The only universal truth in Customer Success is that it’s always evolving.
If you’re using the strategies and tactics popular even 3 years ago, you’re being left behind.
The more contact our ideas, frameworks, and methodologies have with customers, the more we learn, and the more things need to evolve.
And over the past few years, that evolution has happened far more rapidly than anyone could have foreseen.
The world of Customer Success is Ripe for Disruption
Traditional approaches to Customer Success Management – often held tightly by those that have implemented them – have left companies still grappling with high churn, higher contraction, low expansion, their limited resources stretched thin, and burnout and turnover among Customer Success Managers (CSMs).
But what if there was a fundamentally different way to think about your customers, a method so innovative that it could revolutionize how we approach Customer Success and capacity planning?
Enter Appropriate Experience (AX)-based Coverage Segments, the future of Customer Success.
A Revolution in Customer Success Management
In the quest for balance and efficiency, I discovered a novel approach to address the most pressing challenges of Customer Success Management: delivering the customer’s AX at scale.
Remember, Customer Success is when a customer achieves their Desired Outcome (Goal + AX) through their relationship with us, leading them to stay longer, buy more, and advocate for us.
So by prioritizing the customer’s Appropriate Experience (AX) and segmenting customers accordingly, we have been able to reduce churn, massively and rapidly drive expansion, and increase customer satisfaction, while improving the teams’ wellbeing.
While I’ve deployed this in many companies that are now World-class (>125% NRR), I’ll give examples of what this can do for struggling and average CS orgs below.
But first, let’s dig into AX-based Coverage Segments in detail.
The Traditional Approach: Where We Missed the Mark
Revenue-based Customer Segmentation, the traditional and widely accepted practice in Customer Success, has long been used to dictate the level of service a customer receives.
The bigger the contract, the more attention the customer receives (or deserves!) from the team, and, consequently, the smaller the contract, the less attention they get (or deserve).
However, is this truly the best approach for the customer, your team, or the overall health of your business?
More importantly, does it ensure reduced churn and improved expansion while keeping your CSMs from burning out?
Unfortunately, the evidence suggests not.
The New Approach: AX-Based Coverage Segments
What if we told you there’s a radically different approach that effectively solves for all of the issues outlined above?
There is and it’s called AX-based Coverage Segments, a method that groups your customer by their shared Appropriate Experience (AX), allowing you to deploy resources effectively and efficiently to ensure your customers achieve their Desired Outcome.
This resource deployment is called a Coverage Model.
It’s a bold shift from the traditional revenue-based customer segmentation model, focusing not on the size of the contract, but on the customer’s experience, needs, and goals.
The Magic of AX-based Coverage Segments
With AX-based coverage segments, your Customer Success operation becomes a finely tuned machine, delivering precisely what your customers need, when they need it. For this to work, you do need a solid Enablement and Operations layer.
The following image shows common AX-Based Coverage Segments:
Let’s explore the four most common types of AX-Based Coverage Segments in detail.
- Inbound Coverage Segment: This segment is characterized by customers who engage with you on their terms. They don’t have a dedicated CSM but access a pool of highly skilled resources. By allowing customers to control their engagement, we enable them to attain their success in their way, fostering a better relationship, reducing the chance of churn, and setting them up for expansion, also on their terms.
- Async Coverage Segment: These are customers who prefer asynchronous engagement – emails, chats, videos – rather than regular one-on-one or group meetings. This approach not only meets customers’ needs but also drastically reduces the risk of CSM burnout as it provides a more balanced and manageable workload.
- Sync Coverage Segment: This segment is where one-on-one, real-time engagement occurs most. While it may seem traditional, it is balanced by async carve-outs that help provide scale and prevent overwhelming your CSMs.
- Task Force Segment: For the most complex, high-value, or at-risk customers, a task force is assigned. Multiple contributors from your team work with the customer simultaneously, providing their appropriate experience while boosting customer satisfaction and advocacy.
Those are just the four most common coverage segments and there’s so much more detail that’s beyond the scope of this introductory post, but that should give you an idea of how this works.
You may employ all of those, some of those, none of those, or come up with others that make sense in your unique situation. Whatever works to provide your customers with their AX.
Just a Different Take on the”Touch-level” Model?
