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.
More of a Key Success Indicator – KSI – than a simple KPI.
So, looking at Customer Success as the growth engine it is, we need a KSI 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 Key Success Indicator (KSI)… it’s time to let everyone in on it.
Let’s dig into Success Vector, shall we?
Why “Vector” instead of “Health”
Aside from the reasons already stated above, the term vector appeals to me since I fly on airplanes a lot and am also a fan of the movie Airplane, especially this scene “What’s our vector, Victor?” the idea of having something that doesn’t just tell us where we are, but where we’re going, seems so much more powerful – and appropriate in the context of Customer Success-driven Growth – that it’s the most logical progression.
Vector is defined, according to a quick Google search, as “a quantity having direction as well as magnitude, especially as determining the position of one point in space relative to another” and to me, that’s exactly what we’re looking for.
Direction + Magnitude. That’s more like it.
It All Starts with the Customer
One of the biggest mistakes I see in Customer Success is when the CEO of a company hires a Customer Success Manager (CSM), declaring they are now customer-centric, and then telling the CSM to “figure it out” without giving budget or resources. Though sometimes, if any resources are given, it’s to buy software. Because software solves all the problems.
Look, people are a huge part of Customer Success Management. Systems are absolutely necessary. Processes and Software tie all of those together for efficient scaling.
But if the implementation of those things isn’t predicated on a deep understanding of the customer – and knowledge that the customer will evolve over time so your understanding must, too – then the people are going to be setup for failure, the systems won’t do what you “designed” them do, and the software will fail to deliver a real ROI.
If we want our customers to grow with us over 1, 3, 5, 7, or even 10 years, ensuring the customer is engaged and continues to achieve their evolving Desired Outcome is critical. In fact, it’s why your company actually exists in their world.
Before you can Orchestrate, Operationalize, Instrument, and Intervene – or develop a Success Vector – you need to be clear about the Desired Outcome for each of your discrete customer segments.
And remember, Desired Outcome has two pieces: Required Outcome and Appropriate Experience
Required Outcome is what they need to achieve; there are some things that must happen otherwise you know they couldn’t possibly be achieving their Required Outcome.
So you measure their progression through the required activities and Success Milestones (are they making required progress), check on Joint Accountabilities (are they doing what they need to do, are you doing what you need to do), look at Ascension Velocity (are they buying more, expanding use, etc. because if they are, they’re likely finding success), and other things that indicate whether they’re actually achieving their Required Outcome.
Appropriate Experience is how they need to achieve their Required Outcome, so it takes some of the previous measures into consideration, as well as Satisfaction & Confidence, Support interactions, and other contextual inputs… including the gut feel of any human interactions / interventions that took place with the customer.
Together those make up the core of the Success Vector of the customer and will tell you if the customer is on track, needs help getting back on track, or is heading out the door.
Key Success Vector Inputs
The inputs that are 100% required for Success Vector to be meaningful are:
- Success Potential
- Success Milestones
- Joint Accountabilities
If my customer doesn’t have success potential, that’s something we need to address (possibly by actively separating from those bad fit customers).
When it comes to Success Potential, there are several things we need to look at:
- Technical Fit – They aren’t using or don’t have and can’t / won’t acquire a key piece of technology
- Functional Fit – Our product is missing a key piece of functionality for them
- Resource Fit – They can invest – beyond simply paying our fee – in what’s required to be successful as our customer
- Competence Fit – They have – or will acquire – the expertise internally required to be successful?
- Experience Fit – They do not have the experience internally and cannot get / are unwilling to source or train resources that have the necessary experience to be successful with our product
- Cultural Fit – They have beliefs, morals, attitudes, etc. that you know won’t jibe with the way you work
If we can’t check all of the Success Potential boxes, then we can be absolutely sure that those customers are not going to achieve their Desired Outcome – both their Required Outcome and the Appropriate Experience – so we’re setting everyone up for failure if we keep them around.
Success Milestones & Joint Accountabilities
The biggest problem with Customer Health Scores is they rarely include whether or not the customer is actually doing the things necessary – inside the product and beyond – that would indicate they’re on the right path toward achieving their Desired Outcome.
For Success Vector, knowing where the customer is on their path toward success – including whether they’re holding up their end of the bargain on the joint accountabilities we agreed to – is the main input.
In fact, if you don’t pull in any other contextual data and only looked at Success Milestones and Joint Accountabilities, you’d be better off than most companies that pull together complex Customer Health Scores.
