Orchestrating Sales and Customer Success Alignment

orchestrating-sales-and-customer-success-alignmentIf you aren’t familiar with the concept of Customer Success yet, it’s when your customers achieve their Desired Outcome (what they need to achieve, the way they need to achieve it) through their interactions with your company.

Customer Success begins at the first interaction with prospects by your sales team, and continues across their entire lifecycle, and is required for scalable, repeatable Account Expansion.

Very often, Customer Success and Sales are thought to be on two different sides of the company, almost at odds.

But the best companies have Customer Success as their Operating Philosophy (the best of the best have Customer Success as their Operating Model), and they see that the Customer Success Management org and Sales are more similar than different, and when they bring them together, magical things (read: exponential growth) happen.

Let’s dig into this, shall we?

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Success Potential: The Foundation of Customer Success

Customer Successsuccess-potential-the-foundation-of-customer-success starts with acquiring customers that have Success Potential.

Customers that have Success Potential are said to be good-fit customers. This is the opposite of bad-fit customers that cannot get value from a relationship with us now or in the near future.

If you knowingly allow bad-fit customers to be acquired, nothing else you do in Customer Success will have the result you’re hoping for as those customers – no matter what you do – will never achieve their Desired Outcome.

In fact, if you’re a CEO that allows your sales people to sign customers without Success Potential, you should fire your Customer Success Management org because you’re just setting them up for failure anyway.

And if you’re a Customer Success Practitioner or Leader that works for a CEO that allows bad-fit customers to be signed, you should quit and go work for a CEO that isn’t setting you and your team up for failure.

Bottom line… if you want customers to:

  • Stay longer
  • Buy more
  • Invite you into other parts of their company
  • Advocate for you publicly

…then don’t acquire customers without Success Potential!

Okay, so let’s dig into this concept of Success Potential, shall we?

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Excuses and the Myth of Near-Zero Churn

Excuses and the Myth of Near-Zero Churn headerChurn is a drag on growth. Churn hurts company valuation. There is no good reason to have churn in your business.

I did an “Ask Me Anything” on Slack as part of the build-up for my “Building an Engine of Growth” Workshop and Keynote at SaaStock 2016 in Dublin, Ireland and it was awesome… until the last question, which started out like this:

I’ve always felt like Lincoln’s recommended churn rates are, in many cases, unreachable.

Oh no… and I’d been having such a great time until that point. He went on to say…

Yes, I understand low churn rates are best for business, but realistically, how many companies actually do have 5% annual churn instead of what I more commonly hear which is closer to 5% monthly (painful, but technically survivable).

Who starts a business to just “technically survive.” WTF?

Well, even though what I talk about is unrealistic, he still wanted to know how to lower his churn from 5% per month to, you know, 1 or 2% per month.

Okay, so I composed myself and addressed his question… and I thought it would be useful to you, too.

But first, let’s get clear on why so many people think near-zero churn is unrealistic; they’re trying to justify negative results by blaming the customer instead of owning their failures.
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Success Vector – the KPI for Customer Success-driven Growth

Success Vector - the KPI for Customer Success-driven GrowthCustomer Success is a Growth Engine. Investing in Customer Success-driven Growth is an efficient way to drive revenue and company valuation, and we need a metric that is designed to measure that growth. Introducing, Success Vector.

Customer Health Score, historically the Key Performance Indicator (KPI) of Customer Success, is too much of a moment-in-time snapshot; a lagging indicator. We need something more forward-looking.

So, looking at Customer Success as the growth engine it is, we need a KPI that we can use to ensure we’re on track to meet the growth potential Customer Success will unlock within our existing customer base.

The Key to Real Predictable Revenue

Every company wants predictable revenue, but most turn to new business Sales to get it. They create a goal they want to hit – essentially a made-up number the CEO or Board wants to see – and then they try to figure out how to hit that number.

The “predictable” part of all of this comes down to ensuring your pipeline is loaded with (at least) 5x more leads than your target goal so you can hit it with a 20% close rate. Math!

While that may be “predictable” in a spreadsheet, in reality, hitting that goal requires a lot of work, coordination, effort, hustle, incentives, and luck. Yet, historically, this is where companies look for new revenue by default.

