Chapter 6

Customer Success Strategy

Table of Contents
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Introduction: Who's this Customer Success Guide For?
Chapter 1: What is Customer Success?
Chapter 2: Customer Success Everywhere: An Organizaitonal Philosophy
Chapter 4: What’s the Difference Between Customer Success, Customer Support, Account Management, and Professional Services?
Chapter 5: Why Is Customer Success Important to SaaS?
Chapter 7: What Does a Mature Customer Success Organization Look Like?
Chapter 8: Does Customer Success Need Its Own Tool?
Chapter 9: How To Get Started with Customer Success

In this chapter, we dive into the strategy areas that help Customer Success organizations achieve their goals, make key decisions, allocate resources, reduce customer churn, expand accounts, and exceed customer expectations. The strategy areas we’ll cover include:

Ideal Customer Profile and Customer Fit

Having a clear definition of your ideal customer is one of the most beneficial things you can do for your business. Your Ideal Customer Profile (ICP) dictates everything from the product features and functionality you build to the words you use and the emotions you evoke in your marketing.

Defining your ICP should be a company-wide affair. Involve all departments that touch the customer during their lifecycle – particularly Product, Sales, Customer Success, and Marketing. Bring these teams together to decide on an initial ICP and then plan on actively revisiting it as your product, services, and market evolve.

Now, it’s worth noting that you WILL sell outside of your ICP; that’s to be expected and is not Sales being irresponsible. Part of the reason your ICP changes is from purposely pursuing customers who might be slightly outside of your scope and testing whether you can successfully service them. This is where you’ll start to refine the differentiation between your stretch-fit customers and your bad-fit customers.

Stretch-Fit Customers

  • You can deliver initial value.
  • You can deliver required future value in a reasonable timeframe. There’s no hard and fast rule on what constitutes a reasonable timeframe as it will depend on your products, contracts, and buyers. But you must be able to solve some problems for the customer during this interim period.
  • You can service customers by solving for broader use cases shared among your customer base.

Bad-Fit Customers

  • You cannot deliver immediate value, nor can you deliver required future value in a reasonable timeframe.
  • Marked by an inherent misfit between the organization and customer’s structural or ideological makeup.
  • You can only service customers by solving for individual problems, not broader use cases.
Distinguishing between these two customer types can be difficult. Sales is inclined to believe that a bad-fit customer is a stretch-fit customer. Customer Success is inclined to believe that a stretch-fit customer is a bad-fit customer. The truth is in the eye of the beholder. And the truth is there’s no hard line to draw a distinction between the two fits. You need to consider the larger, practical application of your solution. If a customer requires one-off work or functionality that you’re not designed to support, or if you don’t see their request solving a prevalent problem for many customers, then they’re too far out of scope for your ICP.

When establishing your ICP and customer fit, here are a few things to keep in mind:

  • Not all customer churn is bad. As your product and market mature and shift, you make business decisions that will inherently push some customers out of your ICP and move others in. When you first launch a solution, there’s a phenomenon where it’s actually beneficial to churn some of your earlier customers because you haven’t yet tested or refined the alignment between your value proposition and ICP.
  • Know your boundaries. For stretch-fit customers, conduct more upfront vetting in the sales process to thoroughly understand their limitations and set reasonable expectations to prevent future fallout.
  • Start with Product. While your ICP should not be owned by any one department, the baseline proposal often originates from Product. As the function that’s most intimately familiar with your solution, your Product team should know who you intend to build for and what problems you want to solve.
  • Back your ICP with data, not anecdotes. Because Customer Success hasn’t traditionally been rooted in data, there tends to be more emotional reactions to customer fit when it’s not perfect. If Customer Success wants to influence or participate in conversations about ICP, the best thing they can do is approach these discussions with a clear data mindset. If you want to legitimize concerns about bad-fit customers, you need to substantiate your claims. What proof points and metrics are you citing? What’s your baseline to identify where and how the fit is off? Take a step back and listen to what your customer data is telling you.
When building your ICP, you should consider factors such as a customer’s readiness, willingness, capabilities, success potential, acquisition efficiency, expansion potential, and advocacy potential.”

BREE PECCI, Customer Success Enablement, ChurnZero

Customer Segmentation

When you ask Customer Success teams how they distinguish their customers and their Customer Success programs, the typical response is usually “by recurring revenue.” This answer isn’t in and of itself a bad approach. However, after digging into why it’s based on revenue, we typically find it’s the result of a reactive development instead of a proactive approach.

The company cannot afford to lose its largest customers. Therefore, that’s where the time and attention go until it feels like a purposeful decision. But when the main driver of Customer Success programs is risk avoidance, teams become susceptible to other reactive processing. Prioritizing factors such as upcoming renewal date and “squeaky wheel” customers makes the program volatile and unfocused.

So, how do you structure programs around a more proactive, customer-centric approach?

You start with strategic segmentation – the foundation of proactive service. Segments divide your base into groups of customers and users with similar characteristics and needs, empowering you to provide programs, services, and prioritization that are tailored to each group. A thoughtful and thorough approach to segmentation is the key to improving adoption, minimizing churn, and maximizing expansions.

