Several months into the COVID-19-induced downturn, the chances of a rapid recovery and bounce back to pre-pandemic ways remain unlikely. Continued limitations on mobility and the threat of resurgent spikes are keeping economies on the path toward a slow recovery.
Thus, while a McKinsey survey found that executives around the globe are more positive about improvement in global economic conditions in the months ahead, predictions for global economic growth remain muted. Among the nine recovery scenarios that McKinsey had forecasted in April 2020 (Fig 1), the September survey found most executives leaning toward scenario A1 for global growth, characterized by partially effective policy and public-health responses and a muted economic recovery, and scenario B1 for their own economies, suggesting virus containment, sectoral damage, and a lower growth rate over the long term.
While SaaS and subscription-based industries have fared better than many other sectors, there’s no denying that they have been impacted by the downturn too, and pre-pandemic growth estimates now seem out of reach. With hopes of a rapid recovery dashed, it is necessary to recognize that sitting back and waiting for a return to business-as-usual is a counter-productive strategy. Instead, it is increasingly evident that companies should take the lead and look to bounce forward to the new normal rather than try to bounce back.
One major focus area for that post-COVID-19 recovery and revenue acceleration is institutionalizing the quality of empathy that many companies successfully deployed as a crisis management measure; that is, making an effort to understand the customer’s changed circumstances and working toward seeing how the company’s solutions could fit into their new reality. The building or deepening of such a customer success mindset is the existential need for companies to emerge from the current downturn.
What customer success is and why it’s important
Customer success is the business methodology of ensuring that customers achieve their desired outcomes using a product or service. In its early avatars, customer success has often been thought of as the post-sale interaction between companies and customers, wherein vendors deliver on the promises made during the pre-sale and sale process. However, customer success is a more thoroughgoing relationship-focused approach to customer management that focuses on client goals and outcomes throughout the entire customer lifecycle.
Customer success offers vendor organizations several vital business benefits, including the following:
Protecting the bottom line: With the development of cloud- and SaaS-based products, companies can no more hold customers hostage with the high cost of switching vendors that enterprise software entailed. Customers can now easily switch solution providers if they feel dissatisfied with the experiences and outcomes they achieve with a particular product or service. As power has shifted away from vendors toward buyers, retention has become the lifeblood of companies.
Indeed, as the graphic in Fig.2 from Regalix’s State of Customer Success 2019 report shows, over 40% of revenue was generated from product renewals and service retention for 77% of the survey’s respondents, while for 36% of the respondents, over 60% of revenue was generated from renewals and retention.
In some ways, this works well for vendors, since estimates suggest that a gain of just 5% in retention can result in a 25% to 95% increase in profit, and retention is estimated to be 6 to 7 times cheaper than new customer acquisition.Customer success drives retention by ensuring that customers achieve the outcomes that they set out to achieve with a particular product or service.
Boosting revenue growth: While retention protects existing revenue, the secret of revenue growth lies in upselling and cross-selling to existing customers. After all, there is a 60%-70% probability of selling to an existing customer, as against a mere 5%-20% probability of selling to a new prospect. It’s not hard to understand why. Existing customers have already recognized the value of a product or service and are satisfied with its contribution to their business goals. In other words, existing customers already have their proof of concept and require far less convincing than new buyers. Furthermore, customers who have already incorporated a solution into their business process are more likely to have made the optimizations required to put them on a trajectory of further growth through greater adoption of related products and services.
Making customer acquisition more efficient: Since the early days of customer success, a preponderant focus has been laid on retention. However, as customer success spread beyond SaaS businesses, it has also been recognized as a major growth engine. McKinsey has referred to this approach as “Customer Success 2.0” (Fig 3).
While upselling and cross-selling are significant contributors to this growth, it is the second-order revenue that provides a multiplier effect. Second-order revenue refers to all sources of revenue indirectly influenced by a customer. In simpler terms, it’s the revenue that a customer advocate impacts because they are satisfied with a product or solution. One common route for second-order revenue is when a customer champion changes companies and brings the product on board with the new company. The other is word-of-mouth or referrals from satisfied customers to others in their professional networks. In either case, customer success is indirectly responsible for increasing the effectiveness and efficiency of new customer acquisition.
Optimizing operations: Customer success takes responsibility for providing a seamless customer experience throughout the entire customer lifecycle. Effective customer success takes a proactive approach, rather than a reactive approach, to customer engagement and product adoption. All of this means that customer success has a finger on the pulse of the customer and can dynamically contribute to optimizing operations across teams in tune with customer needs and pain points.