Isn’t Sync just “high-touch” and Inbound “tech-touch”? No. But if it helps you to make that connection, fine, but just understand that in something like “Sync” the Coverage Model is weighted more toward synchronous meetings, but asynchronous modalities are also employed for scale and, frankly, because not everything needs to be a meeting.
But even if you can’t get past the “touch” level pyramid of ancient Customer Success, then just look at it this way: in this AX-Based Coverage Segmentation methodology, you will have customers that pay you a lot that would be in the “tech-touch” segment and customers that pay you very little that would need to be in “high-touch” since that would more align with their AX.
To make it even more clear: You will have customers in the same AX-Based Coverage Segment that pay you radically different amounts.
Coverage Segments do not take what the customer pays into consideration since that doesn’t figure into their AX.
A customer that pays us a lot might have an AX that would dictate very little engagement across most lifecycle stages.
Whereas a customer that pays us mid-range fees might require what would have been categorized in the past as “high-touch” engagement.
Real-World Impact: AX-Based Coverage Segments in Action
Coverage Segmentation is one of the “secrets” that World-class companies use to get to >125% NRR.
But to truly appreciate the transformative power of AX-based coverage segments, let’s take a look at some real-world examples in companies that are on their way to World-class, but aren’t there yet:
NRR Boost with SMBs:
A USA-based CRM company was struggling with a natural amount of unavoidable churn in their sizable SMB customer cohort. However, by understanding the AX of both their SMB and larger customers and shifting from traditional Revenue-based Customer Segments to Coverage Segments, they saw their NRR jump from 98% to 105%, even with that (large) 15% churn rate. This surge in NRR past 100% led to a significantly higher valuation in their next funding round, proving the tangible financial impact of using AX-based coverage segments.
Rebalanced Capacity, Reduced Burnout:
A Brazilian marketing company was stuck in the rut of old-school Revenue-based Customer Segmentation, creating a “low-touch” segment for low-paying customers and a “high-touch” segment for high-paying customers with dedicated CSMs for each of those segments. When we ran our capacity planning model, we found their CSMs working with “low-touch” customers were overloaded, juggling 3x more customers than they should if they were to actually deliver the customer’s AX (which they were not).
This resulted in high burnout and turnover for low-touch CSMs. Meanwhile, their “high-touch” CSMs were severely underutilized; and could have effectively managed 4x as many customers with capacity to spare. The high-paying customers didn’t need as much synchronous engagement as expected, which meant some of the CSMs even had time for second jobs! By implementing AX-based coverage segments, we could rebalance the workload, reduce burnout, and boost efficiency.
Increased Profit Margins Through Efficient Resource Allocation:
An Israeli ERP company had used the pod approach for their Enterprise customers, dedicating a large amount of resources for each customer, only to discover this was far from the AX for a large cohort of customers. Around half of their Enterprise customers had the experience, internal expertise, and resources to manage on their own, with only occasional strategic guidance needed from the company. By moving these customers to an Inbound coverage segment, they freed up valuable resources, saw a 50x+ increase in profit margin for these customers, and still ensured the customers’ success.
These examples highlight the potential of AX-based coverage segments in not just reducing churn and improving expansion, but also in creating an environment where CSMs can thrive.
By focusing on the appropriate experience for each customer, we can ensure that both customers and CSMs can succeed.
Making the Shift: How to Apply AX-Based Coverage Segments
Transitioning from the traditional model to AX-based coverage segments might seem daunting, but the rewards far outweigh the effort. It’s not just about reducing churn or increasing revenue.
It’s about providing a customer experience that meets their unique needs and objectives, fostering long-term relationships, and allowing your team to thrive in their roles.
Remember, the goal of AX-based coverage segments isn’t to categorize your customers by their financial value to you, but to identify the level and type of engagement that best ensures their success.
By doing this, you ensure not just the success of your customers but also the success and wellbeing of your team.
This Post is Just the Start
In our Impact Academy Customer Success training courses will delve deeper into this groundbreaking approach.
I also offer Customer Success consulting services to help you implement this in your business. Contact me if you’d like to discuss that.
Regardless, don’t miss the chance to revolutionize your Customer Success management – join us and embrace the future of CS.
About Lincoln Murphy