Future-Proof Your New Business Development Strategy Part 2
Read time: 8 minutes
One name that is ubiquitous in the realm of Customer Success is Lincoln Murphy, Chief Customer Evangelist at Gainsight. Check out our conversation below where Lincoln explains how weaving customer success through your new business development/account management strategy can future-proof your agency.
And if you haven’t already, make sure you catch up with part 1 of the interview.
From a business point-of-view of success, what are 3 KPIs to measure a customer’s success?
Lincoln Murphy (LM): When it comes to Customer Success, you actually want to pay attention to two main things: a financial metric and a Customer Success-specific metric (yes, I realize that’s redundant, but bear with me).
For the financial metric, I generally recommend looking at Net Revenue Retention (NRR). You simply take a time frame (let’s say a calendar year for simplicity, but you’ll likely use a more granular time frame). Take the customers that were there on January 1, and add up all the revenue they brought in; this includes their base contract value (or whatever your model is), plus upsells, cross-sells, etc., and then subtract any revenue lost since then from those customers (including customers that were there on Jan 1 but have left or “churned out”). Whatever that number is becomes the NRR for that year.
For example, if you start January 1 with 100 customers at $100 each, that’s $10,000. If you lose 5 customers, you lose their $500. But if you upsell 50 customers another $100 (thus adding $5000 in expansion revenue), you’ve recovered the $500 that you lost through customer attrition, but gained another $4500 to end the year at $14,500. You had an NRR of 145%, which is great.
Of course, you can’t ignore the fact that you lost 5 customers because, even though you made up for the revenue they took from you (and maybe took to your competitor), the fact that you acquired customers and then they left is still a bad thing. NRR also takes into consideration revenue lost through discounts and down-sells even when the customer stays. That’s great, but this “revenue churn” should also be looked at on its own. Sometimes companies offer discounts to save a customer who, because nothing else changed, are still at risk of churning out.
For this reason, you can’t just look at the end NRR number to know what’s really going on. It needs to be sanity checked against a Customer Success-specific metric — something that tells us whether or not our customers are on the path toward their Desired Outcome, regardless of the financial metrics. The best case scenario would be to use a full-blown Customer Health Score — an aggregate of several different qualitative and quantitative metrics from support tickets to billing activity and success milestone completion to customer satisfaction survey scores. It should also take into account how you feel about the customer based on your last conversation.
If you have a product where you have access to usage data, you can incorporate that into the Customer Health Score, too. If you don’t have all of that, you should at least have a customer satisfaction score, perhaps from a Net Promoter Score (NPS) survey, for each customer. Having a Health (or at least satisfaction) Score to look at along with NRR tells you whether you and your customer are on the right track. If you meet your NRR goals for the time period but your Health Score goes down, that could mean you did things to meet the financial KPIs in a way that had a negative impact on the customer.
What structures and/or processes have you seen help businesses get this important information (data) to know the health of their business?
LM: It’s critical that you start with the customer. I generally suggest that, for every product or service you offer, you logically segment your customers (revenue, revenue potential, strategic value, etc.). Then you need to understand the Desired Outcome for each segment, for each product or service. From there you’ll map the Success Milestones for each segment and then understand the required level of touch for each segment across the success milestones.
Doing all of that is not only the baseline for developing a world-class Customer Success strategy, but it will expose all of the touch points, modalities, systems, teams, etc. involved in the customer’s lifecycle. In turn, this gives you a list of data and context sources to pull Churn/Retention, Expansion, and Customer Health inputs from.
We’ve heard you say that it’s important to engage with customers outside of business transactions. What processes are helpful for fulfilling this strategy?
LM: Look, at first, you probably aren’t the center of the customer’s universe; you may be at some point, but especially in the early days, you aren’t. So, you have to take into consideration all of the things required for them to do in order to be successful as a client. Many of those things may be outside the scope of what you do for the client, but may be 100% required for the client to be successful. It may be things that are technical requirements — they need to have XYZ system installed or bring with them credentials to their CMS. Or it may be process-specific elements that they need to provide that, without, they simply cannot get value from their relationship with you.
You need to know what these are and manage expectations around these things from the beginning. Create a Joint Accountability list: Here’s what we (or our product) will do, here’s what you will do (or you can pay us extra to do it for you), and here’s what you MUST do (you have to do this; we can’t do it, no matter how much you’d pay). Lay it out for them to play it out… but realize that Joint Accountability is a powerful lever.
Also, you must be aware of the Success Gaps that exist. These are the gaps between what you do for the customer and their Desired Outcome. When a client buys a new website design from you, while they do want a website, at the end of the day they’re buying it for a specific reason. When you’re working with businesses, it’s almost always for more customers. However, you can give them an awesome website that captures leads all day long, but if they can’t close those leads and turn them into customers, they aren’t achieving their Desired Outcome. So the gap between the website and converting the lead into a customer is a Success Gap.
You need to let them know that they still need to be able to close the leads you give them with the new website (Joint Accountability), and do what you can to bridge the Success Gap by providing access to content, experts, etc. on how to close deals. You can’t close the deals for them, but if you remind them it’s up to them and provide resources to help, and they still fail to close deals, at least they won’t blame you!
What types of tools and/or resources are a good investment for leveraging the development of customer success?
LM: Just like any tool-selection process, it’s critical that you understand what you’re trying to accomplish — and how it needs to be accomplished — before selecting the tool. If you start with the tool, it’s very likely one of two things will happen: 1.) you’ll shape your “strategy” to fit the tool, or 2.) you’ll use that tool to operationalize a poorly-considered “strategy.” Possibly both.
If you do all of the things I’ve already talked about before selecting a tool, you’ll be able to select the right one. I always suggest selecting a system that you’ll grow into, rather than selecting the tool that’s the right fit for you right now.
That said, when it comes to Customer Success, like any other business function, there are purpose-built tools and discipline-specific training that you can leverage. Just like you can use Excel to do just about anything, to do that thing well, you should leverage a purpose-built product built by a company that is continually feeding the collective intelligence of their entire customer base into the product. This gives the customer access to something truly valuable (and far more than they could ever build themselves: like Function Point for project management or Gainsight for Customer Success Management.)
Lincoln Murphy is the founder of Sixteen Ventures and Customer Success Evangelist at Gainsight. Using Customer Success to drive growth across the entire customer lifecycle, Lincoln helps companies retain their customers longer, get those customers to use and pay more over time, and turn those customers into advocates. He’s a prolific writer and international speaker on Growth and Customer Success. Follow him on Twitter @lincolnmurphy
Director of Sales and Customer Success, Function Point
A passionate leader with a proven record of sales and customer experience success across several industries. I work with talented individuals to create teams that consistently achieve or exceed targets.