Customer Segmentation Examples:

Key Customer Information (Role, Contract Size, License Count)

Customer Lifecycle Stages and Milestones

Company Maturity

Customer Behavior

Desired Engagement

Potential Value

Goals Driving Partnership

Product Use Cases

Product Fit

Influence/ Strategic Value

Demographics, Firmographics, Technographics

Usage and Value Gaine

When building your segmentation strategy, here are a few things to keep in mind:

  • Always put customer needs and expectations first. There are two realities at play: 1) you’re a business that needs to make money, and 2) meeting your customer’s needs is your best bet to make money. Therefore, your segmentation strategy should always lead with your customers’ needs and expectations. You must balance this with decisions that reflect an effective use of your company’s resources and your overall business strategy.
  • Let Marketing and Sales segmentation inform but not dictate. In Customer Success, the biggest problem with segmentation is assuming you must follow the same strategy as Marketing and Sales. When you default to using a set of prescribed segments and then apply data to justify your strategy, you put the cart before the horse.
  • Stop using one-size-fits-all segmentation. Even though two customers may share the same goal, depending on their context and situational factors, they may have distinct ways of achieving them. Consider the type of engagements you need to provide to get different types of customers to reach their outcomes.
  • Avoid overengineering. It’s easy to get excited about segmentation and build a million and one segments. But slicing your customer data beyond practical application leads to overwhelm, unsustainable work, and subsequent inaction.
  • Refine for value realization. Value realized will vary based on your solution but typically this is a combination of product consumption, feature activation, and business outcomes achieved.
The most common mistake with targeted communications is undervaluing them. The more generic your engagements, the more generic your customers feel – and customers don’t renew on generic experiences. Remember, you’re only a tiny sliver of your customer’s life. If you fill up your limited airtime with generic content, your customers are more likely to ignore you when you actually have something useful to say. The value of your past interactions informs the expectations of your future ones.”

ABBY HAMMER, Chief Customer Officer, ChurnZero

CUSTOMER SEGMENTATION EXERCISE

Pretend that all your customers pay the exact same price for your product. What other criteria do you focus on now? How else would you differentiate those customers? When you put Annual Recurring Revenue (ARR) aside, you free your mind to weigh additional key factors such as customer use case, tenure, business outcomes, and feature usage.

Customer Goal Setting

As a customer, we love to feel understood by our vendors – and that all ties back to goal setting. The most valuable aspect of any goal-setting conversation is giving your customer an opportunity to express their challenges in their own words. It’s an incredibly helpful and simple way to connect with your customers.

Now, there’s a ton of advice out there about customer goal setting; the problem is that most of it’s not scalable. Goals are often talked about as if they’re terribly unique to each customer. Therefore, we’re led to believe the only way to set customer goals is to discuss them at length with each individual customer. Unless you have unlimited resources at your disposal, you know that’s not a feasible option.

A more effective solution is to develop a data-informed approach to identifying customer goals. This framework should be based on your product’s functionality, as well as your customer’s purchase intent, product fit, feedback, and data.

And to be clear, just because you don’t use a high-touch model doesn’t mean that goal setting isn’t viable. Your strategy’s efficacy boils down to how you track and react when customers don’t achieve their goals. Unless you offer a 100% custom service (which no SaaS provider does), you should have a baseline for how customers use your product. More importantly, that baseline should reflect the usage behavior of your most successful customers who continually renew. Look at the specific actions and accomplishments of those customers. From there, figure out how to repeat that model so you can stop reinventing the wheel every time you onboard a new customer.

When setting customer goals, here are a few things to keep in mind:

  • Opt for short-term customer goals. Only focusing on long-term customer goals can set you up for failure. You’re forced to measure the customer against goals that they haven’t been given enough time to accomplish or make meaningful progress towards. Identify more immediate goals in your welcome calls by asking your customer what they want to accomplish within the first three to six months of using your product.
  • Establish clearly defined roles. This is especially important for mid- and high-touch models. Know who is responsible for product-related goals on your customer’s side. Identify who sets your customer’s internal expectations and who to call upon if expectations are not met.
  • Stick to goals that are within your control. Be careful about setting goals that are influenced by factors that exist outside of your product. If a customer is fixated on a goal that you only partially influence, take the time to tease out the elements that you can impact and set clear expectations about how those elements feed into the larger goal.
  • Make performance data accessible to customers. To ensure you’re having as candid a conversation as possible with your customers, this data must reside with both the CSM and the customer. Effective goal setting requires working from a shared understanding of what constitutes success for the customer, as well as a shared dataset that shows the customer’s progress towards that defined outcome.
  • Get the customer invested in their own success. We often approach customer goals as what we, the vendor, must accomplish for the customer. But that’s now how goal setting works in any other capacity. Map the actions that must happen on both the vendor and customer side to increase the likelihood customers reach their goals. The most successful Customer Success programs promote accountability and collaboration.
  • Don’t mix goal-related discussions with venting sessions. Using a business review as the setting to both address a customer’s built-up grievances and set a customer’s future goals creates two competing scenarios. The ideal customer experience is reacting to a customer’s issues as they arise and course correcting in the moment.
To build greater accountability, have customers say their goals aloud and write them down in a shared presentation slide, email, etc. Then, if a customer falls behind, disengages, or doesn’t take the actions need to achieve their goals, you can return to and reference these spoken points. For example, if you’re struggling to get a customer to clean up their data quality, you can go back and say, ‘Hey, on our very first call, you told me that data quality is what’s most important to you. How can I help you accomplish this objective?”

