Customer-centric Growth by Lincoln Murphy

Customer Success Goals: Cohorts, Metrics, and Prioritization

Também disponível em Português por Conpass

I asked the VP of Customer Success what her goal was for the Customer Success Management (CSM) organization, and she said, “to ensure customers achieve their Desired Outcome through their interactions with our company.”

That’s the definition of Customer Success that I developed, so I obviously loved that answer for this reason.

But I didn’t like it because that’s not actually a goal.

That’s their purpose. That’s why the CSM org exists (in fact, it’s why the company exists), but it’s not a goal.

A goal is something that’s meaningful, actionable, and reachable; it’s an objective and a timeframe.

And if you’re a Customer Success leader who wants to get a “seat at the table” with other executives, you need to be able to tie your goals with those of the company and become so important – so valuable to the rest of the company – that you need to reach your goals to drive the company towards their goals.

Let’s dig in…

Your Current Customer Success Reality

I know that I talk about best practices extensively, and in my opinion, these are very important to understand even if you can’t implement them today. You have to know what you’re ultimately working towards, and it’s critical that you work to create an optimized organization.

But unless your company is just getting started, you’ll likely have a bit of real life get in the way of implementing those best practices… if it doesn’t shut the implementation of those best practices down completely, such implementation will likely progress at a slower pace than you’d like.

In fact, I’d say roughly 100% of the companies I work with are already in market with customers at various lifecycle stages and with varying degrees of success (with a sizable number having no success and are on the verge of – or already – churning), so some form of what I’m about to share has been relevant in pretty much every situation I’ve dealt with.

So it’s important to get real, real fast, and start planning around the reality on the ground, which is your current Customer Success reality.

First, you start by…

Understanding Non-existent and Unrealized Success Potential

If you haven’t done this, as soon as you’re done reading this post, create a list of characteristics that indicate when a customer is a bad fit or the things that would indicate they don’t have Success Potential.

If you’re not sure or just curious, you can explore the difference between Bad Fit and Stretch customers.

After you’ve identified the characteristics of a Bad-fit customer, tag all of your customers in whatever system you use to manage your customer relationship as a “good fit” or “bad fit.”

This will tell you who – exactly – has the potential for success and who doesn’t, and this will be the key bifurcation point in our cohort creation (below).

Oh, and for customers that have already churned, you should do the same thing – only go a step further, and mark the churn as unavoidable or avoidable and unexpected or expected. I’ve covered this in “You Have to Know why Customers Churn.”

Okay, so now we move on to…

Identifying Logical Customer Cohorts

Within each Logical Customer Segment, you’ll want to identify customer cohorts based on their Success Potential and current Success Vector.

You can’t treat all customers that are a bad fit or all customers that are a good fit but on a neutral Success Vector the same. You must take into consideration their unique characteristics and provide them an Appropriate Experience, even if you’re actively off-boarding customers without Success Potential or moving those Good-fit in Neutral to a Positive Success Vector.

For those that are a Bad Fit, that is, those that do not have Success Potential, we need to carve them out and work with them in a manner different from those with Success Potential.

And for those that do have Success Potential, remember that they may still churn because what they have is only “potential” … it’s not Success Guaranteed. We need to ensure they’re on the right path toward success.

I’ve come up with five different customer cohorts spread across Bad- and Good-fit customers. Whether that model directly applies to your company and customers isn’t important; use this as a jump-off point, and come up with logical cohorts that work in your unique situations.

That said, the first cohort I carve out is the…

Bad-fit Customer Cohort

These are customers that do not have Success Potential. They are not going to get value from their relationship with you, or you’ll spend resources trying to help them or ignore them but continue to take their money, both of which won’t end well.

Companies have Bad-fit customers for a variety of reasons; some were signed early when the company didn’t know who an ideal customer was or made the decision that they’d sign anyone and everyone, regardless of Success Potential, in order to “learn” or for cash flow reasons. None of those reasons are valid, by the way, but that doesn’t mean they don’t happen.

The reasons for acquiring Bad-fit customers notwithstanding, the fact is you have them, they won’t be successful, and you need to do something with them.

To (Actively) Churn or Not to Churn

For the customer cohort without Success Potential, they will likely – and probably should – churn out.

You can just wait until they churn organically, or you can create a plan to off-board the customers systematically, ideally giving them some alternative products or services they could move on to. You know the right thing to do.

You should spend very few actual Customer Success resources on these Bad-fit customers because they can never be successful, so it’s kind of the opposite of what a Customer Success Organization is meant to do.