Supporting product enhancements: Finally, customer success is also an excellent source of information on what works and what doesn’t with product and service offerings. Customer success teams can create efficient feedback loops and judge the impact of new releases and updates, gathering valuable data for defining the product roadmap. This can help optimize products and improve innovation as product teams get a clearer picture of what exactly customers are looking for.
The challenges of a downturn
The LAER business model for SaaS companies, as first proposed by the Technology Services Industry Association, follows a simple four-step process: Land new customers, ensure they Adopt the product or service, help them Expand, and Retain them. In a downturn, however, this model has to undergo significant modification.
One of the more obvious consequences of a downturn is the reduction in budgets, leading to greater scrutiny of all purchase decisions. At a fundamental level, this means a market constriction that leads to greater difficulty in finding new customers. As belts tighten, companies tend toward the status quo and are less likely to try new vendors.
Even expansions and existing projects come under the scanner for companies struggling to cut costs, reduce their burn rate, and make their runway last longer. One study by Mission Control Marketing, for instance, found significant budget cuts and reductions in vendors and projects among respondent companies (Fig. 4).
The report observes that even among companies that did not fit into the 55% of B2B buyers facing budget cuts, budgets have often been reallocated away from various projects toward the tools and technologies needed for immediate pandemic-induced changes in operations. It also points out that many B2B customers have taken decisions against hiring new vendors, with 47% of respondents saying that their organizations have instituted a policy against engaging with new vendors for the next year.
As the statistics regarding vendor and project cuts show, downturns are times of vendor consolidation, as companies prioritize the most vital investments and drop those that do not deliver value. All of this means that retention ends up becoming the predominant priority as companies struggle to find and acquire new customers, and existing customers become their lifeblood. What’s more, the specificities of the current pandemic-induced downturn have also led to significant challenges of their own. First, the abrupt onset of the downturn has meant significant dislocation for companies that were unable to pivot to the current circumstances successfully. Thus, broken contracts have become a distinct possibility for companies adversely hit by the situation and lacking the financial health to successfully tide over the crisis into the new normal. Further, the continued restrictions on mobility and the accelerated shift to remote work and digital processes have required a significant restructuring of business processes for nearly every business organization. Particularly for organizations that relied on in-person, high-touch interactions with customers, the shift in customer touchpoints has been radical.
How customer success can respond to the downturn
According to research on the Great Recession by McKinsey, customer experience is a highly profitable strategy during a recession. The study found that customer experience leaders provided three times higher returns for shareholders during the 2007-2009 recession than laggards (Fig 5).
Given the vital importance of retention in a downturn and the heightened scrutiny even existing vendors receive, building upon customer experience and satisfaction is crucial. This requires deepening the customer-centric focus of your business. This can be broken down into a few key areas:
Customers: A unique characteristic of the current downturn, as compared to previous recessions, is the differential impact that it has had on various industries, geographies, verticals, and segments. On the one hand, this has been the result of the drastic restrictions on social mobility, which have hamstrung industries dependent on in-person customer interactions. On the other hand, the suddenness of its onset has meant a range of economic impacts based on the crisis-preparedness and financial health of different companies and segments. Customers, therefore, have to be re-segmented according to the impact of the downturn and the value they can continue to bring to your organization. Priority should be given to the most high-value customers, but the larger majority of the customer base should not be ignored.
The sudden shift in the situation is also likely to have impacted customer journeys and goals. Proactive communication with customers is necessary to collaboratively develop new milestones of progress and success. Companies must emphasize value, focusing on the most vital aspects of a solution being offered to customers, and redesign their messaging for the specificities of the current situation.
Finally, customer success must operate from a place of empathy. Showing empathy, however, cannot just be a tactical effort to gain a competitive edge, but must come from a desire to show support, find common ground with customers, and help them achieve their goals. One significant way empathy can be demonstrated is through flexibility and innovatively redesigning payment terms and product offering bundles in response to immediate customer needs. This shouldn’t just mean discounted prices; it should demonstrate care while reaffirming the value of the product or service.
Metrics: Reprioritizing customers and remapping their journeys will not be successful unless customer success efforts are guided by an accurate and granular set of metrics. In particular, customer success teams should focus on gaining advance knowledge of customers most at risk to churn. These are often of three types:
- Low-usage customers who are not deriving the full value of your product or service. This means that when it comes time for renewal, they may only be able to justify its use for a few use cases, which may not warrant the cost in difficult times.
- Dissatisfied customers who may have shied away in better times from the effort and resources involved in identifying and switching to new vendors. Thus, they may have continued to renew their subscriptions without feeling convinced that it meets their expectations. However, when added scrutiny enters the picture, they may be more than willing to make the switch.
- Customers who may be undergoing staff restructuring in the crisis. They could end up replacing the champion, who has been securing buy-in for your product or solution. Unless efforts are made to find new customer champions and maintain customer confidence in the solution, churn is likely.