MORGAN CARSON, Manager, Implementation, ChurnZero

Customer Journeys

When customers purchase your solution, they expect you to have a plan to help them achieve success – and that plan is your customer journey. In other words, a customer journey is a map of a process that your customer completes to achieve key goals throughout their customer lifecycle. Customer journeys outline clear expectations of what’s needed from both your internal team and your customers. Examples of customer lifecycle journeys include customer onboarding, adoption, renewal, expansion, and advocacy.

First and foremost, your customer journey should prioritize the customer perspective. The most common mistake companies make when creating their customer journeys is to start by mapping the meetings and processes they want to have. They assume those meetings and processes align to what the customer wants to experience, which rarely holds true.

To create an effective customer journey, you first need to sketch out your base map. This is the success that the customer experiences in the customer’s own terms, including a timetable of their desired events and actions. To start, define the customer’s end goal. Then, identify the milestones and events that must happen along the way. What does the customer need to experience? What’s the quantifiable value in this phase? Then, layer on the meetings and engagements and resources and everything else that you, as the vendor, provide in service of that timeline. Lastly, add contingencies for when a customer gets off track. How can you foster responsibility and collaboration in this scenario?

A well-designed customer journey not only shows a customer the pathway to success and makes them feel like they understand what needs to happen to get there, but it also holds them accountable when they don’t take the actions required of them to achieve their goals.

When mapping your customer journey, here are a few things to keep in mind:

  • Divide and conquer. The challenge with most customer journeys is that companies believe they need to build one massive customer journey all at once. Customer journeys become easier to define and manage when you break them into many smaller journeys. Onboarding can be a helpful place to start as most customers already have expectations about the process and timeline.
  • Hold all departments responsible for the customer journey. Although Customer Success owns the majority of the customer journey, all departments play a role in influencing the customer experience. When a customer deviates from or stalls out in their journey, consider how you can raise those insights across the company to gain a broader perspective.
  • Never assume customers know how to measure their own ROI. Throughout your customer’s journey, you should always be thinking about how you can quantify value for the customer. If you can’t, you’ll have churn related to undefined ROI, failure to launch, and low adoption.
  • Establish a unified POV of the customer. All departments need to understand the customer journey and where your customers are in it. Otherwise, functions are left to perceive the journey through their own lens, which can result in a fractured customer experience. Teams won’t know the right time to get in front of a customer’s problems or capitalize on a customer’s success. Customer communications risk sounding tone-deaf because they came from Marketing who doesn’t understand your solution’s nuances. Or it could lead to Product reaching out to a customer to introduce a feature that doesn’t make sense given the customer’s evolving context. Democratizing customer insights across the company breeds consistency and reliability.
  • Practice what you plot. Journeys shouldn’t just be a pretty picture you hang on the wall. If you can’t operationalize your customer journey, then it starts to lose its purpose. Your journey’s milestones and touchpoints should exist because they produce a specific event or chain of events. If your customer journey doesn’t drive action, then all you have are vanity steps that make it look like you’re holding a customer’s hand when you’re not.
Without a customer journey, you can’t be predictive because you don’t know where your customers are or what they should experience at any given point in their journey. It’s like playing a continuous game of ‘Where’s Waldo?’ but with very real revenue consequences.”

BRI ADAMS, Manager, Customer Success, ChurnZero

Renewal and Expansion

As a subscription business, you need customer retention and account expansion to fuel your growth engine. While there’s no denying that fact, there’s still much debate around whether Customer Success should own these revenue sources. At ChurnZero, we have strong feelings on the matter. As such, we want to dedicate this section to outlining why we believe it’s vital for Customer Success to own the renewal, as well as how to navigate the murkier territory of expansion ownership.

First, let’s talk about renewal.

Let’s start by taking the customer’s perspective for a moment. As you think through your renewal experience, consider what will make the most sense to the customer and what will make the customer feel most comfortable. The answer is likely not reintroducing a salesperson, who the customer hasn’t spoken to in a year, to solicit money, or engaging an Account Manager who doesn’t really know the customer or their nuances, especially if you’re trying to expand that partnership at renewal. The individual who’s invested the most time and effort to develop the relationship and deliver value is the one who’s best positioned to have that renewal conversation – and that’s the Customer Success Manager.

As a Customer Success Manager, if you’ve gotten your customer to realize value, helped them achieve their outcomes, and demonstrated ROI, then the renewal should be a natural continuation of your relationship.

Now, there’s some pushback that owning the renewal requires a different skillset from that of a Customer Success Manager. As if a Customer Success Manager’s ability to connect with a customer somehow inherently means they’re going to be lousy at having money conversations. Or the idea that asking for money will tarnish or jeopardize the relationship.

These are both fallacies that need to be laid to rest.

Because Customer Success Managers haven’t traditionally been required to talk money, it’s true that there can be a lack of experience and comfortability in having those conversations. But, of course, that can be fixed with a little practice, role playing, and professional development. Developing these skills may take some effort to master but it’s far from impossible or being reserved for a “special” subset of people.