That’s changing as companies realize it doesn’t get more predictable than being able to look at your existing customers, say these 100 customers will reach this Success Milestone in the next month, that milestone has a logical upsell associated with it, the value of that upsell is $1000/ARR, and the percentage of customers that should take the upsell based on their Success Vector is 90%.

That means, for that cohort, we’ll add $90k/ARR next month. Then, by combining the expansion value of all of the milestone cohorts, we can give an accurate prediction of the revenue we’ll generate from our existing customers.

That’s actual, real predictable revenue.

Historically, Customer Health Score was a Key Performance Indicator (KPI) for Customer Success, but it wasn’t giving us what we need in this new world of Customer Success-driven Growth, so I went into my lab (probably a Starbucks or on an airplane) and tore the idea of a Customer Health Score apart with the sole purpose of giving us a real way to see not just what’s happening with our customers today, but where do we think they’re going in the future.

And Success Vector was born.

Until now, only my clients knew about Success Vector as a Customer Success KPI… it’s time to let everyone in on it.

Let’s dig into Success Vector, shall we?

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Don’t Mix SaaS Free Trial and Churn Metrics

Don’t Mix SaaS Free Trial and Churn MetricsAny metric that’s not acted on is a vanity metric, right? Sure, but that doesn’t cover every situation.

Sometimes we measure things because we’re “supposed to” but honestly don’t know what to do once we have the result (add that to the list of things that are true but few people will admit publicly). It’s only a vanity metric because all we can do is look at it. We sure would like to act.

And then there are times where the metrics that we’re measuring are done with a purpose, we want to – and maybe even have an idea on how we will – act on them; but the metrics are just wrong. And acting on them will be either impossible or fail to have the impact you hope it will.

Which brings me to this question I got from Phil at Corvus Coffee, a subscription coffee company based out of Denver, CO:

“I’m wondering if you have an opinion on what a churn rate should be while marketing a free trial heavily to grow a new online business compared to when we have a more established subscriber base.”

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SaaS Free Trial Conversion Rate Benchmarks

SaaS Free Trial Conversion Rate BenchmarksI’m frequently asked about SaaS Free Trial Conversion Rate Benchmarks; after being asked for the 97th time – this week – I decided to publish this post.

First, a bit of a disclaimer. Benchmarks are neat… it’s cool to see how you stack up against other companies. Benchmarks are how some executives make decisions and some investors decide if it’s worth the risk. And there are analyst firms that make a ton of money catering to that desire to know how you rate against other companies.

I’m not an analyst… my knowledge comes from my experience working with SaaS companies, those I advise, and through my various connections with VCs and friends in the biz.

And in my experience, I say…

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Churn is a Symptom, Not a Disease

Brazil flagTambém disponível em Português por Mathias Luz

Churn is a Symptom, not a DiseaseChurn is when customers cancel their account, don’t renew their contract, or remain your customer but pay you less; the latter is referred to as “revenue churn” and includes discounts, down sells, etc.

Now, many companies find out about Customer Success when searching for ways to reduce customer or revenue churn, and in the past this was the primary driver for companies to invest in Customer Success; at least initially.

But once churn is taken care of, is that it? Not at all! In fact, once churn is under control, that’s when the possibilities of Customer Success really start to get good.

Unfortunately, many companies never get past that point; they have churn today, they’ll have it tomorrow, and that’s going to be the focus for the foreseeable future.

It doesn’t have to be that way!

If churn is a major issue in your business today – or if you are trying to keep that from being the case – it’s critical to view churn for what it is: a symptom of a deeper, underlying disease.

And that disease is a failure to ensure your customers achieve their Desired Outcome; either because you’re failing to Orchestrate, Operationalize, and Instrument properly once they become a customer… or because you’re acquiring customers without Success Potential in the first place.

Either way, let’s dig into this a bit.

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7 Ways Customer Success drives Company Valuation

7 Ways Customer Success drives Company ValuationI’ve been saying for years that Customer Success is transformative; driving exponential value for both the vendor, as well as the customer. In fact, it’s that value growth for the customer that truly drives the value growth for the vendor. What goes around, comes around.

