Customer Success(CS) is the most efficient way to grow your MRR/ARR. Many modern SaaS companies grow exponentially as a result of efficient CS initiatives. Yet, it is looked upon as a ‘cost center’. It’s time to model your Customer Success as a profit center.
A profit center definition states that “a part of an organization with assignable revenues and costs and hence ascertainable profitability.” Customer Success function can be assigned costs and revenues. Thus, it is a profit center.
If you’re starting out, set up the team of customer success as a profit center (a profit-making business that brings back revenues more than it costs). Operate the CS team as a business, and think ‘out of the box’. Build your own P&L and control your journey.
Customer Success teams, typically, follow the recurring revenue model (followed by almost every SaaS business). Customer Success was initially used only when a customer was about to churn. It wasn’t deployed to manage each and every customer relationship. However, the responsibilities and scope of the CS team have evolved over time. Recently, the role of a Customer Success Manager (CSM) has become indispensable to nearly every SaaS company.
Customer Success drives exponential growth
True! Because growth comes from an amazing customer experience.
Yes, and when managed efficiently Customer Success can deliver exponential growth not just incremental. Many B2B SaaS companies continue to increase their profits by not only acquiring new customers but also by growing existing customers. Well, how can you grow your business through current customers? By increasing net dollar per customer through expansion revenue. That’s the beauty of the subscription economy. Customers can come to your business and never leave if they find what they came for.
Customer relationships begin only after they subscribe to your product and come to your platform. Onboarding is no longer enough to make the relationship work. Instead, consistent touchpoints (whether automated or manual) are necessary to provide an exemplary customer experience.
Additional Read: Why is customer retention important
Customer Success mindset shift from cost center to profit center
Customer Success has seen itself getting embroiled in the debate of “profit center vs cost center“. Having a mindset shift is necessary to view customer success as a profit center. Customer Success, in itself, is a proactive approach to helping customers. By having the mindset shift to a proactive approach, your business can position customer success as a profit center.
But how do you do that? How do you make that mindset shift?
The goals are aligned across the entire organization that has, in turn, every department working for the same goal- increasing the bottom line. The goal of Sales would be to get the customer to commit to your product. It would be the goal of CS to drive value and find opportunities to expand revenue, once the customer is handed over. Thus, Customer Success is the one responsible for getting more licenses and subscriptions from those customers.
Measuring the leading indicators and metrics is one of the ways to make that shift. Following quantifiable metrics can indicate the real impact of Customer Success on revenue:
- Forecasting Revenue through renewals, upsells, and expansion. Upsells, Renewals, Cross-sells, etc. are the opportunities to expand the business revenue through existing customers.
- Earned Growth ratio, etc.
- Optimize the CS by measuring Customer Lifetime Value (CLV), upsell rate, and revenue growth through customer advocacy as well.
Suggested Read: Customer Success KPIs
Impact on Net revenue
Customer Success has a huge impact on the Net revenue. “A mere 5% increase in retention leads to 25 to 95% increase in revenue.” Not only that when you focus on small upsells and not just on renewals, the probability of increasing revenue skyrockets.
Shifting to a proactive approach to managing customers is a sure-shot way to expand the business by utilizing them. This is undoubtedly the best approach to drive retention.
Viewing Customer Success as a cost center and cutting costs by cutting headcount will definitely backfire. It makes the remaining CSMs reactive as they won’t have the time to focus on each customer account.
A responsible leadership should acknowledge the ability of CS to drive revenue and business value. The SaaS businesses should understand the principles, and implement them with proper training and staffing. Providing strategic direction to the CS is the ultimate differentiator between successful and unsuccessful organizations. The former ones would be able to drive more value than their competitors.
Who should not do this?
After strongly advocating for modeling customer success as a profit center, you’d be wondering why some should not be doing it. It’s a bit counterintuitive, yet absolutely crucial to understand. Focusing on making CS a revenue center is not quite necessary for some businesses. Businesses having products that are super easy to use (that have no value touchpoints) don’t stand to achieve much from it. It will just not make any economical sense to them.
It’s a wrap-up
Customer Success has proven to be a revenue driver for a lot of businesses. Those who have been able to sustain high retention, negative churn, and increase growth numbers stand to benefit from an efficient CS function. You expect to get higher returns from the “investment” that you make in the CS department.
If you know why the customer has purchased the product, you know what to fix. Starting from Onboarding through to renewals focus on those critical moments that lead to customer growth. A great customer experience undoubtedly leads to higher revenue, higher LTV, and increased brand value per customer.
P.S. – The main image has been taken from pexels.com