Why renewals are Customer Success’ one-way ticket to the executive table

If Customer Success wants to earn a seat at the decision-making table and be seen as a core component, not a cost center, to the organization, they have to own the renewal. Plain and simple.

If you can’t tie what Customer Success does to definable and measurable business value, then there’ll always be this question floating around of “Do we really need Customer Success?” If there are no clear deliverables, the function’s contribution and worth become blurred within the organization.

If you’re not going to own the renewal, you might be able to find other metrics that prove your value. Some teams try to tie their value to customer touches, NPS®, or other factors that carry some weight. But in our experience, those metrics don’t earn you internal clout and authority. Rather, you get earmarked as a “nice to have,” instead of a critical contributor to business growth and valuation.

At ChurnZero, it’s our prediction that if you don’t currently own the renewal, you’ll soon be behind the times. According to our Customer Success Leadership Survey, Customer Success is the most common owner of both renewal (55%) and expansion (43%). Customer Success is finally waking up to the reality that they must claim the renewal to be seen as an indispensable and respected business function within the organization.”

ABBY HAMMER, Chief Customer Officer, ChurnZero

Navigating expansion ownership

Expansion ownership is not as clear-cut as renewals. Much of your strategy and processes will depend on your expansion pathways.

Start by considering the level of involvement required for upsells and cross-sells. How removed is Customer Success from the new product being sold? Is a new customer decision-maker involved?

As a CSM, if you’re selling within the same team or group that you’ve been working with and have relationships with, then it might make sense for you to own that expansion. (One caveat being product complexity, of course.)

For example, let’s say you have two distinct products: Product A and Product B. The customer has been sold Product A. But selling Product B requires a whole net-new sales cycle. So, even though the sale stays within the same team, given the involvedness of the sales process and the fact that it’s essentially a new deal that just happens to be within the same organization, Sales might be the better owner.

This type of expansion that ventures into a brand-new sales instance is where rules of engagement between Customer Success and Sales become essential. Rules should be based on which team is genuinely the best fit in each scenario and has the greatest likelihood of gaining sales traction.

Another helpful method to determine expansion ownership is to consider which team has the most visibility into buying signals. If Customer Success has the best insight into customer behavior and usage to identify certain buying signals, then they should likely own that expansion. But if Customer Success isn’t aware of or responsible for garnering interest from other departments within the organization, perhaps because it involves an entirely different team or product, it may be more appropriate for Sales to own. It comes down to who is best equipped to identify the need and value of the product you’re selling to your customer.”

NAOMI AIKEN, Manager, Customer Success, ChurnZero

And be prepared for scenarios where you could argue in favor of either Customer Success or Sales owning the expansion; this may indicate a good opportunity for a revenue-share. For instance, it might be better for Sales to prospect into a new business unit, but impossible for them to do so without relying on a Customer Success Manager to make an introduction. Even though Sales may take the lion’s share of the commission, implementing a revenue-share rewards everyone’s participation. For example, Sales gets 75% comp for doing the brunt of the expansion work, while the Customer Success Manager gets 25% comp for their initial involvement and for creating a repository of good-will that Sales can tap into.

When building your renewal and expansion strategy, here are a few things to keep in mind:

  • Set permission boundaries for negotiations. Create fence lines around what a Customer Success Manager can offer a customer during renewal or expansion negotiations without requiring leadership approval. Customer Success Managers can negotiate with more authority and efficiency when they understand the playing field.
  • Be prepared to constantly amend your rules of engagement. It’s impossible to account for every expansion scenario, so be ready to refine, refine, refine as you encounter new situations.
  • Treat your rules of engagement as a real partnership. Encourage team collaboration instead of combativeness. Everybody needs to play in the sandbox. The rules can’t overly favor one team.
  • Present your rules of engagement under a unified front. The effectiveness of your rules comes down to your leadership. If leaders treat the rules as a collaborative effort and present them as such, teams will react the same way.
  • Use a phased approach to transition the renewal from Sales to Customer Success if the idea is met with resistance. If Customer Success has never owned renewal or
    expansion before, Sales will likely be vocal about keeping it, particularly if they’ve been relatively successful. To ease fears and demonstrate proof of concept, try a phased transition approach. Experiment with a subset of customers, such as a segment where renewals aren’t as strong. The caveat being to make sure you don’t set yourself up for failure by using customers who are beyond saving. But if there’s a legitimate question as to whether your current renewal structure is what’s best for the business, test it out. And ask customers about their experience to substantiate your case.

Compensation Plans

Your compensation plan should relate to the behavior you want to incentivize, which is obvious but an important thing to say. Consider what matters to your business and what actions you want to influence. Those factors will change based on your team structure, company maturity, and goals.

Often, how you compensate your Customer Success team is connected to how directly you can tie their contribution to the company’s performance. Based on the strength of this connection, you likely use one of three popular compensation models:

  • Base salary – standard salary with no additional compensation
  • Base salary plus bonus – standard salary plus additional compensation that may or may not be based on performance
  • Base salary plus variable – standard salary plus additional compensation based on performance

At ChurnZero, we’re big advocates of the base-plus-variable model for a few reasons. The biggest reason being that variable pay is an effective way to tell people where and how to direct their focus and energy.

