By Andreas Knoefel
With soaring unemployment rates, the post-COVID recession will be the third in my professional life after the dot.com bubble in 2001 and the housing bubble in 2009 burst. Both times the strategy was:
Hire Sales and Sell, Sell, Sell, whatever it takes.
This will not work this time around. Instead, I will show you how to maximize your profits, tune your operations, and boost your customers in your quest to survive this recession.
Maximize Your Profits
Prior recession survival strategies were built around perpetual licensing, where the bulk of the customer Lifetime Value (LTV) was tied to the initial purchase. Sales was king, Marketing as a lead-gen engine, and Engineering hotwiring all these new “features” for new prospects, had relative job security. Every other department was in jeopardy to some extent, but in particular, Post-Sales roles got the boot. In this new XaaS (Anything-as-a-Service) world, Sales is not the most profitable player anymore. See below for the Customer Acquisition Cost (CAC) ration for various events during the customer lifecycle 1,2:
Acquiring a new customer requires investment. Sales and Marketing expenses take time to come to fruition, which your company can’t afford when cash-now is king. Upsell and expansion are also not very likely unless your customers are in a growth market such as lab equipment and services or personal protective equipment (PPE). That makes the Customer Success Managers (CSMs) who nurture and renew each existing contract the new champions. And the team supporting the CSMs is the Product team, while Marketing has lost its job security and will contract with the rest of the company.
The equation has shifted in the favor of Customer Success as the foundation of your cash-preserving and cost-cutting strategy. The next step is now to ensure that your CS team is humming at peak performance and maximizes the existing subscription base to its fullest.
Tune Your Operations
As you are fighting for survival and looking for any reason to cut costs, so are your customers. Proving a tangible business benefit as increased profits or reduced costs (ROI), not some esoteric outcome, is ever more important for the CSMs. This is more than a single task and requires efforts in multiple dimensions.
Look at the preliminary 2019 Customer Success Performance Index™ (CSPI) benchmark results. The top 25% of businesses with the best-in-class Net Revenue Retention (NRR) have an NRR of 140 vs 87. The rest of the field also scores significantly higher in the adoption of the CSPI best practices in basically every dimension.
Figure 1: Best-in-Class NRR Champions use best practice Customer Success
In order to support such a strong ROI, companies with outcome-centric Segmentation, and a mutually developed customer journey with solid Playbooks excel. Customer Resources and Implementation and Onboarding services that accelerate time-to-value also build the foundation for a nurturing customer Relationship built on ROI.
If you would like to compare yourself against your peers, spend 8-10 minutes to complete the CSPI benchmark survey and receive your individual benchmark report and valuable tips on how to fine-tune your CS Operations.
Boost Your Customers
Even better than preserving the customer ROI is maximizing said ROI. I prefer a benchmarking strategy that fosters Champions others can follow. By looking at what actually works, not what should work best, you are taking a customer-centric view of reality and have real-time stories to tell. This is different from building references, where you are looking for the most recognizable logo, biggest contract, or other superlatives you can find. While those criteria are important, they ignore how demanding the engagement with those accounts may be.
Instead, I develop a baseline and find the Champion customers who excel and replicate their example with the bulk of your customers who Cruise along, and decide how to support Laggards, who may cost you more than it’s worth.
Setting the Baseline
Look at your existing customers and find what their typical customer journey looks like. What are the use-cases, how long is the implementation, how fast are users onboarding, and how quickly do they reach the desired ROI.
Benchmark Your Customers
Against this baseline, I define three types of customers: Champions, Cruisers, and Laggards. Each type has different playbooks:
Figure 2: Customer Segmentation against your Baseline
Champions: At the top are my dream customers: they exceed all expectations, accelerate their onboarding, use all the bells and whistles and surpass their business value targets. These are my champions and deserve dedicated attention:
I celebrate their achievements as publicly as possible: press releases, keynote speaker engagements, webinars, reference calls, innovation awards. For those who cannot be named publicly, we have an internal celebration to acknowledge the sponsor and other core members.
I synthesize their unique “essence”: Did they have a higher-level executive sponsor? Is their IT very nimble? Are they integrated with Software X, etc. This knowledge is priceless for our lead qualification and Sales plays, our best-practice knowledge base, and playbooks.
They form my customer council. They already pushed the boundaries of our solution and were ready for more. Their proposals drive innovation, and they are motivated to adopt new capabilities. They support the marketing of these enhancements as our vocal advocates.
I create a reference model for other customers and users to follow. Whoever is not in your top layer may want to get there, and now my team and I can guide them together to win the pot of gold at the end of the rainbow.
Cruisers: Hopefully the majority of your customers achieve (most of) the expected business value within the expected timeframe. These customers are on a stable course and perfect targets to point to a Champion who is a close fit to their ROI business outcomes, culture, and industry who they might model themselves after.
The Laggards who struggle to keep up, I further break down into Rescue, Recover, and Farewell, based on whether the ability to affect change is mainly on ourselves, joint, or with the customer.
Rescue
The first set of Laggards fell behind due to issues caused by us which significantly hinders their ability to achieve the agreed-upon ROI. If the root cause is product issues, the engineering team is on call. If the issue is a misconfiguration or misuse, the implementation and onboarding team is on call to get the customer back on the success track.
Recover
In the joint control category are accounts where the customer and the account team defined the business goals and the timeline was overly optimistic. What looked great at the beginning of the customer journey may not have considered some issues along the way. Adjusted ROI targets and more realistic time-to-value still create a positive ROI and stabilize these customers.
Farewell
“You can lead a horse to the water, but …” is a fitting catchphrase for these customers. The key to their success or failure is in their hands. Maybe they are lacking or lost executive sponsorship, maybe their champion is not influential enough, or their tools, processes, or integration links are not at the required level. Worst of all is a bad solution fit because their vision or expectations are not aligned with your actual product scope and mutually agreed-upon goals. In particular with a heightened emphasis on frugality, you should spend any resources on these customers with caution. They may not be worth the effort and a hard look is warranted instead of an all-out rescue effort to preserve every logo you have. This is not about a lack of caring, this is a hard reality. If those customers stay with minimal effort, ok: if they churn, wish them well.
Here is the updated customer segmentation with the strategy details for Laggards.
Figure 2a: Customer Segmentation with Champions, Cruisers and Laggards
Armed with your updated recession survival paybook to maximize your profits emphasizing subscription renewals, tuning your Customer Success operations, and boosting your customers to new Champion levels you are better equipped to weather this recession than betting on the comparatively costly investment into new Sales.
I hope that you succeed and wish you safety, health, and prosperity.
Need to better understand your CSPI score? Reach out to The Success League to discuss an in-depth customer success assessment. Please visit our Consulting page for more details and contact information.
Andreas Knoefel - Andreas is the inventor of the Customer Success Performance Index™ and a passionate customer success leader. He applies his practical and holistic approach to startups and giants alike, combining his Ph.D. from KIT and MBA from Santa Clara with his international experience leading customers to success. Andreas finds work-life balance through modernist cooking, outdoors photography and teaching high-octane cycling classes.