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
- Focused on churn reduction and risk management
- Emerged from Saas
Customer Success 2.0
- Recognizes customer success can be growth engine
- Used by companies across a range of B2B sectors to change the approach to customer life cycle management
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:
- Unified go-to-market strategy. Growth oriented charter for customer success
- Integration of customer success into sales activities, roles, incentives, and organizational approach
- Sustainable funding model supported by premium offers; Funding models that
reflect intrinsic value of customer success activities and Spectrum of free and fee-based services
- Customer-success talent engine Clarity on capabilities of top-performing
customer success managers; Comprehensive learning journey;Career paths that offer growth and advancement
- Advanced analytics to predict customer behaviors and
target customer segments; Change management to promote use of analytical insights in daily work
- Customer success philosophy embedded across organization. Cross
functional comprehensive approach to delivering optimal customer experience
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.
For additional information from McKinsey, please visit
here.