As more companies embrace recurring revenue models—trading large upfront sales for annual or monthly recurring payments—they often neglect to invest in the relatively new and developing field of Customer Success. Many firms rely on their existing customer support team, with the hope that answering calls and emails quickly and accurately will combat customer churn and make for happy customers. A far better approach: invest in a customer success team that can proactively identify and help struggling customers before they churn.

Salesforce.com was one of the first companies to talk about the function and importance of Customer Success. Now Customer Success rivals sales, marketing, product management and engineering for the CEO’s attention. While the Customer Support team still exists, and focuses on metrics like “average response time” and “average resolution time,” the Customer Success team is the proactive arm, focusing on reducing churn.

Why is churn so important? A small change in churn has a huge compounding impact on a business’s value. A company growing 30% with 5% annual churn will have 52% more revenue in 5 years than a company growing at the same rate but with 15% annual churn. Driving down churn can be difficult. According to a 2015 Pacific Crest Private SaaS Company Survey of over 300 SaaS companies, the average dollar churn rate in 2015 was 7%. Companies with a lower ASP (<$25K a year) had higher churn rates (8-13%) while companies with a higher ASP (>$25K a year) tended to have lower rates (4-5%).

If you’re new to Customer Success—or if you want to improve your efforts—a great place to start is to develop a health score to measure your customers’ satisfaction and their likelihood to churn. Multiple factors can go into creating a health score but here are my top:

  1. Product usage – If you don’t have data on how customers are using your product (login frequency, feature usage, failed tasks) you’re flying blind. (Tools like Google Analytics, Mixpanel, Totango and Gainsight will help you discover this data.) If a customer normally logs in every day and they haven’t logged in for 5 days, reach out to them. Or, if you know your most successful customers are the ones that use a specific set of features, reach out to all customers and train them on these features. Even better, highlight these features during onboarding.
  2. User fulfillment – If a customer bought licenses for 10 users and they’re only using 3, don’t ignore this fact hoping they won’t notice. Call them and figure out how to get your product more embedded in their company.
  3. Tickets – Track how many times a customer has called or emailed you with a question or problem and how it was resolved.
  4. NPS score – Survey your customers by asking them the NPS question: “How likely are you to recommend our product to a friend?” https://www.netpromoter.com/know/. This is one of the most common ways of measuring sentiment. I recommend surveying your customers 30-90 days after implementation and 60-90 days before renewal.
  5. Onboarding – Track and rate the onboarding experience for each customer. How much time did you spend with them? Did you demo the critical features of the product? How many people did they involve in this experience?
  6. Customer Goals – Ask your customers to define what success with your product looks like and document this—or even better, measure this success metric in the product. When you follow up with them weeks or months later, ask them how they’re progressing with these goals.

Once you’re done gathering information, aggregate all of these data points in your CRM (or Excel) and create a simple formula for calculating a health score (Use A-F or 1-5) for each customer. You can then focus your team’s effort on the least healthy customers. You can also call your healthy customers and ask them to be references, beta testers, and maybe even candidates for an upsell.

When you’re getting the hang of it, consider software that will automatically aggregate all this data for you in real time, identify trends, and develop workflows. Some of the better platforms our team has evaluated include Gainsight, Totango, Preact and Bluenose.

This content piece has been prepared solely for informational purposes. The content piece does not constitute an offer to sell or the solicitation of an offer to purchase any security. The information in this content piece is not presented with a view to providing investment advice with respect to any security, or making any claim as to the past, current or future performance thereof, and Mainsail Management Company, LLC (“Mainsail” or “Mainsail Partners”) expressly disclaims the use of this content piece for such purposes.

The information herein is based on the author’s opinions and views and there can be no assurance other third-party analyses would reach the same conclusions as those provided herein. The information herein is not and may not be relied on in any manner as, legal, tax, business or investment advice.

Third-party images, logos, and references included herein are provided for illustrative purposes only. Inclusion of such images, logos, and references does not imply affiliation with or endorsement for or by such firms or businesses.

Certain information contained in this content piece has been obtained from published and non‐published sources prepared by other parties, which in certain cases have not been updated through the date hereof. While such information is believed to be reliable for the purposes of this content piece, neither Mainsail nor the author assume any responsibility for the accuracy or completeness of such information and such information has not been independently verified by either of them. The content piece will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after the date hereof, or for any other reason.

Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of terms such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “projects,” “future,” “targets,” “intends,” “plans,” “believes,” “estimates” (or the negatives thereof) or other variations thereon or comparable terminology. Forward looking statements are subject to a number of risks and uncertainties, which are beyond the control of Mainsail. Actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which Mainsail is not currently aware also could cause actual results to differ. In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. The forward-looking events discussed in this content piece may not occur. Mainsail undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in the enclosed materials by Mainsail and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions. For additional important disclosures, please click here.