CREATING CUSTOMERS FOR LIFE The New Formula for Success in the Subscription Economy
Beating Your Growth Targets with
Customer Lifecycle Management Today, every subscription-based company is feeling the heat.
– and viability. In fact, the average time to break even for a new
Investors and shareholders expect high growth and anything less is
customer is just over three years when you account for acquisition
not good enough for Wall Street. While a new company can drive
and delivery costs.
growth from new customer acquisition, it takes just a few short years to realize that maximizing customer lifetime value is the secret to sustainable and predictable growth. When the majority of your growth opportunity starts to come from existing customers, your revenue formula needs to expand from simply acquiring customers to executing programs and processes that help you unlock the revenue potential in your existing customer base. Similarly, it’s 6-7 times less expensive to acquire revenue from existing customers than new ones, helping you expand revenue opportunities while reducing acquisition costs. In the subscription economy, your emphasis on maximizing customer
With so much of your revenue and all of your profit delivered after the initial sale, it becomes critical to keep your customers longer and increase the amount they spend with you over their lifetime. Creating an effective Customer Lifecycle Management process is the strategy that will help your customers get more value from your products and solutions, which will in turn drive them to spend more with you over the course of their lifetime. What is Customer Lifecycle Management? Simply put, Customer Lifecycle Management is the integration and orchestration of sales, customer success, support, operations, and marketing to create customers for life. If successful, you will ultimately exceed shareholder expectations.
lifetime value is not only the key to growth but also to profitability
30-80%
3.1 years
Growth expected from the
Average amount of time to break even
average investor.
for a new customer when you account for acquisition and delivery costs.2
Customer Lifecycle Management The various stages of the customer lifecycle Download the Customer Lifecycle Management blueprint HERE.
GROW
UPSELL CROSS-SELL
ACQUIRE
ONBOARD
ADOPT
DELIVER
RETAIN RENEW ADVOCACY
NURTURE
ACQUIRE In the acquisition stage, your goal is to close as many target customers as is feasible while keeping acquisition costs low. Thus, it is essential to provide the right offers to the right prospects at the right time. To do so you need to use automated, low-touch models to fill your funnel with early-stage inquiries and then nurture these leads into qualified opportunities. Similarly, save your high-touch sales interactions to convert high-value prospects that exhibit the right buying signals. These prospects can include trial and ‘freemium’ users with high usage patterns or key decision-makers who are open to
Keep Customer Acquisition Costs Low • Use automated, low-touch models to nurture early stage leads • Leverage high-touch engagement for larger opportunities in complex, high-value market segments, trial and freemium customers and prospects demonstrating optimal buying signals
change and are willing to discuss their business needs and objectives. In addition, acquisition strategies should shift from a focus on acquiring customers to a focus on acquiring revenue. Since the revenue opportunity is greater and the revenue acquisition costs
Key Success Metrics
lower for existing customers than new ones, sales strategies should
• Lead conversion rate
incorporate greater investment in renewing and growing install base
• Trial or freemium conversion rate
revenues. More on this topic is covered in the Upsell, Cross-Sell and
• Close rate
Renew sections.
• Average sales cycle duration
6-7
Times less expensive to acquire revenue from your existing customers than new ones.1
• Average contract value
ONBOARD After acquiring a customer, the next stage of the lifecycle creates the foundation for success. During
Monitor and Get Ahead of
Key Success Metrics
customer acquisition, a promise was made to your
Issues Quickly
• Actual deployment time vs
customers on the value you planned to deliver.
• Track critical deployment and
How do you ensure that you meet these customer
training milestones: proactively
expectations? For a successful onboarding and
address issues
to keep commitments on track, you will need to
Prioritize customers who need
configuration, integration and training. Issues that
additional attention, and ensure
arise need to be resolved before they derail the
that project managers are
project. In some cases, customer expectations
adept at navigating difficult
will need to be re-set based on new information
customer situations. • Engage Customer Success
During the first 90 days, customer usage trends will
early to ensure they will gain an
alert your teams to where the onboarding process
in-depth understanding of how
needs extra attention. Your Customer Success team
the customer will derive value
should also be engaged during the onboarding
from your product.
process to learn more about the customer’s
• Customer satisfaction
• People skills are important.
monitor critical milestones such as provisioning,
uncovered during onboarding.
planned
• Set up an incentive structure
business, and what’s important to achieving success
that rewards Implementation
and be kept abreast of any issues likely to persist
Services and Customer Success
into the adoption phase.