Unfortunately, as the graphic in Fig. 6 shows, customer success teams often do not employ a sufficiently comprehensive set of performance metrics. Many organizations continue to rely on topline, lagging indicators focused more on vendor outcomes and risk than on customer experience and outcomes.
Thus, while 69% of respondents listed renewals and 55% of respondents listed customer churn rate in the three key metrics they used to measure customer success, adoption rate and engagement metrics only received 18% and 14% approval, respectively. To have a more granular and comprehensive view of the customer, it is necessary to deploy a wider composite of metrics that delve more deeply into product adoption and usage, customer engagement, customer outcome fulfillment, and relationship strength.
Moreover, it would be a mistake to rely on historical data in the current situation, as customer behavior is changing according to incipient circumstances. Therefore, customer success teams should pay attention to how customer health scoring should be modified to be relevant.
Processes: In boom times, loosening of process hygiene can be expected and overlooked as long as healthy growth continues. However, when downturns demand increased efficiency and performance, even minor losses in process rigor can have significant consequences.
For instance, regularly updating contact databases can seem a mundane and fairly trivial task less urgent than actual customer engagement. However, at a time when many teams and organizations are undergoing reshuffles prompted by the downturn, not knowing that a customer champion has exited the organization can lead to customer success teams getting blindsided by a sudden failure to renew. Therefore, customer success teams must put extra effort into rigorously following processes and playbooks.
There is also a need to evolve new processes, given that traditional in-person touchpoints are not available in the current climate of remote work. This is also a chance for organizations to work on restructuring their processes from being reactive to being proactive.
Further, with so many organizations facing sudden shifts in their business processes, customer success teams face greater pressure to respond dynamically to changed customer needs. At a time like this, it might be tempting to focus only on the 20% who bring in 80% of the revenue, but sustained growth also requires effectivity with low-touch or tech-touch customers who form a significant portion of the customer base.
Tools and technologies: Effective customer success teams require deep and granular visibility into customer experience and outcomes. They also require the ability to engage with customers across multiple channels and touchpoints in a seamless and effective manner. All of this requires more efficient platforms and tools, which can integrate disparate sources of data into actionable insights and allow multiple outreach processes across different segments.
However, studies have found that organizations have been slow to adopt advanced tools that can ably support mature customer success strategies. One 2019 study, for instance, found that far more organizations use CRM, Microsoft Excel, and Help Desk tools than customer success platforms (Fig. 7).
The heartening news is that 83% of respondents felt that customer success should be the next function in their organization to undergo digital transformation. Widespread adoption of customer success solutions will also open up possibilities of leveraging AI and machine learning for greater effectiveness and efficiency. A majority of respondents in one study identified personalized onboarding (50%), automated customer outreach (65.3%), identification of at-risk and upsell accounts (78.4%), increasing product adoption (69,3%), and better touchpoint management (63.8%) as the functions with the most potential for optimization through the use of AI and machine learning.
Teams: With downturns inevitably bringing in pressure to cut costs, optimize operations, and do more with less, customer success leaders should focus on ensuring their teams’ effectiveness as much as their efficiency. Thus, customer success teams should be right-sized and realigned toward areas of higher value.
Customer success leaders should look to leveraging automation as a way to free up overstretched teams for more high-value activities. Teams should be provided with additional training to adapt to the changed circumstances of a downturn. Customer engagement approaches that are applicable in growth phases may not operate similarly in downturns, as customer behavior turns more cautious and skeptical. Objection-handling, for instance, will grow all the more vital in such periods. Adequate training for such shifts is a must.
Finally, as pre-pandemic performance forecasts are not likely to apply to the changed situation, customer success leaders should look to delve further into activity metrics that measure factors more under the control of customer success teams.
Building strong remote customer success teams
The pandemic-induced shift to remote work has brought on a unique set of challenges, particularly for customer success teams oriented toward high-touch customer engagement. Here are some best practices that customer success leaders can undertake to prime remote customer success teams for high performance:
Communicate regularly: One of the major requirements for remote teams is to be able to communicate regularly and effectively, whether it is with customers, within teams, or with the rest of the organization. When choosing communication tools, one of the essential considerations is efficiency. Tools that create bottlenecks should be avoided, and preference given to those that integrate well into existing workflows.
Share information: Clearly defining where different information and communication will be housed and enabling distributed access to all the systems will prevent the creation of bottlenecks and allow for faster decision-making and response times.
Establish workflow: Establishing clear workflows and cadences will ensure that customer success teams are able to take a structured and unified approach from across different locations.