You may need to spend some resources to off-board them in a way that doesn’t leave them emotionally unhappy or that’s likely to result in the negative word being spread about your company and your product – which may even include buying a subscription to a competing product or providing access to an integration service to migrate data – but that is the only reasonable, legitimate expense associated with Bad-fit customers.

If your executives – or you – disagree and think you should invest in these Bad-fit customers, whatever; just don’t say “Customer Success doesn’t work” when those customers eventually churn out.

And if you think keeping customers long enough to pay back the acquisition cost is enough, you’re a fool.

I don’t even care that you don’t get the spirit of Customer Success or that it’s not your Operating Philosophy… no, you’re a bad business person.

Keeping Bad-fit customers to simply milk them for revenue until they churn has a potentially enormous cost to it… you’ll kill your Total Addressible Market (TAM), you’ll hurt your brand, and ultimately, you’ll lower the value of your company.

Accepting and Reporting High (Cohort) Churn

I am acutely aware that it will be very difficult for you and your leadership to accept a large amount of churn in this cohort, as it will make your overall retention numbers look bad – maybe really bad.

The high churn you’re not just going to experience, but make happen, as you actively jettison your Bad-fit customers will offset the high retention numbers you’ll have in your Good-fit customer cohorts.

So what I suggest that you do is – where possible – when you report churn (to your board, investors, executives, etc.), explicitly call out this Bad-fit cohort – along with it’s incredibly high churn rate – as an anomaly (“these are Bad-fit customers; we won’t make that mistake again”), and then report retention for the rest of the Good-fit customer base separately as the high number that it is.

You’re not hiding anything – in fact, you’re making everything more visible – but you’re looking at it realistically, too.

The bad-fit cohort that is otherwise bringing everything down is not who you’re building the future of your business around, and you’re working to get it off the books and reduce the resources needed to support that cohort to zero to free up precious resources to work with Good-fit customers.

If your investors, board, or executives want to see an aggregate, roll-up churn, or retention number that includes all cohorts – even the bad-fit – okay, fine. But you might as well try this reporting technique… not just to make yourself look better, but because it really does represent a more realistic, forward-looking view of your customers.

Now we move on to…

Good-fit Customer Cohorts

It’s important to remember that just because a customer has Success Potential doesn’t mean that this potential will be recognized. So when a customer with Success Potential churns out – vs. those that are a bad fit – it hurts. It should sting.

Your Customer Success Practitioners, Organization, and Leaders should be held responsible for the churning out of customers that have Success Potential, for sure. Why? Because when a customer has Success Potential but churns out, it’s your fault.

You didn’t work to make them successful. You let them stray off course. You failed them. But that’s actually a good thing!

It’s a good thing because you can fix it! If it were outside your control, that’d be one thing. But it’s not… you can put into place the systems, processes, and workflows necessary to ensure that customers with Success Potential actually realize this potential and succeed.

But to do that, we have to get real about what’s going on with your Good-fit customers right now by splitting them into cohorts, starting with…

Good-fit Cohort 1: On a Negative Success Vector

The “Negative” here is based on my Success Vector KPI, but this might be a Good-fit customer with a low Customer health score, in a Code Red state, has a thumbs-down emoji status… whatever you use, these are the customers that are ultimately getting no value from their relationship with you.

But they should be, since they’re a Good-fit. They have Success Potential, but you’ve not worked to unlock that potential.

Almost always, customers that are a Good-fit but aren’t getting the value they should share a common trait: they were acquired before you got your Customer Success act together.

They weren’t onboarded properly, they weren’t trained, their integrations were faulty and/or non-existent, and they’ve generally been neglected.

Because they know they have Success Potential, the customer hangs on, knowing that someday, things will work out… until it one day when it just doesn’t.

And you probably ignore them because you’re afraid that if you interact with them, they might remember you exist and remember that they wanted to churn. Or, even worse, they might expect you to help get them back on track.

It’s time to step up and make things right with those customers. There’s no other way to say it; you’re failing them, and eventually, it’s going to catch up with you. You need to get them back on track toward success.

Good-fit Cohort 2: Gone Dark

Good Customers go Dark; it happens every day to good companies around the world. Maybe it’s happened to you.

A customer stops opening your emails, won’t take your calls, stops opening support tickets, stops using your product… They’ve gone dark.

They’re ignoring you. They’re hiding. And you’re freaking out.

The biggest issue with customers that have gone dark is that you don’t know if they’re on the verge of churning or if they’ll stick around for a while.

But you can be 100% sure that if they’ve stopped using your product or consuming your service, there is a 0% chance that they are successful. And what do customers that aren’t successful do? They churn.

So this cohort is the next priority for you after those that are on a known Negative Success Vector.