for on-time deployments
vs
ADOPT Once your solution is deployed, is your solution actually being used? Is your customer realizing the maximum
Develop Champions in the First 90 Days
value of your products or services? Remember, customer
• Monitor ongoing product usage at the end user level
adoption is always directly correlated to customer retention. For example with end users, adoption is critical within the first 90 days. If a user is not actively using your product within this time frame, there is only a 10% chance he ever will be. During the adoption stage, it is critical to nurture individuals to use features that are sticky, encourage training as needed and promote ways for end users to gain
• Identify power users who can champion adoption and show early success • Promote your ‘stickiest’ capabilities and run personalized adoption plays • Incentivize both Customer Success and product teams on achieving customer success
value from your offering. Customer Success teams also need to monitor customer health and proactively engage stakeholders if adoption is not meeting expectations. During this phase it is essential to reinforce the benefits of the product, remove barriers to usage and highlight the critical features to end users. As such, you should closely monitor end user adoption to determine where additional
Key Success Metrics • Percentage of active users at 30, 60 and 90 days • Frequency of usage, especially sticky features • Breadth of usage
change management, training, or support is required.
If a user is not loyal within the first 90 days there is only a 10% chance he ever will be.
3
DELIVER The Delivery phase is when your customers realize the ongoing
and then proactively intervene. At the same time, you should also
business value promised during the sales process. Providing ongoing
anticipate and act on revenue growth opportunities. Monitoring also
support and proactive engagement during this phase is critical,
helps you keep an eye on whether customers are out of compliance
since your customers’ businesses are constantly in a state of flux.
with your licensing policies, such as overages, sharing of logins or
You’ll need to continuously monitor customer usage and satisfaction
access violations. Bringing a customer back into compliance reduces
to identify any downward trends that may be a precursor to churn
their legal risks while creating an upsell opportunity for you.
Realize the Value • Look for changes in usage patterns to detect fluctuations in customer demand and proactively engage • Evangelize your value by transparently reporting usage and adoption data and talking with end users to quantify the value received • Regularly host business reviews with the customer to identify changes to their business • Revise product usage strategies as needed to mirror changing customer needs • Incent Customer Success and operations on service level agreement attainment and customer satisfaction
Key Success Metrics • Customer ROI • Customer satisfaction • Service level agreement attainment
GROWING THE RELATIONSHIP By now, customers are actively using your products and you’ve delivered on your initial promise. Users have been successfully onboarded and adoption has reached the necessary threshold where the customer is realizing ROI. Since your customers are highly engaged, they are now receptive to personalized interactions or engagement ‘plays’ that match their needs. These ‘plays’ include
upsell, cross-sell, retention, renewal and advocacy activities and are designed to both grow customer spend and nurture customers to become evangelical ‘fans’ of your product. To maximize customer lifetime value while continuing to deliver on the customer promise, best-in-class organizations run successful ‘plays’ at the appropriate point in time across the customer lifecycle. To effectively execute these plays, you need to ensure your organization is structured in a way that puts the right people with the right skill set to run the appropriate play. For example, to run effective upsell and cross-sell campaigns you’ll need account managers or selling resources who are trained on the value of your product and are incented to drive revenue growth. Retention and customer advocacy plays should be run by Customer Success resources who act as the customer champion to ensure changes are made to resolve issues with dissatisfied customers. Advocacy plays should be run by marketing at the right time to recruit customers to guide product improvements and influence others in the buying community.
UPSELL To effectively uncover opportunities to upsell and cross-sell, you will need to analyze customer usage and product buying affinity. Your account management teams should be prompted to promote the next best offer based on a customer’s product usage. Through this process, you will grow your value proposition and stickiness with customers. At the same time, you will be in a position to sell new products and services to those customers most likely to buy, ultimately driving higher customer lifetime value and growing profitability.
Upsell: Keys to Success • Identify where pricing is too low relative to utilization to recapture discounts, target annual price increases or rate plan changes • Continuously monitor subscription counts, heavily-used features and overages to proactively alert Account Managers to upsell opportunities • Transparently report usage and leverage value selling to meet upsell objectives
Key Success Metrics
+
• Average contract value (ACV) • Upsell quota attainment • Average ACV per customer • Conversion rate • Customer satisfaction
CROSS-SELL
Cross-sell: Keys to Success
Key Success Metrics
• Develop cross-sell strategies that promote sticky, high
• Cross-sell quota attainment • Conversion rate
value-add and premium features • Monitor end user usage and product purchase patterns to identify new “product bundles”
• Compliant subscription percentage • Average ACV per customer • Customer satisfaction
• Proactively alert Account Managers to cross-sell opportunities • Promote targeted offers directly to end users who exhibit the right usage behavior
+
+
RETAIN Your Customer Success teams should proactively identify customers who are dissatisfied or under-utilizing a product and then quickly
Identify At-risk Customers
engage these customers before they churn. Profitable cloud
•
companies benchmark 90% retention as a minimum threshold, with best in class achieving 95%+ customer retention rates. To identify
Develop and maintain a customer health scorecard
•
Monitor end users for declining usage
customers at risk of churn, monitor usage data and other factors
patterns or underutilization to identify
such as executive or economic changes. Ensure your Customer
customers most at risk of churn
Success team is triggered to action when customers are flagged as
•
‘at risk’. Proactively engaging at-risk customers will help you increase
Run personalized save plays directly to end users based on their usage patterns
customer retention -- a 10% increase in customer retention results in a 30% increase in company valuation.