In the section below, we discuss the setbacks of a base-only and a base-plus-bo- nus model, and why a base-plus-variable model gives you the best shot at building a high-performing team.

Base Salary

If your Customer Success team is primarily responsible for adoption and isn’t accountable to the business for any “hard numbers,” you may follow a base-only model or a base-plus- bonus model.

The main problem with base-only models is a lack of incentive. There’s no connection between performance and pay. Your team won’t have a tangible connection to your KPIs aside from their personal drive to perform. So, then you must consider if their desire to perform is strong and consistent enough to always put the customers’ and company’s needs first despite fluctuations in motivation or interest.

Base-only models also make it difficult to recognize and reward individual contributors. Team members who do the required minimum get compensated the same as your superstars (assuming similar base salaries).

If you want to switch from a base-only model, implementing an interim base-plus-bonus model before transitioning to a base-plus-variable model can help you ease into that change.

Base Salary Plus Bonus

Most base-plus-bonus models base the bonus component on the company’s overall performance. The issue here is that the incentive is not specific enough. You can’t target how you want to influence performance because it’s tied to the output of the collective group. Plus, employees often view company-wide bonuses as a given – decreasing the significance of individual initiative and accountability.

Base Salary Plus Variable

Variable pay is a powerful motivator that encourages proactive behavior by tying individual team member responsibilities to your department’s goals.

Base-salary-plus-variable models in Customer Success widely differ across teams. There are two reasons for this: 1) Customer Success is a newer function that’s still forming best practices, and 2) there’s a vast difference in the responsibilities of Customer Success teams. As a result, there are no universally established variable models in Customer Success.

But there are a few standard factors to consider when creating your variable structure, such as the makeup of your customer base, how you divide account ownership amongst your team, and how renewal/expansion opportunities vary between those segments.

Base/Variable Split

Customer Success teams commonly use an 80/20 or a 70/30 split for base and variable pay. While it’s not a 50/50 split that’s typical of Sales, it still accounts for a significant portion of annual salary.

Base-variable splits can vary among Customer Success Managers based on the complexity and stability of their book of business. For example, you might have an enterprise team where churn is low and expansion opportunities are abound. In these scenarios, you may want to be more aggressive with upselling and cross-selling and use a 60/40 split for greater selling incentivization. Here, the large scope of expansion opportunities offsets the employee’s risk of assuming a lower base salary. It also levels the playing field since there’s a disproportionate amount of potential comp to be gained from expansion.

Conversely, you might have a SMB team whose customers have a history of volatility, delinquency, or bankruptcy. In these scenarios, an 80/20 split may be more appropriate to account for the increased risk and unpredictability.

Variable Compensation Factors

For a traditional Customer Success team that owns revenue sources, two common compensation variables are renewals and expansion. These variables can be separated into individual targets or combined into one lump-sum. When combined, you’re likely less focused on where the dollars come from since Net Revenue Retention is the primary focus. You can also use customer satisfaction metrics as a variable, whether its Net Promoter Score® (NPS), Customer Effort Score (CES), or Customer Satisfaction Score (CSAT).

Regardless of the variable you chose, it must have a quantifiable impact on your business. When building your compensation plan, here are a few things to keep in mind:

  • Compensate based on the behaviors you want to encourage. Concentrate on your team’s responsibilities and areas of influence. Shallow factors risk setting your team up for failure. For example, your onboarding team won’t benefit from a variable compensation plan based on account renewal and expansion rates. Instead, use factors such onboarding time and post-onboarding NPS® surveys which are better suited to their areas of influence.
  • Keep variables reasonable and understandable. Factors should be controllable, influenceable, and understandable. After all, who has time to spend hours or days calculating their team’s compensation? An easy way to keep it simple is to limit your number of factors
  • Avoid broad metrics like “number of customer touchpoints.” Loose factors may do more harm than good. At the surface, promoting customer touchpoints seems like a commendable behavior. However, you risk encouraging low-quality engagements. For example, let’s say your criterion is four customer touchpoints per month. But three of those touchpoints are two-sentence emails that went unanswered, and the other was a 15-minute phone call “just to check in” with no value added. Crediting this behavior rewards superficial interactions. Prioritize the quality, not the quantity, of engagements.
  • Root compensation plans in metrics that matter.Make the numbers in your compensation plan transparent to your team. Invest in their understanding of why these numbers matter. Don’t tell your team you’re going to comp on NPS® unless they explicitly understand how NPS® affects the business. Beware of vanity metrics that push your team to expend real energy chasing irrelevant goals.
  • Don’t overfocus on lagging indicators. Lagging indicators can lead to surprise when a customer’s health isn’t as strong as expected. Identify factors that influence your lagging indicators and reward your team’s proactivity. The goal of variable compensation is to encourage proactivity, not reactivity.
  • Test rotating variables.Some teams maintain a few “pillar” variables that stay the same the entire year. Alongside them is a variable factor that changes on a quarterly basis. Each quarter, the team selects the variable that aligns with their current goals. For example, your core compensation metrics may include growth/expansion and revenue retention rates. While your third “floating variable” might be based on a quarterly goal of driving customer references.
As a Customer Success leader, you should always stress test new compensation models. Calculate your team’s compensation under the new model using several previous quarters’ data to offset any anomalies and compare the newly calculated compensation against your historic data. This way, you ensure that your top performers are still being rewarded, and if not, adjust as needed.”

