Success.
We recently surveyed hundreds of bootstrapped entrepreneurs across the country and found 24% had a designated Head of customer success. Financial software companies lead the way with 32% while healthcare IT lagged at 15%. Here is a link to the full survey results.
STRUCTURING THE CUSTOMER SUCCESS TEAM
The primary function of this team is to ensure that customers are successful, renew, and buy more. This task is broken out into three functions: onboarding (for getting new customers up and running on the most impactful features and giving them a good first impression), customer support (for solving customer problems quickly and accurately), and customer engagement (for ensuring customers are achieving their goals with the product).
If you’re under $5M in revenue, it may be difficult to specialize these functions into three different teams. However, once you hit $5M, we recommend having separate onboarding, customer support and customer engagement teams. Each team generally reports into a Chief Customer Officer or VP of Customer Success, who should be a member of the executive team and a direct report to the CEO.
WHO TO HIRE AND WHAT TO MEASURE
Onboarding shouldn’t be what a support engineer does when they’re not answering support questions. The onboarding team is highly specialized in creating a great first impression with newly signed customers, getting users up and running on the product quickly, and determining how your customers define success with your product and company. Your onboarding team also sets the stage for customer retention; they know which features offer the most utility and satisfaction and then ensure your new customers start using them right away.
Onboarding teams are typically measured against metrics like average time to onboard and customer satisfaction with onboarding experience. We believe they should also be focused on the percentage of customers who are trained and up and running on key features. One of our companies spent weeks analyzing why customers churned and discovered that if a customer used three specific features, their likelihood of churning went down substantially. The onboarding team started tracking how many new customers got trained on these three features. As they worked to make sure that customers were using these features, they saw churn fall.
The customer support team (which exists today in every company) is reactive—they are the firefighters, responding to the flood of questions coming in from customers. The support role is centered on finding the fastest and most effective way to fix problems.
Most support teams are measured against metrics like average response time, average resolution time, and customer satisfaction. They should also be aware of average number of tickets per customer per month. While a high number of tickets does not indicate a problem (in some cases in suggests great engagement), the team should be focused on identifying why customers have questions and contributing ideas back to Product Management on how to make the product more intuitive. They can also think about building a knowledge center of searchable questions and answers using software like ZenDesk or MindTouch.
Customer engagement is the newest function and it’s quickly becoming the core. In fact, many people refer to this activity as customer success. This is the proactive team, dedicated to knowing how customers are using the product, making them successful, and ensuring they don’t churn. They analyze customer behavior, reach out to customers, and track how the customer is using the product or service. Don’t take shortcuts by asking your customer support team to pull double-duty. Companies that combine the proactive and the reactive into one team often fail. Sure, some talented people can handle both duties. But often when you merge the functions, team members focus more on the urgent, reactive work—customer support—and ignore customer engagement.
Customer engagement also requires different skills than support. When hiring a customer engagement manager find someone who can build long-term relationships with customers. A good candidate will likely be proactive, outgoing and assertive; look for people who also have sales experience, data mining knowledge and analytical skills. And, don’t overlook the soft skills. You need people who are good listeners, like working with people and enjoy solving problems.
How many people do you need? A good rule of thumb is one customer engagement manager for every $1-3 million of revenue. When your company is sub $10M in revenue, you’ll probably want a ratio closer to one customer engagement manager for every $1M of revenue. As you learn more about your customers and become more efficient, you’ll be able to give your customer engagement team more accounts and revenue without issue.
Customer engagement teams should be measured against their own set of metrics. Two calculations every customer success team should track are churn (customers or revenue lost during a period divided by customers or revenue at the start of the period) and net revenue retention (starting revenue, minus churn, plus upsells). According to the 2015 Pacific Crest Private SaaS Company Survey of over 300 SaaS companies, the average dollar churn rate in 2015 was 7% and the average net revenue retention was 105%.
When building a customer engagement team priority one is to start having meaningful conversations with your customers. Too often, companies assume their customers are happy and successful. After this, it’s time to develop a health score (an early warning system) to identify which customers might be a churn risk and which ones might be good upsell targets. Additionally, I recommend keeping track of your Net Promoter Score (NPS), a measure of how likely your customers are to recommend your company or product, and tracking how this number evolves. Make sure you also ask people to explain why they gave you the score they did. Print out a sample of these responses once a month and have your executive team read them.
HOW TO LEARN MORE
Building a customer success team can be challenging, but it may be one of the best investments you make, and finding the right people is critical. But don’t go it alone, find additional information at the TSIA Customer Success Resource Center or try the Gainsight conference and Totango conference to learn more and network. Good luck!