And while the following is something I’ve shared with clients, workshop attendees, portfolio companies of Venture Capital and Private Equity funds Storm Ventures and Accel-KKR in the United States, NDRC in Ireland, e.Bricks Ventures and Redpoint eventures in Brazil, as well as covering this in my Keynote at the 2016 TSIA Technology Services World event…

… I’ve never really put this out there for public consumption.

Until now.

But first, what do I mean when I say “drives value” for the vendor? How does Customer Success truly affect the company that adopts it as it’s purpose such that it impacts everything they do?

Customer Success drives up the value of your company. How’s that for impact?

In fact, let’s look at 7 ways Customer Success drives the Value of your Company.

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Stretch vs. Bad-Fit Customers

bad-fit-vs-stretch-customersWhat are the characteristics of a Bad-Fit Customer for your business?

It’s great to know who your Ideal Customer is (my Ideal Customer Profile Framework is constantly updated), but it’s much easier – and I say required – to first identify the types of customers that are a bad fit and the characteristics that make that so.

If we want to build a business that’s free from churn and designed to move customers along an Ascension Path, we must acquire customers that have Success Potential. Period.

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Two Ways to Reduce SaaS Cancellations

2 Ways to Reduce SaaS CancellationsFairy Tales have happy endings.

That’s why they’re so popular; even if they include scary moments with monsters and evil blended family members, everything is pulled together nicely at the end when the naive protagonist is magically okay.

In business, the same types of fairy tale exist, with one being that customers cancel their subscription or don’t renew their contract but somehow, magically, those customers are brought back from past the brink and, in the end, their cancellation was reversed, they’re happy, and maybe they even took an upsell on the way back in.

The reality is, that’s not generally how things work; and if you’ve heard about the opportunity in cancellations others may have experienced it, I can guarantee their experience was unique and rare.

Regardless of your humility, transparency, and noble intentions, customers that cancel – and didn’t get acquired or go out of business; the only slightly acceptable reasons for churn – do so because they did not achieve their Desired Outcome through their interactions with your company.

Customers achieving their Desired Outcome through their interactions with your company tend to not churn; that’s why focusing on Customer Success is so important.

Ultimately, this means swooping in after your former customer made a decision to stop doing business with you, – because you didn’t enable them to achieve their Desired Outcome while they were paying you – probably isn’t going to work, and might even irritate ’em on the way out… a little insult to injury for the road.

In this article, I’ll introduce two things that will help reduce cancellations (if you forgot to focus on Customer Success): Cancel Flows and Cancel Intent.

But I’m getting ahead of myself; let me take a step back and start from the beginning…
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The Only Two Reasons Customers Churn

The Only Two Reasons Customers ChurnChurn is the antithesis of growth.

When you lose a customer, in order to grow by one customer, you have to first replace that customer you lost, and then add a new customer.

And when a customer leaves, they take the revenue they were paying you with them (often to a competitor!); but they also take other things, like negative sentiment, your employee’s morale, ammunition for the competition to use against you in future deals, and much more.

You know churn is bad, I don’t have to convince you of that. (Right?)

What’s even worse than having churn is not knowing why your customers churned. That’s why I say you need to know why each customer churned so you ensure no customer ever churns again for those reasons.

But I want to be clear that, whatever reason your customer gives you for why they churned, the details uncovered by your internal tracking, or (ideally) both, it all fits into one of two categories.

Let’s dig in…

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You Have to Know why Your Customers Churn

You Have to Know why Your Customers ChurnWhen customers churn, that’s a problem.

Even if their churn was “unavoidable” it still hurts.

Churn hurts on several levels: from lowering revenue to hurting employee morale.

And churn means something happened to the customer (out of business, acquired, etc.) or – and MUCH more likely – they didn’t achieve their Desired Outcome through their interactions with your company.

In order to avoid churn in the future, we need to learn from the churn that has occurred in the past.

Which means every former customer must have a reason associated with them.

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Pricing Strategy Framework for SaaS Startups

pricing-strategy-framework-for-startupsPricing doesn’t exist in a vacuum and is therefore not something you can tackle on its own.