ABBY HAMMER, Chief Customer Officer, ChurnZero

Organizational Alignment Around Customer-Centricity

The most effective way to align teams and leaders is through shared metrics. Quantified accountability builds a strong foundation and motivation for collaboration. Ideally, these metrics are core business metrics that all employees feel responsible for, even if they’re not part of the team that directly owns them. By establishing a personal or team connection to a metric, you can start to influence behavior. The exact metrics you use will depend on context of your collaboration – what’s the goal, who’s involved, and so on.

But simply defining your metrics isn’t enough. You must promote your shared metrics across the company. Team members should know what the metrics are, why the metrics matter, how the metrics directly affect the business, and how each member influences the metrics. Your team should align around the metrics, and your metrics should align around the customer. Which brings us to the core of our organizational alignment: customer-centricity.

There are two common misconceptions about customer-centricity. One being that people tend to think of customer-centricity as only being applicable once a customer signs a contract, but that’s not entirely true. Customer-centricity puts the customer at the forefront of all decisions – starting from the first time a customer encounters your business, all the way through renewal. Therefore, every department needs to care about and align to customer-centric practices. This doesn’t mean every team needs to share the exact same metric to measure their impact on the customer experience, but there should be a common thread that ties them all together.

Be warned that achieving perfect cross-team harmony isn’t going to happen. When you encounter disagreements, tension, or pushback between teams – which you undoubtedly will – customer-centric decision-making dictates that outcomes shouldn’t be based on what leader has more power or a better argument in a given scenario, but rather what’s best for the customer and their experience.”

ABBY HAMMER, Chief Customer Officer, ChurnZero

The second fallacy is believing that customer-centricity means acting as a “yes man” to your customer – agreeing that the customer is always right and doing whatever they request at the drop of a hat. In actuality, customer-centricity comes from building a mutual respect and trust between the customer and vendor. From the onset of the relationship, you need to set clear customer expectations to establish dependability and credibility, and in turn, trust and satisfaction. Customers must be confident in your work and your word.

Because the death of most customer-centricity efforts is lip service. Being customer- centric is a concept that sounds good in theory but often lacks a plan and follow-through for practical application. As with any successful initiative, directives need to come from the top down.

Start with your CEO for support. When you implement customer-centric practices for the first time, you’re going to encounter uncomfortable conversations and opposition. You must convince individuals and teams that there’s a better, more customer-centric way of doing things. This is tricky territory because people have a tendency to act defensive when confronted with constructive criticism. If you want to effect real change, you need your CEO’s backing, and it needs to be broadcasted across the company. Because without their public support, you’re in for an uphill battle. And the truth is, you may never make it over that hill, because change starts at the top.

When aligning your team around customer-centric practices, here are a few things to keep in mind:

  • Structure your collaboration. Most cross-functional efforts die off because they lack any kind of framework. Set guidelines for how Customer Success is expected to contribute to other teams’ projects, meetings, and decisions. Define the cross-initiative owner and individual participants so the goal and role of Customer Success’ involvement is clear from the start.
  • Hold routine check-ins with leaders to gauge satisfaction with cross-team processes and collaboration. Organizational alignment has no finish line. It’s not something you achieve once and then check off your list. You must constantly work at maintaining its order. Establish routine touchpoints with fellow leaders and a shared understanding based on metrics or other benchmarks that drive your alignment.
  • Answer the golden question: What’s in it for me? To influence someone, you must position your request around what matters to them. Your head of Sales cares about different priorities than your head of Marketing or Product, and vice versa. When you have a cross-functional request, especially for Customer Success who doesn’t always have assumed authority within the organization, make it mutually beneficial and invoke the rule of reciprocity. For example, you may go to your head of Sales to request that Sales reps better prepare customers for implementation. In return, you offer shorter implementation timelines, which allows Sales to pitch prospects a faster launch date. All parties should be able to quantify their gain.
  • Tell a better story with data. Because Customer Success is a relatively new function that’s relationship-driven, team members often try to assert themselves and substantiate their claims using secondhand customer stories. But supporting your argument with data and letting the numbers speak for themselves is significantly more compelling than leading with emotion and hyperbole. Find a way to tie the revenue and customers you’ve lost or you risk losing to specific functionality, usage behavior, or processes.
  • Come together under compensation. If you want your team to have a vested interest in your customer-centricity efforts, compensate them based on the metric that best measures their contribution to the initiative. As mentioned in the prior section on compensation plans, variable pay is a powerful motivator that tells people where and how to focus their energy.

Key Performance Indicators in Customer Success

With a dizzying number of SaaS metrics — from acquisition costs and account expansion to customer churn and satisfaction — all vying for headspace, Customer Success leaders must focus on the measurements that really matter. Taking metrics out of context, paying attention to irrelevant metrics, and relying on flawed metrics that don’t tell the full story, sends your business down a dangerous path. A road riddled with misinformed decisions, hidden problems, and embellished performance.