But here’s the reality about customers that have gone dark: you didn’t work to make them successful from the outset, you didn’t onboard them properly, and you didn’t send them the right message at the right time, which taught them to ignore your messages.

You taught them you don’t care. So why should they listen to you?

You’re going to have to get creative; try different communication methods (email, SMS, WhatsApp, social, phone, FedEx, etc.) to try to get their attention.

All you’re doing at this point is “saving” a customer – this really isn’t “Customer Success” – and you may resort to concessions to get them back on track such as discounts, free Training, product Demos, “restarting” or “resetting” the contract, etc.

But whatever you do, make sure the communication you use to get them to engage is all about them, and be clear on what the next step is. If you can get them out of the darkness, remember that all you did was bring them to the light… now you need to get them on a path to success.

I’d consider them to be on a Negative Success Vector at this point unless you know for sure otherwise.

Good-fit Cohort 3: On a Neutral Success Vector

The “Neutral” here is based on my Success Vector KPI, but this might be a Good-fit customer with a moderate Customer health score, in a Yellow state, has a “hang loose” emoji status… again, whatever you use, these are the customers that are getting some value and aren’t going to churn but aren’t growing.

Their adoption has stagnated, they aren’t going to buy add-ons, and they won’t advocate for you. This might seem like a customer that’s fine – one that doesn’t need your attention.

But if you understand that expansion (and renewal) is part of Customer Success – not a byproduct of it – then you’ll know that a stagnating customer is not a customer that is successful.

And when you understand that merely maintaining the status quo is not ideal, you’ll know why customers on a Neutral Success Vector – while not at immediate risk of churn – are not something to be ignored.

If all you’re doing is renewing customers at the same level, you’re actually failing in your Customer Success initiative. If you aren’t sure why that’s true, go back up two paragraphs and read again.

The vast majority of companies that I’ve worked with who have customers on a Neutral Success Vector signed those customers before they had a fully operational Customer Success approach. They may have had the onboarding phase locked down, but they failed at – or hadn’t gotten around to – operationalizing success across the entire lifecycle.

So the customers got initial value but were then left to fend for themselves.

Going forward, the only customers that should be on a Neutral Success Vector are those that just moved up from Negative or those you pulled back into the light after having gone dark.

Good-fit Cohort 4: On a Positive Success Vector

The “Positive” here is based on my Success Vector KPI, but this might be a Good-fit customer with a great Customer health score, in a Green state, has a thumbs-up or clapping emoji status… again, whatever you use, these are the customers that have been getting value and are expanding their relationship with you.

They were onboarded correctly, are increasing adoption, inviting you into other parts of their company, and advocating for you externally.

Any customers that sign from now on will go through proper vetting (to ensure they’re a good fit before signing), activation, and onboarding, and they will have an Appropriate Experience across their lifecycle as they work toward their ever-evolving Desired Outcome.

But how do you go about…

Prioritizing Success Vector Cohorts

Customers are always evolving, so you need to stay on top of things to ensure that a Good-fit customer doesn’t become a Bad-fit customer or so you’ll know when a customer on a Positive Success Vector suddenly drops to a Negative for whatever reason.

You’ll need to monitor the Success Vector of your customers and intervene proactively on an ongoing basis, but at first – when you’re just trying to reduce the risk in your current customer base – you need to figure out what is happening right now.

The Bad-fit cohort gets resources dedicated to them until they’re taken care of, peeling off resources as the remaining cohort of customers without Success Potential get smaller. On an ongoing basis, the number of Bad-fit customers you have should be so small that you’re spending very little time on these types of customers.

If possible, put resources on all four of the Good-fit cohorts, but whenever you need to prioritize, the Good-fit customers that are most likely to churn should get attention first. As that number starts to reduce, you can peel off resources to work with other cohorts.

If you are legitimately resource-constrained, you’ll focus on the Good-fit, high-value customers on a Negative Success Vector first. But remember, your resource constraints should never give a Good-fit customer a less-than-appropriate experience. If you cannot afford to provide a customer with their Appropriate Experience, then they are a Bad-fit customer.

The fact that there are five discrete customer cohorts – for each Logical Customer Segment – should tell you something about…

Customer Success Management KPIs and Taking Action

One of my favorite pastimes is dispelling the myth of “One Metric that Matters.” Sure, some companies have this as a symbolic rallying point, but when it comes to actually running their business, there is never JUST one metric that matters.

When it comes to Customer Success, while you might need to report on something like Net Revenue Retention (NRR) as a roll-up financial metric across all of your customers, you’ll also need to sanity check that against the aggregate Success Vector to ensure that the revenue you retained will stick around.

But even those two “metrics that matter” are made up of several other metrics that matter – in this case, a different KPI for each customer cohort.

