How does customer success work?

(upbeat music) - In simple terms, it makes good business sense to operate a customer success organization if measurements show that it returns a significant increase of revenues coming into the business compared to the costs associated with running that customer success organization. The revenue increases can come from a variety of directions and the exact ways and proportions between these directions will vary from company to company. However, the most common ways in which customer success management increases revenues are: increased retention rates or reduced churn, increased renewal size or revenue levels, increased land and expand opportunities, increased customer lifetime value or CLV, increased advocacy opportunities and increased understanding of customer's needs. Let's go through these starting with increased retention rates or reduced churn. Retaining means keeping, and for companies that sell their services using monthly or annual renewable contracts, the retention rate simply refers to the percentage of customers that renew their contract at the end of the existing contract term. So for example, if you have 100 customers on a service contract and 80 of them renew, then 20 do not renew, then the retention rate was 80%. You can also express it negatively by referring to the percentage of customers who do not renew and this is referred to as the churn rate or just simply churn. So if you have 80% retention, then you also have 20% churn since all customers either did or did not renew and therefore retention and churn must add up to 100%. Now let's look at the renewal value, in other words, the renewal revenue levels. Another consideration relating to as-a-service contracts is the value of the contract when it is renewed. For example, maybe a customer currently has purchased a 12-month contract for a 2000 user license for a software application. When they renew their contract, if instead of renewing for 2000 licenses they renew for 2,500 licenses, then the renewal level has increased. This will not affect the company's renewal rate since this refers purely to whether or not the customer renews not to any increase or decrease in revenues that may come from the renewal. But obviously it's still an important metric since if all customers that renew their contracts do so at say only half their previous contract's revenue, then total revenues will likely be significantly reduced regardless of the renewal rate. On the other hand, if all customers that renew their contracts do so at say, double their previous contract's revenue value, then total revenues will likely be significantly increased compared to previously. So in summary, for contract renewals, it is a combination both of increases and or decreases in the renewal rate, i.e. the percentage of existing customers who renew their contracts and the renewal value, i.e. the amount of revenue that contracts are renewed for that will determine the overall growth in revenues from renewals of as-a-service contracts. Of course, this does not take into account new customers coming on board since new customers are not renewing. Revenues from new customers need to be treated separately because if these revenues are lumped in with renewals revenues, then they can easily hide churn. For example, maybe as we said earlier, we have 100 existing customers and 80 decide to renew their contracts and giving us an 80% renewal rate and 20% churn. Perhaps in the same period we also sell this service to a further 30 new customers. So if we lump in the 30 new contracts with the 80 renewed contracts, we end up with 110 customers compared to last year's 100 customers, which of course would give us a retention of 110% at a churn of minus 10%, which of course is a nonsense in itself, but more importantly, if you looked at the combined totals for both new and renewed contracts, it would be easy to miss the essential information that 20% of existing customers churned or did not renew. This is of course lost revenue opportunity, and incidentally very important lost revenue opportunity since studies show that it costs somewhere around seven to nine times as much to gain a new customer as it does to retain an existing one. So those 30 new customers were a lot more expensive to go out and win then the cost of retaining the same number of existing customers would have been. Therefore, the profits from their revenues are considerably less. (upbeat music)