In this section, we outline the top metrics that Customer Success leaders need to care about, as well as the metrics that matter most to your CEO. We also give advice on how to choose your metrics, assess their effectiveness, get buy-in from leadership, and more.

Metrics That Matter to Customer Success Leaders

1. Net Revenue Retention

Net Revenue Retention (NRR) reflects your ability to retain and expand customers. NRR calculates total revenue (including expansion) minus revenue churn (contract expirations, cancellations, or downgrades). NRR is arguably the single most important metric to Customer Success. NRR provides the truest assessment of success with your customers. At ChurnZero, this metric is tracked most closely by our Customer Success team, and it has the heaviest impact on their compensation.

You should compare NRR against your Gross Revenue Retention (GRR)* or customer retention (also known as logo retention) to ensure that strong revenue retention isn’t masking an underlying issue with your customer retention. A massive imbalance between these metrics is a red flag.

For the formula and examples, see our Churnopedia entry: Net Revenue Retention.

*GRR reflects your ability to retain customers. GRR calculates total revenue (excluding expansion) minus revenue churn (contract expirations, cancelations, or downgrades). The difference between NRR and GRR is that GRR doesn’t account for expansion revenue. GRR also tends to decline as companies grow. Over time, your customer base becomes more diverse and has more opportunities to churn. A similar but simpler version of GRR is customer retention rate. Unlike GRR, customer retention rates are purely based on customer count, not the retained revenue from customers.

THE CEO PERSPECTIVE

CEO and boards care about performance and the end result, which for Customer Success, culminates at the renewal. Two clear-cut metrics that measure this milestone are NRR and GRR/customer retention rate.

The higher your NRR, the higher your company’s growth potential as you’re not constantly expending resources and revenue to replace churned customers. High NRR also alleviates stress from Sales to bring in additional new business to offset the ongoing churn.

Both NRR and GRR matter to CEOs. But deciding which metric to focus on is fairly nuanced. As a company matures and moves through their lifecycle, they may shift from one metric to the other, and back again. One quarter, a company may want to increase expansion, so they focus on NRR. Next quarter, they might want to improve their onboarding, so they switch their focus to customer retention rate.

In the end, it comes down to striking a balance between the two. Use these metrics in conjunction with one another to tell the whole story of your customer retention and to avoid pushing a false narrative.

Incremental change is frustratingly slow (and perhaps fatal to a company) when you’re only focused on lagging indicators. By the time you notice a problem, it’s already too late. NRR and GRR matter but they shouldn’t be your only KPIs.”

YOU MON TSANG, Chief Executive Officer, ChurnZero

2. Customer Lifetime Value

Customer Lifetime Value (CLTV) is the gross profit a customer delivers to your business in their lifetime. It’s the amount of revenue your business will make from a customer over their average lifetime as a customer. Your ratio of CLTV to customer acquisition cost (CAC) tells you how profitable a customer will be over their lifetime compared against the marketing and sales costs spent to acquire them. It’s used to forecast the financial sustainability and trajectory of SaaS businesses, and therefore their valuation.

You want to strike a balance between the date of a customer’s acquisition and the amount of time it takes to increase their profit. For example, if a large portion of your customers churn at their one-year mark, then spending a year’s worth of budget to acquire and retain customers for their first year is not a healthy balance. How aggressively you accelerate CLTV will depend on your expansion pathways.

For the formula and examples, see our Churnopedia entry: Customer Lifetime Value.

3. Customer Health Score

Customer health scoring is the process of evaluating a customer’s overall engagement and satisfaction with your company in a single score. Scores are used to gauge a customer’s renewal likelihood. Companies score in many ways, including assigning points, implementing rankings (A, B, C, D), or using a color-coding system (green, yellow, or red), to indicate good, average, or poor health.

There’s often a misguided belief that a customer’s renewal decision is solely dependent upon Customer Success. But the truth is every employee influences a customer’s health score and, ultimately, their decision to renew. By the time Customer Success owns the customer relationship, the customer has already formed a brand and product perception independent of their experience with Customer Success. Even after they establish a trusted relationship, Product and Support still play a major role in shaping the customer experience.

To get more granular, you can break down health scores to see where specific teams have the greatest impact. For instance, health scores early in a customer relationship are indicative of Marketing and Sales while the health score of a tenured customer is the result of Customer Success.

To learn what factors go into making a strong health score, check out our Health Scoring Cheat Sheet.

Even if your Customer Success team doesn’t own revenue, you should have evidence for how they influence those dollars. Money talks. If you want to elevate your voice within the organization, you need to show how you contribute to the bottom line. And while you don’t want to make yourself responsible for a metric you haven’t been given the right to be responsible for (yet), work to present your team’s efforts through that revenue lens. Drawing a dotted line to revenue is an effective way to gain that responsibility and a seat at the table.”

ABBY HAMMER, Chief Customer Officer, ChurnZero

THE CEO PERSPECTIVE

As a CEO, you never want to be surprised by your customer base. Even if there are challenges with customers, the difference between seeing them coming and being blindsided by them is huge – not only psychologically (for the CEO and for the team) but also practically. Predictive health scoring helps you anticipate potential issues, so you have more opportunities to course correct and control the scope of the impact. Afterall, the defining characteristic of Customer Success is its proactiveness – and health scoring is a metric that embodies and delivers on that promise.