So when you want to figure out your Customer Success Management KPIs, you can have those roll-up, high-level metrics, but the real, actionable metrics are going to be developed by looking at each cohort and asking where you want to be with each of those segments in 3, 6, or 12 months.

You’ll have to be very clear about how you reach those goals, what the coverage ratios of human intervention and technology (maybe even AI & chatbots) need to be, etc.

By having a goal for these cohorts and knowing how you’re going to get there, you’ll start to unravel the types of talent and skill sets required and, from there, the number of Customer Success Practitioners you’ll need.

Some ideas for where you might want to be in 6 months are…

Bad-fit Customers

Zero Identifiable Bad-fit Customers.

This may be 100% churn for this cohort, or it might be 75% churn and moving 25% to a Good-fit cohort because you added functionality that gave them Success Potential.

Good fit, Gone Dark

Zero Identifiable Customers that are “dark.”

This is going to take work; it will not be easy, and it may not have the entirely positive outcome you’re hoping for. Some customers that are dark may end up churning out. That’s actually a good thing; you don’t want zombie customers that are paying you while getting zero value. You aren’t running a low-end gym where your business model would break if all of your members showed up at one time. You’re better than that (even if you are running a low-end gym!).

While some customers that have gone dark will churn, the vast majority will re-engage, and you’ll be able to move them from a Negative to, ultimately, a Positive Success Vector. But it will take work, and you’ll have to get creative; but it’ll be worth it for sure.

Good fit, Negative Success Vector

Off-boarding Bad-fit customers and bringing those that have gone dark back into the light are easier tasks than actually ensuring that customers achieve success. So it’s easy to say for those other two cohorts that you can hit “zero identifiable” in 6 months. Sure, it comes down to resources, but that’s about the only constraint.

When it comes to moving customers from one Success Vector to another, it’s a little more complicated because customers – even within the same Logical Customer Segment – achieve success on their own cadence.

So you’ll need to be realistic about what you can achieve for this cohort within the given timeframe.

Your ultimate goal should be to get all Negative Success Vector customers on at least a Neutral Success Vector, but what can you do in 6 months?

An example might be: in the next 6 months, we can reduce the number of good-fit, Negative Success Vector customers in the Small Agency customer segment by 50% by doing x, y, and z.

But for the same cohort in the Large Agency segment, we can reduce this number by 25% by doing x, y, and z.

However, for this cohort in the Mid-sized Agency segment, we can reduce this number by 75% by doing x, y, and z.

Good fit, Neutral Success Vector

Again, moving customers from one Success Vector to another is more complicated than what you’ll do with Bad-fit customers or those that have gone dark, again because customers – even within the same Logical Customer Segment – achieve success on their own cadence.

Similarly, you’ll need to be realistic about what you can achieve for this cohort in the given timeframe.

Your ultimate goal should be to get all Neutral Success Vector customers on a Positive Success Vector, but what can you do in 6 months?

When a customer is on a Positive Success Vector, they’re expanding their relationship with you, they’re increasing consumption or adoption, or they’re advocating for you publicly. If you can take a Neutral customer and get them to do some or all of those things, you’ll be able to move them to a Positive Success Vector.

However, you have to do it in a way that is customer-positive; working them toward success and then making logical offers to them for upsells or add-ons, getting them to invite you into other parts of their company, or proactively getting them to advocate for you when the time is right. Think of ways to short-circuit their path to success.

This is less about getting them do the thing that will move them to a Positive Success Vector – like buying an add-on – and more about getting them to be successful and making buying that add-on the most logical next step.

You’ll want to be clear that for this cohort, in this segment, we’ll do x, y, and z to make that a reality.

Good fit, Positive Success Vector

For this cohort, we might start to apply a KPI different from just the number of customers that are in this cohort; we might want to focus on a financial metric like NRR.

So we might say that in the next 6 months, for the Good-fit customers on a Neutral Success Vector in the Small Agency customer segment, we can drive a 120% NRR by doing x, y, and z.

This means we’ll expand the revenue we get from this cohort – net of any revenue churn and not taking into consideration what new customers are bringing in; it’s only for this cohort – by 20%, or we end the 6-month timeframe with 120% of the revenue they started that period with.

And for this cohort in the Large Agency segment, we can grow NRR to 150% by doing x, y, and z.

However, for this cohort in the Mid-sized Agency segment, we will grow NRR to 130% by doing x, y, and z.

A lot of people say that much of Customer Success is simply common sense.

Well, maybe that’s true, but behind all of the common sense are a lot of processes, workflows, strategy, and tactics! Hopefully, what I just shared makes that “common sense” journey toward making your customers successful a little bit easier for you.

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