Provide training: Making the shift to predominantly virtual engagement and remote work may not come naturally to all team members. Hence, customer success leaders must ensure that those team members receive the necessary skills, knowledge, and resources to make the transition smoothly. Enabling best practices sharing and peer learning is also essential to empower the teams.
Set expectations and timelines: When teams are distributed across multiple locations, it is crucial that every member has a clear idea of the common goals and outcomes being pursued, how their work will be tracked and measured, and the timelines along which they should aim to achieve different goals. Regular agenda-setting meetings with structured follow-up communication will ensure that every member is on the same page, and the team moves forward as a united whole.
Scale up through automation: Automation can be useful for pursuing outreach in one-to-many settings, particularly for the long tail of the customer base. However, customer success teams should not rely only on two-way personal communications with high-touch customers, as an excess of such communication can also feel intrusive. Rather, it is important to develop a clear sense of when such personal communication is necessary and to intelligently automate moments of outreach in between.
Invest in tools:One of the best ways to streamline remote customer success teams is to use an integrated customer success platform, which allows members to record, access, and use multiple streams of data from a single source. Such platforms also allow customer success leaders to proactively monitor metrics to track and predict problems before they reach a point of escalation and tackle them effectively.
Roadblocks to overcome in building effective customer success:
Aside from the immediate challenges thrown up by the current situation, there are also organizational roadblocks that can derail efforts to build an effective customer success approach. Four such roadblocks are:
Lack of strategy: Developing effective customer success can’t be done overnight and is not the result of a single decision. Instead, it requires significant organizational change and the restructuring of several processes. In that sense, customer success efforts yield sub-optimal results when taken up in an ad-hoc manner without a clear strategy and sufficient planning. One of the essential criteria in this regard is to develop a strategy that is aligned with the organization’s level of customer success maturity. From such a foundation, further planning can occur based on the organization’s goals, customer definitions of success, and the identified milestones and metrics.
Inadequate executive buy-in: While the need for a dedicated customer success function is increasingly recognized, its full potential is yet to be realized. It is often not recognized as a strategic priority in many organizations. A 2019 Deloitte survey found that customer success was led by a C-suite executive in only 34% of organizations. Similarly, another survey by SmartKarrot found that customer success functions are headed by middle management in 44% of organizations. Further, the Deloitte survey also found that customer success is considered a strategic priority by C-suite executives and board of directors in less than a third of organizations (Fig 8).
Executive buy-in is necessary to ensure that customer success efforts are placed on a growth trajectory that can build organizations driven by customer centricity. It’s time top leadership took customer success more seriously.
Siloed operations:Customer success cannot deliver its full potential if it is seen as a single department rather than an organization-wide philosophy. However, customer success leaders say that the top challenge they currently face is to build a cross-functional collaboration model that can embed customer centricity across the entire organization.
One clear way in which the myopic vision of customer success impacts organizations is in the continued predominance of reducing churn and retaining customers as top priorities of customer success. This results in customer success teams being restricted to post-sale activities when 90% of customers seek support in the pre-sale stages to define the business case for a product or solution and understand its ROI (Fig. 9).
Organizations must, therefore, work on integrating customer success as an operational philosophy across the entire organization and build in cross-functional collaboration across all customer-facing functions.
Insufficient budgeting: Customer success is one of the newer domains of operations, having a history of less than a decade in most industries. As a result, customer success teams often do not receive the same budgetary support that other departments do. In a pandemic situation, they are also more likely to face belt-tightening. But deriving the full benefit of customer success requires commensurate operational and training investments. Monetizing customer success is one route that many organizations are now taking to ensure that customer success teams have sufficient budgets.
There is growing acceptance for XaaS offerings in a variety of industries, and the subscription model is no more restricted to technology industries. In that sense, we can say that we have truly arrived in the age of the customer. Customer centricity is no more a nice-to-have added benefit that companies offer. Rather, it is now a fundamental prerequisite, the table stakes for most organizations. The current pandemic-induced downturn has only accelerated this push for customer centricity.
For subscription-based vendors, the signature on the dotted line is only the start of the journey. Customer expectations in terms of both experience and outcomes are rising. They are not satisfied simply with buying a good product. They further demand comprehensive services and sustained engagement across the entire customer lifecycle. Where companies fail to provide this, customers can refuse to renew subscriptions and switch to an alternative solution provider with ease.
A robust customer success function is, therefore, a key revenue engine, and must be treated as such. Organizations must work to build granular knowledge of customers and ensure the right mix of people, technology, and processes to be able to provide the optimum customer experience. The need for such data-driven and structured engagement is only growing with the rapid digitization of business processes. Companies that do not make the strategic shifts and necessary investments are at risk of being left behind in the new normal.