Key Success Metrics
10% increase in customer retention results in a 30% A
increase in company valuation.4
•
Usage rate
•
Retention rate
•
Discount rate
RENEW During the renewal phase, you should always work backwards from the date of subscription expiration – preferably >120 days in advance. The renewal event is also a great time to identify opportunities to increase
Renewal Event as a Growth Opportunity •
the value you are providing your customers and potentially sell more. Based on key criteria like customer size, disposition and level of strategic
days in advance of subscription term expiration •
importance, understand which customers can be renewed through lower touch campaigns and which require a higher-touch personalized
Develop and run sales plays tailored to each customer segment
•
approach. Your renewal teams should work closely with Customer Success to retain or possibly grow the value of the customer.
Generate clean renewal opportunities and quotes >120
Reach out to the end customer 90 - 120 days in advance of term expiration
•
Ensure the right touch points occur on each renewal to maximize close rates
•
Generate clean renewal
proposition and identification of cross-sell and upsell opportunities
opportunities and quotes
>120 DAYS IN ADVANCE
of subscription term expiration
Train Account Managers on the product’s value
Key Success Metrics •
In-quarter renewal rate
•
Final renewal rate
•
Resolution rate
ADVOCACY Customer Success resources should nurture high-usage customers to become ‘fans’ of your products. In this case, Customer Success and Marketing teams should work together to define the types of customers that are likely to become advocates for activities such as marketing or sales references.
Creating Evangelical Customers and Fans •
Monitor end user usage data to identify power users
•
Identify customers receiving high value from your products or services and nurture them to become product evangelists
•
Proactively cultivate high-profile or lighthouse advocates from those customers
•
Nurture with tailored, automated value-add campaigns
•
Develop user communities to share best practices and build power users’ personal brand
•
Provide forums and opportunities for advocates to share their experience
•
Create a loyalty program to “show advocates the love”
Key Success Metrics •
Percentage of referenceable customers
•
Net Promoter Score (NPS)
•
Sentiment (Positive, Neutral, Negative)
Maximize Customer Lifetime Value By implementing a best practice framework for customer lifecycle management, you can accelerate your time to profitability and reap the high recurring revenue potential from your existing customers.
Maximizing your customer lifetime
creating customers for life is the key to achieving annual
Maximize Customer Lifetime Value The majority of revenue is generated after the initial sale.
growth targets and
Cross-Sell
increasing your company’s valuation.
Upsell Renewals Acquire
Revenue
value (CLV) and
Create Customers for Life Best Practices and Methods Know Your Customers
•
competitors, challenges and goals
You should have an in-depth understanding of the customer’s business objectives and value they expect to receive from your
Understand your customer’s business: know their industry,
•
Memorialize the business case you developed with the
product. Gaining this holistic insight requires you to integrate
customer during the sales cycle and ensure it is accessible
the various silos of customer data across the enterprise.
by your Customer Success and Account Management teams
•
•
House all of your customer data in a single repository for ease of access and a complete view of your customers
Key Success Metrics
Develop a customer scorecard to measure ongoing
• Customer health scoring
customer health
• NPS
Evangelize Your Value
•
Cultivate customer advocates or ‘fans’ and enable them to
Effectively measure, monitor and report on the business ROI
act as evangelists of your products through development
derived from your product or service to ensure customers are
of user communities and forums
meeting their business objectives •
Consistently track and monitor the value your customer is
•
Reward your biggest advocates and promoters through customer appreciation events or gifts
getting from your product •
Consistently engage your customers to learn how they derive value from your product
Key Success Metrics • # of fans/advocates • NPS • # or % of referenceable customers
Personalize Customer Interactions
•
personally by your Customer Success team regardless of size
Leverage predictive analytics and automation to proactively engage customers based on their needs. Make sure you develop a process
Customers who are at risk of churn should be engaged
•
Larger opportunities with a high propensity to buy should be
delineating the customers who require 1:1 engagement versus those
engaged personally by an Account Manager while smaller deals
who should receive automated nurturing.
should leverage marketing automation
•
Segment your customer base by size and health to determine
Key Success Metrics
engagement strategies through automation or personal touch •
Use predictive analytics to determine customer disposition
Harness the Right Skills & Incentives
•
•
Usage
•
At-risk customers
•
Likelihood to buy (lead scoring)
Tailor compensation to specific objectives by team. Customer
At any point within the customer lifecycle, you should be able to
Success should be compensated on retention rates, customer
measure, monitor and report against your stated business objectives
satisfaction scores (NPS) and reference-ability while Account
and ROI derived from your product or service.
