In the mid-2000s, software-as-a-service (SaaS) vendors faced a major problem, says a new report from McKinsey written by Charles Atkins, Shobhit Gupta, and Paul Roche. They had significantly invested in customer acquisition and landed many new accounts, but their products had become increasingly complex and difficult to understand. In response, companies began actively targeting at-risk accounts with “dive and catch” teams designed to increase retention by helping customers derive more value from their products.
Building on these early initiatives, many businesses created formal customer-success functions to take a more proactive approach to churn reduction. These efforts helped transform customer-success into an emerging discipline in the software industry, complete with new tools and methodologies.
Companies also created additional roles to support this function, most notably that of customer-success manager (CSM). According to one McKinsey study, the SaaS vendors with top-quartile revenues achieved their strong showing by investing more in customer-success initiatives aimed at churn reduction.
Several recent trends indicate the beginning of a new era called customer success 2.0, in which many companies are focusing on growth in addition to churn, by drawing on a CSM’s intimate customer knowledge to surface opportunities to provide relevant solutions and expand customer value.
McKinsey benchmark data finds that existing customers account for between a third to half of total revenue growth, even at start-ups. Costs for revenue expansion from existing customers are also a fraction of those for acquiring new business.
Customer Success is a growth engine extending beyond SaaS (software as a service business; McKinsey)
Customer Success 1.0
Customer Success 2.0
The transition to customer success 2.0 can be difficult, says the report. Handled poorly, a company’s new emphasis on growth can undermine a customer’s trust in CSMs and create a sense that they are simply interested in increasing profits. The expansion of customer success beyond SaaS vendors also raises difficult questions about execution and strategy.
Customers have different needs and where the sources of value may vary.
So how should companies proceed with the move to customer success 2.0? And, it’s also time to reevaluate go-to-market (GTM) strategy, funding models for customer-success services, talent development, and advanced analytics, says the report.
Perhaps it’s time to embed customer success as a philosophy across the entire organization, says the report. The Customer Success 2.0 includes five elements according to the report:
Concluding, the repots says that a capable CSM is among a company’s most powerful assets, and many software vendors have long had skilled staff in this role. Deeply engaged with accounts, these individuals combine product knowledge and domain expertise with an intimate understanding of each customer and their objectives.
One cloud vendor found that its CSMs provided the most value by helping customers make decisions about the next applications or workloads to deploy to their platforms. Another used CSMs to identify opportunities for providing professional services to help customers optimize their product investments.
These efforts improved product performance and customer satisfaction while increasing attach rates for services.
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