Pricing is a function of marketing and determines, among other things, your market position. It also indicates – or is ideally derived from – the type of customer you want to do business with.

And of course in SaaS, pricing is tightly coupled to the product itself, which is different from other types of software and non-tech products where the price is decoupled from the product.

Which is why I can’t recall a time where a SaaS company came to me with a “pricing problem” and there wasn’t something else that was going on, too.

In fact, their “pricing problem” often had little to do with the actual “price” – the numbers – and more to do with pretty much everything else (chosen revenue model, customer segmentation, value proposition, marketing strategy, conversion optimization, etc.).

So, when those in an early-stage startup – or those bringing a new product to market within an existing company – ask me for help on pricing, I always say that you won’t get it perfect out of the gate, but you can get it as right as possible.

And then I give them a high-level pricing strategy framework, which I thought I’d document and share with you in this post.

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Qualifying Leads in a SaaS Free Trial

qualifying-leads-in-a-saas-free-trialI got this set of questions on Twitter: “Is there a certain level of activity during the free trial that is likely to predict conversion from free to paid? Also, how do other companies handle Sales vs. Marketing Qualified Leads (SQL vs. MQL) when it comes to Free Trials?”

I thought that was an awesome set of questions because it indicates the person asking is starting to look at their Free Trial as a true sales pipeline; something more people and companies should do.

So I loved the question and I thought my answer was equally awesome (if I do say so myself), so I decided to expand on it a bit and share it with you, too.

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Customer Success and Logical Account Expansion

customer-success-and-logical-account-expansionCustomer Success is a powerful growth driver.

Sure, in the early days when you’re putting out the fires of churn, Customer Success seems less like a growth driver and more like a stop shrinking driver.

But once you move past churn busting – or if you avoid that altogether by being smart about customer acquisition in the first place – Customer Success starts to come into its own as a true driver of growth.

One of the ways Customer Success drives growth is through account expansion or getting existing customers to pay you more over time.

When you can grow revenue from your existing customer base, you could essentially turn off new customer acquisition and not just stay at the same level of revenue, but continue to grow.

Sure, it’s probably a good idea to continue to acquire net new customers, but the impact of account expansion to both the bottom line of a company as well as the valuation (something very important when raising money, going public, or being acquired) is potentially transformative.

But for account expansion – upsells, cross-sells, add-ons, price increases, etc. – to be a consistent and long-term driver of growth, it cannot be arbitrary or expected to occur organically.

Account expansion must be orchestrated, and that starts with applying logic to the process. Let’s explore…

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Reasonable SaaS Free Trial Conversion Rate

Reasonable Free Trial Conversion RateWhat’s a reasonable conversion rate from free trial to a paid customer?

I get some form of this question from time to time and I’ve answered it several times over the years.

Well, I got it again so it’s time to revisit this very simple question.

As with most “simple questions” the question is easy to ask; the answer, however, is anything but easy to give.

But I tried and here’s my response that I thought you’d benefit from, too.

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Acceptable Churn Rate for Small Accounts

acceptable-churn-rate-small-accountsWhat drives a company to focus on Customer Success is changing. In the past, churn (or retention, depending upon how you look at things) was generally the catalyst.

Once churn is under control, the catalyst changes to expansion; driving use, consumption, and revenue within existing accounts.

And these days, startups are building Customer Success into their DNA from the ground up, understanding that an acquire-any-customer-at-all-costs-until-churn-is-a-major-problem go-to-market strategy is the wrong way to do things and are avoiding that unnecessary step in the startup lifecycle.

That said, churn is still a problem for some companies, so when I answered this email about different churn rates across customer segments, I thought I’d share the answer with you, too, so we can all benefit.

Here’s the email…

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Success is Uncomfortable

Customer Success WorkshopI’ve talked before about holding customers accountable and how customer success isn’t about making customers happy.

Sometimes you have to push customers out of their comfort zone and – if you’ll allow me to channel my inner Tony Robbins -progress is rarely made within our comfort zone

That means moving toward success – whether for us or for our customers – is not always comfortable.

In fact, success is often quite uncomfortable.

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