We have entered a subscription economy. You probably have several subscriptions yourself as a consumer. And more than likely, at least some portion of the software and technology your business uses is subscription-based. But it’s not just limited to technology companies; subscription offerings have gradually moved into legacy industries such as automotive, manufacturing, medical device, pharmaceuticals, transportation, finance, and several others. Essentially you can have “anything as a service.”
The positive impact of subscriptions can be sweeping. If your business has a subscription offering, you’ll experience the flywheel effect of growing your customer base more efficiently by retaining the ones you have. Focusing on current customer retention and growth is more cost effective than acquiring new customers. Research from Bain & Company found that the cost of acquiring a new customer (CAC) can be higher than retaining a customer by as much as 700%. Thus, increasing customer retention by a mere 5% could increase profits by 25% to 95%.
Companies with 30% or more annual growth invest 6 times more in building their customer success teams, grow annual recurring revenue (ARR) with existing accounts by 35%, and have retained revenue at 17% higher rates than slower growing companies. – Edison Partners Growth Index
A Model that Works
You probably already know the benefits of making investments in Customer Success, or CS, for your subscription offerings. But, when should you scale, how should you develop Customer Success for your indirect channel, and in what way could outsourcing part of your Customer Success to a partner save costs that allow you to focus on other strengths?
With help from Gartner and their Senior Director Analyst – Customer Service & Support, John Quaglietta, here is a Customer Success Maturity Model to consider:
Phase 1: Focus on high-value accounts, with retention being the top priority. These are the typical 20% of your accounts generating a large portion of your revenue. The engagement with high-value accounts tends to be reactive and almost entirely manual using human resources, so there’s room for improvement.
Phase 2: This phase involves a 3-step approach.
- Expand focus for Customer Success to your “Silver” or “Tier B” accounts to drive adoption and expansion.
- Involve your channel partners in the Customer Success motion. Build a Customer Success partner program to move them from reactive to proactive, and prescriptive engagement of end-user clients.
- Invest in technology to shift engagement from largely reactive to proactive and prescriptive.
Phase 3: Optimize customer motions and outcomes by using tech-enabled Customer Success to create digital touches across expanded segments and provide deep insights into Customer Success Manager (CSM) and team performance.
How much should you invest in Phase 2 or 3? According to Gartner’s John Quaglietta, the rule of thumb is 5% to 8% of recurring revenue. In Phase 1 your ratio of high value accounts to Customer Success Manager (CSM) will likely be around 15 to 1. As you expand coverage into silver accounts in Phase 2 the ratio will grow to 50 to 1. With tech enablement, the ratio during Phase 3 will increase to 100 to 250 accounts per CSM due to the heavy use of digital and automation.
How do organizations cover the Silver accounts? Typically, they hire headcount. You may have a successful Customer Success model for your biggest customers but doing the same at scale is a big challenge. It could take months to hire the team, potentially costing you profit from churned accounts during that time. Enabling technology and digital touches into the motion introduces another set of process development time constraints. This is where an outsourced Customer Success partner can help you speed up the ROI of Customer Success for Tier B account coverage.
Expanding Customer Success across your full set of accounts helps you maximize portfolio profitability, as Customer Success becomes a tool for sales leaders to use to improve account lifetime value. According to TSIA and Gainsight, companies that expand their Customer Success enjoy a 5% to 7% increase in customer retention rates and CS or sales teams close new business at 5X better rates with existing customers than net new.
By partnering with a team you know within a program that is already working for you, an outsourced CS team can learn from your Phase 1 best practices and augment your current CS motion to more accounts in just a few weeks. You gain the more immediate benefits of customer retention and growth.
How we do it at MarketSource
A program team at MarketSource was hired to manage over 8,000 accounts for a Fortune 100 company. We halted the average 10% annual churn of those accounts, and within one year grew revenue for the client company by over 5%. This was a 15% improvement in revenue from those assigned accounts.
Channel Partner Program for Customer Success
Another big challenge consists of the mechanics of installing a Customer Success motion into your channel. Keep in mind that a third of businesses abandon at least one subscription every year. So, whether they are your customers or your partner’s customers, a subscription model that is easy for an end user to abandon indicates a pressing need to develop a proactive CS formula WITH your partners.
There is a pressing need to develop a proactive Customer Success formula with your channel partners. 33% of businesses abandon at least one subscription every year.
To make this happen, you should first establish the value proposition for partner participation, and on this basis create a certification program for partners that implement CS activity. Doing so has meaningful impact for partners, such as increased attach rates, growth in services business, recurring revenue streams, and expansion of other products. Customer Success can be a competitive differentiator that allows partners to distinguish themselves from other partners that sell competitive solutions.
What does a Partner Certification Program look like for Customer Success?