Managers or Renewal Reps should be compensated on revenue
•
Your Customer Success team should be focused on customer
generation through upsell, cross-sell, trial conversion, and
onboarding, adoption, retention, and nurturing while your
renewal
Account Management or Renewal team should be focused on revenue generating activities such as upsell, cross-sell and maximizing the value of the renewal •
While not specifically tasked or compensated for revenue generation, your Customer Success teams should be trained to identify and share opportunities for upsell and cross-sell with the sales team
Key Success Metrics •
Retention rate
•
Renewal rate
•
NPS
•
Trial conversion
•
# of referenceable customers
•
MRR & ARR
•
Attach Rate
Continually Optimize Your Performance
•
Customer Success teams should capture product feedback to
Consistently monitor recurring revenue KPIs and leverage A/B
inform your product management organization and product
testing to drive toward best in class performance. Systematically
road map
capture feedback from your customer-facing teams to learn from every customer interaction. •
Measure and track campaign efficacy
•
Make real-time changes to campaigns in flight based on realtime results
•
Track specific feature usage so you can amend pricing and packaging to optimize revenue
•
Develop new offers based on your most popular product features (e.g. package a really popular feature as an upsell or higher tier license fee)
•
Use price optimization to ensure your pricing is in line with the value the customer is getting from your product
Key Success Metrics •
Feature usage
•
A/B testing and results
•
Pricing optimization
Keys to Profitability The Business Drivers that Matter
Expanding your Revenue Capacity by freeing
Maximizing Gross Margin by growing your
customer-facing teams from low-value activities
business with existing customers who only
and helping them engage at the right time with
cost 15 cents for every dollar spent on
the right customers
acquiring new customers
•
•
•
Leveraging a single system and automation
By selling more to your existing
will allow your Customer Success and
customer base, you gain more
Account Management resources to expand
profitable revenue which you can
their coverage
then use to fund and fuel investment,
Armed with predictive analytics, your teams
innovation and growth
will be more productive and focused while also driving higher results
•
Use segmentation and automation to help your Customer Success and Account Management teams scale
10
%
Increasing your Customer Retention Rate to get as much value from your customers while creating customers for life
30%
•
Bain & Company notes that a 10% increase in customer retention results in a 30% increase in value of the company
•
The number one goal of your Customer Success team should be customer retention – ensure their training and compensation align with this goal
Conclusion How Will You Create Customers for Life? Employing a best-in-class Customer Lifecycle Management strategy is the secret to maximizing customer lifetime value. It’s time to focus your efforts and invest in retaining and growing your business with your current customers. By nurturing these relationships and demonstrating your ongoing value, you’ll achieve the high revenue growth and profits that your investors expect – and in the process create customers for life.
Learn about Scout by ServiceSource, a proven Customer Lifecycle solution that drives growth for Cloud, Information Services, and Media companies.
SITED SOURCES: 1.
6-7 times more expensive to acquire a new customer than to retain an existing one. (Bain & Co)
2.
3.1 years – average time it takes for a customer to become profitable and recoup the initial cost to acquire the customer [multiple analysts including Bessemer Venture Partners, Opexengine, and River Cities]
3.
Onboarding/Adoption – If a user is not loyal within the first 90 days there is only a 10% chance they ever will be
Download the “Maximizing Customer Lifetime Value E-Kit” HERE.
(Scout research data) 4.
10% increase in customer retention results in a 30% increase in value of the company. (Bain & Co)
5.
~1 year – considered best practice for recouping the initial cost to acquire the customer and get to profitability
The E-Kit contains white papers, case studies, and research on how to execute
[Matrix Partners (VC)] 6.
It is 81% cheaper to upsell to an existing customer than it is to acquire a new customer (2013 Pacific Crest SaaS
CLM strategies.
Survey)
The Recurring Revenue Management Company ServiceSource, Renew OnDemand, Scout and any ServiceSource product or service names or logos above are trademarks of ServiceSource International, Inc. All other trademarks used herein belong to their respective owners. All contents are © 2014 ServiceSource International, Inc. All rights reserved. Toll free: 800-211-5868 | www.servicesource.com
ServiceSource® International, Inc. (NASDAQ: SREV) is the global leader in cloud-based recurring revenue management solutions. The company helps customers drive growth and build long-standing relationships across the customer lifecycle with the industry’s most comprehensive data management, analytics, automation and services capabilities. Through Renew OnDemand™, Scout® and proven services, ServiceSource delivers higher subscription, maintenance, and support revenue, improved customer retention, and increased business predictability. Headquartered in the Cloud Corridor of San Francisco, ServiceSource® manages over $14.5 billion in recurring revenue for the world’s largest and most respected technology and B2B companies.