In addition, your CEO should be well-versed in and agree with the logic of your health score and its attributes to gain the buy-in of its use. An effective health score is dynamic with multiple weighted factors that are inclusive of both quantitative and qualitative attributes. If you don’t use health scoring, then you’ll want to track the individual factors that comprise a health score, such as customer satisfaction, product usage data, license utilization, onboarding time, journey tracking, and so on.

4. Customer Satisfaction

It matters less which customer satisfaction metric you use — whether it’s Net Promoter Score® (NPS), Customer Satisfaction Score (CSAT), or Customer Effort Score (CES) — and more that you’re consistent with how you survey and respond to customers. In fact, you might use all three metrics. Perhaps CES makes the most sense to assess the customer’s implementation, while CSAT is the best indication of quality support interactions, and NPS might be the best pre-renewal indicator for your Customer Success team.

You can segment by role to separate the sentiments of everyday users from executive sponsors. Survey results from business decision-makers have a stronger correlation to renewal and expansion likelihood.

For a deeper look at each of these metrics – including tips on when to survey customers, how to follow-up after a survey, and other surveying best practices – check out our NPS Cheat Sheet, CSAT Cheat Sheet, and CES Cheat Sheet.

When selecting your KPIs for Customer Success, here are a few things you want to keep in mind:

  • Avoid “soft” or vanity metrics, such as the number of emails exchanged or meetings scheduled. If you’re worried that it’s possible to “game” the system, that’s a good sign a KPI is suspect.
  • Understand customer usage behavior. If you want to increase product adoption, you have to know how customers use, or don’t use, your product. At a minimum, you should track usage metrics such as a customer’s login history, time-in app, and engagement with sticky or new features, as well as your power users who drive adoption across the organization.
  • Know that not all usage metrics are created equal. For instance, product logins are a commonly tracked activity. But you wouldn’t qualify a customer as “healthy” just because they log in. Make sure that your high-level usage metrics, such as product logins, don’t lull you into a sense of security. When setting customer usage goals, there’s a huge difference between, “I want to see more active days” versus “I want to see X percent growth in use of Y feature, which we know correlates to customer retention.” Delineate a clear line between why you care about a behavior and how it influences your core business metrics.
  • Be prepared to move your targets. Once you set your targets, you have to be comfortable with shifting them as you figure out what you can realistically achieve. As you exceed or miss your numbers, adjust as needed until you hone in on a sensible goal. The longer you operate, the more data you’ll accrue. So, don’t assume you should have perfect targets if you don’t have historical performance data to compare against. The most important thing is to get started.
  • Consult your customer segments.What makes an enterprise customer renew is likely different from what makes a SMB customer renew – not only in terms of adoption, but also in terms of engagement. Adjust your metrics accordingly.
  • Make metrics personal.Find opportunities to educate other teams on how they impact your metrics. For example, you may report NRR across the company. But when sharing with Sales, you can break NRR down by Sales rep (whomever sold the initial deal), so they understand their personal impact on revenue. If you score customer fit and implementation readiness, you can get even more exact with their influence. For Product, you may share open-ended comments from customer satisfaction surveys that contain feedback on functionality and ease of use.
  • Take ownership but delegate work. The challenge with most metrics that Customer Success owns is that many other teams influence them. When numbers drop, you need to be able to identify the root cause, define the problem, offer solutions, and when appropriate, delegate tasks to teams who played a supporting role in the outcome.

HOW TO SET KPI BASELINES

If you don’t have baseline metrics, which is not uncommon in Customer Success, first go back to your “why.” You should have a theory about how a customer needs to use your product to realize success. Compare that theory against the usage behavior of your most successful customers, as well as your churned customers. By conducting use case studies to validate, or invalidate, your theories, you start to develop a more acute awareness and understanding of behavioral patterns. Asking a broad question like: “What does a customer have to do to renew?” won’t yield a meaningful response. But asking, “What does a customer have to do with these three features by X date to renew?” is much more precise and, therefore, actionable.

And remember, you don’t want to compare apples to oranges. When sourcing metric baselines from fellow colleagues or industry experts – including us! – make sure that their guidance is rooted in context that’s similar to yours. Don’t be led astray by best practices and stats from a company or professional who supports an entirely different type of business model or customer than you.

Be prepared for leaders to poke and prod at your numbers, especially if the metrics are new and unfamiliar to them. Leadership wants to feel confident that you know what you’re talking about, especially if you’re requesting budget or internal changes. If you feel confident in how your metrics are built, your colleagues will feel it as well.”

YOU MON TSANG, Chief Executive Officer, ChurnZero

Table of Contents

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Introduction: Who's this Customer Success Guide For?
Chapter 1: What is Customer Success?
Chapter 2: Customer Success Everywhere: An Organizaitonal Philosophy
Chapter 4: What’s the Difference Between Customer Success, Customer Support, Account Management, and Professional Services?
Chapter 5: Why Is Customer Success Important to SaaS?
Chapter 7: What Does a Mature Customer Success Organization Look Like?
Chapter 8: Does Customer Success Need Its Own Tool?
Chapter 9: How To Get Started with Customer Success