- Build a model that explains the above benefits. Use growth metrics and additional opportunities to demonstrate how participation is a win-win to the partner.
- Establish program eligibility guidelines. This may include requiring certification for partners to participate in renewals. Partners also agree to participate in forecasting requirements for renewal and account expansion.
- Link the Partner Certification for CS with the supplier’s renewal strategy.
- Include in the certification program: CS methodology, access to technology (such as PRM or Customer Success Platforms), and a CS champion to help guide partners in correctly setting up, implementing, and managing a customer success strategy. Just like you have a Channel Account Manager, you should also invest in a Channel Partner Customer Success Manager to give the partners oversight and accountability.
- Define the segmentation for who the partners “own.” What segments (account size, geography, product, vertical) does the partner own for CS and retention? Clearly define roles, responsibilities, and rules of engagement.
- Provide digital renewal technology for your partners to auto renew their tail accounts (80% of their customers generating 20% of their revenue).
Again, this is where an outsourced Customer Success partner can help. Imagine a Customer Success Center of Excellence to deploy the CS partner management program invested in by both parties. You could have a Customer Success Center representing several of your partners to the end user or run your CS partner management team to improve client retention. The result is a win-win-win for all involved.
Onboarding and Renewals
In addition to scaling Silver accounts and creating a partner CS program, a well-chosen outsourcing firm can rapidly deploy an effective process for onboarding or renewals. If you don’t have a full end-to-end, proactive CS method in place to tackle onboarding to renewals, you should implement onboarding and renewal processes first. These two ends of the CS engagement need to be designed first, and you can later fill in the activities in-between those two events. Or, you can hire an outsource partner to recognize when all of your accounts have upcoming renewal dates and enable the right technology to identify trigger events, giving you the opportunity to improve your customer retention while you build out the rest of your CS model for Phase 1 or Phase 2.
How we do it at MarketSource
MarketSource has many case studies describing how we augmented the CS process to only handle onboarding. We use technology such as Gainsight to help with creating and tracking the health scores of accounts, implementing calls to action, making risk assessments, and creating dashboards to identify the next prescriptive steps to retain and renew the account.
You also need to ensure that all your accounts are set up for renewal no matter the size. A digital renewal process makes sense for your tail or long tail accounts to make it easier for them renew or even auto renew as a customer.
Outsourcing your renewal strategy allows your company to focus on other strengths such as product development, sales for net new customers, marketing, and/or hiring.
The Outsourcing Imperative
Consider these five significantly positive ways that outsourcing a full-service customer success team can be an indispensable asset in achieving your growth and revenue goals:
Reduced costs. With all of the tasks involved in creating a top-performing Customer Success practice, going it alone doesn’t usually make sense. Applying the necessary recruiting capabilities to find the right talent… building a CS methodology process map… developing digital training content… selecting, integrating, and using correct technology… managing benefits, assets, and payroll tax requirements: That’s a lot to handle! Outsourcing your CS team can be tremendously cost effective. At MarketSource we continually improve processes by removing wasteful steps by using lean techniques and increasing the quality of work output with Six Sigma methodologies. Therefore, all of our services are delivered efficiently, resulting in lower costs for your organization. Companies can benefit from a variable cost model through CS outsourcing which helps to free up capital for investments in your core business.
Focus on your business. Turning over non-core business processes to an outside provider allows you to focus time and talent on your organization’s core competencies. These key features of your service, software, or product differentiate you from your customers.
Access to state-of-the-art process and tech resources. You can avoid the high costs associated with installing software platforms, upgrading your digital capabilities, and training staff by relying on a CS outsourcing company such as MarketSource to keep you current on CS methodologies, technology, and innovation. Our cost-efficient, turnkey approach includes providing you with process engineers, curriculum designers, video rooms, digital playbooks, and much more. Our continuous improvement workshops are designed to fully optimize the people, processes, and technology offered during the life of your contract.
Ramp up or size down quickly and painlessly. It’s difficult to recruit for a team at scale with the right talent for Customer Success. It can be even tougher when business conditions require you to size down your workforce. One benefit to outsourcing is the ability to shift those responsibilities to a managed CS provider.
Improve your Customer Success for all your customers. Your solution, software, or product may be sold nationally or even globally, but your business is based in a location where finding multilingual, tech-savvy staff to support your customers is difficult. It’s expensive to ramp up your Customer Success center with all the facility space, equipment, and software platforms required for handling proactive Customer Success. MarketSource is extensively practiced in all of these areas and can implement a winning omnichannel Customer Success program to handle your Customer Success for Silver accounts, channel partners, and/or renewals so that you can focus on developing your software, product, or service.
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Our Customer Success experts can discuss a turnkey solution to help you retain customers and grow profits.