Look, if the customer does have Success Potential, but they aren’t doing what needs to be done to achieve success, that’s a problem and we need to intervene.
If those things aren’t included in the Success Vector, then what purpose does it really serve? It’s like creating a Customer Success strategy without starting with the customer (which, sadly, is pretty common still).
When it comes to predictable revenue, this is where it gets good.
Some Success Milestones will have a logical Upsell or Advocacy opportunity associated with them. Based on which Success Milestone our customers will hit in the next month – and our confidence in both hitting that and taking the upsell or advocacy opportunity associated with the milestone – we should be able to accurately predict the revenue expansion from our existing customer base.
Revenue Ascension Pipeline vs. Expansion Quotas
And when you can build a revenue forecast model based on actual customer Success Vectors, then you can manage against that rather than the other direction where we have expansion quotas. We can say “according to Success Vectors, this cohort should deliver $90k/ARR in the next month.”
When you have Success Vector in place, internal expansion quotas are not needed, which means you won’t have Account Managers trying to shove products down a customer’s throat when they aren’t ready for it, don’t need it, or are otherwise not in a place where that is the logical next step.
Rather, we can say “this is the expected, logical expansion from these cohorts in the next 30, 60, or 90 days” and if we hit that, it means you simply did your job.
However, if we miss that mark, it means the customer didn’t hit that Success Milestone, because if they had, according to Success Vector analysis, they would have taken the upsell. So that’s a fail on Customer Success Management; not that they didn’t make the upsell, but because the customer who we thought would reach that milestone didn’t.
So there’s no need to quota on expansion; instead, use Success Vector-based projections to manage the success – or failure – of your Customer Success Management (including Account Managers, Expansion Resources, etc.) org.
Additional Success Vector Inputs
Companies with more robust Success Vectors also have inputs like:
- Ascension Velocity – Are they taking upsells when they’re logical?
- Meaningful Product Activity – Also known as product usage data. It has to be meaningful activity, though.
- Adoption – Did they meet initial adoption goals? Are they meeting ongoing adoption goals?
- Advocacy – Are they advocating for us in appropriate ways where logical?
- Usability Issues – Are there problems or missing features keeping them from achieving success; missing features would indicate a lack of Success Potential and should be noted as such
- Customer Company (Account) – Are negative things happening with their company? External triggers, bills not being paid, M&A, etc.
- Support – Support tickets aren’t bad unless they’re not being closed in a positive way quickly; also if support tickets slow or stop.
- Satisfaction & Confidence – NPS, C-sat, etc. My clients know how I really feel about NPS and what I prefer instead.
Success Vector Status Definitions
The Success Vector of a customer will change from time to time, but we ultimately want all of our customers on a Positive Success Vector. Stagnant customers on a Neutral Success Vector simply renewing at the same level is no longer considered good enough.
The new measure of success is customers that are engaging, evolving, and expanding.
Positive Success Vector
- They’re on the right track
- “the right track” means that they aren’t just static, but are expanding or on-track to do so
Neutral Success Vector
- Stalled or Stagnated
- Does not fit with the new measure of success
- We need to get the customer back on track to achieving their Desired Outcome and on a logical Ascension Path
Negative Success Vector
- They’re not on the right track and we need to intervene
- Come up with some type of gradient to indicate level of and type of intervention
- Your key contacts at the customer have stopped engaging or responding
- This customer is about to churn
Situational Awareness and Customer Triage
If you’re just starting out integrating the Customer Success Operating Philosophy into your business, there’s a really good chance you’ll have some customers that have gone dark. For the customers that are a good fit and should be saved, you need to do what have to do to save them. Just know… that’s not Customer Success!
To pull them from darkness back into the light or otherwise save them from churning, that’s begging, promising, discounting, etc. but it has nothing to do with actually helping them achieve their Desired Outcome. They’ve given you another chance, but they should be considered to still be on a Negative Success Vector.
Customer Success would have been ensuring they didn’t get to this point, to begin with!
You now have to work to take that cohort, plus any other customer that’s on a Negative Success Vector and move them to Neutral and then Positive.
At first, you’ll have customers in each category, but eventually, as you Orchestrate and Operationalize your Customer Success Management processes, you’ll get to a point where you only have Neutral and Positive Success Vector customers.
Success Vector shares many of the underlying qualities of Customer Health Score, but the big differences are what make this the KSI for Customer Success-driven Growth.