Lead Generation Type #1: Seeds
What You’ll Learn In This Section
Customer Success is NOT free help, just about customer satisfaction, or an afterthought!
- The pros & cons of “Seeds” (word of mouth) leads, and the best way to systematize their growth
- What it takes to make Customer Success a C-Level function (and as important as Sales & Marketing to revenue growth)
- Why you’re underestimating your Lifetime Customer Value by 50% and underinvesting in Customer Success
- How Gild dropped customer churn from 3-4% per month to <1% per month + their three Customer Service roles
- How TopCon provides predictably excellent customer service
What Are “Seeds?”
Customer Success is not about increasing customer satisfaction, but creating revenue growth.
All the great work you do to help others succeed & build relationships is “planting seeds” – whether they’re employees, partners, investors or customers. It’s getting what you want by helping get what they want. So you can succeed and feel good at the same time.
“Seeds” is word-of-mouth lead generation. Which is not very scalable or repeatable, except when you have a methodical way of making customers successful & documenting it (“Customer Success”).
Pros & Cons of “Seeds”
Pros: Highly profitable, word of mouth leads are the fastest to close and have the highest win rates. There’s nothing better!
Cons: It’s almost impossible to proactively grow them.
How To Grow Seeds – Predictably
The best way to methodically grow your Seeds is with a dedication to Customer Success, which reduces churn, increases referrals & improves content.
What “Customer Success” Isn’t
Customer Success isn’t “let’s hire a team to stay on top of our customers.” Customer Success first is a mindset, at the CEO level, on targeting, creating product for and servicing the kinds of customers that need your product.
The future standard for executive teams will include a head of Customer Success who’s on the same level as the heads of Sales, Marketing & Demand Generation. Executives need to understand that Customer Success is not about increasing generation customer satisfaction, but creating revenue growth.
With an executive focus on Customer Success, you will see:
- Lower Churn: The easiest revenue comes from keeping the customers you have.
- More Revenue (New Business & Upsells): More referrals to new customers; more willingness to try & buy your other offerings = $$$.
- Better Marketing: You can improve everything in lead generation & sales with detailed case studies and testimonials.
Your Goal: “Negative Revenue Churn”
When Does 95% = Failure?
Do you retain 95% of your customers month-to-month? That’d be something to be proud of, until you do the math: That’s 5% churn per month, or 60% per year. In other words, you have to replace 60% of your revenue every year just to break even.
What if you’re monthly is at 98% retention / 2% churn? That’s still 25% a year, or a quarter of your revenue.
The best companies see -2% churn (on a revenue basis). Yes, that’s NEGATIVE 2% which means they make more money every month.
HOW? Because the customers who stay with them buy & spend more over time than they lose from other customers churning.
6 Keys To Driving Growth With Customer Success
If you’re a CEO, you need to take “Customer Success” as seriously as marketing, sales or product development.
1. Customer Success Is Your Core Growth Driver
All great companies’ customers come from one main source – Word-of-Mouth…whether the lead comes via referral directly, or whether new customers are closed with case studies, references or testimonials.
This is much more measurable in recurring revenue models, where we can track renewal rates, upsell amounts & referrals.
2. It’s 5x More Important Than Sales
Yes – sales is critical. But sales is only there at the very start of the relationship. And to repeatedly close new customers, sales needs Customer Success resources – like references.
Generally, founders do a good job of doing whatever it takes to get a big deal closed – but often a poor job of everything after that, because they’re off to help with the next fire, drama or Big Deal.
CEOs and founders – don’t focus on getting new customers in so much that you ignore your current customers. Get on planes to visit customers as well as prospects.
3. Start Early, Hire Early
In Saas companies, a rule of thumb is having one Customer Success Manager per $2M in revenue – hired in advance of that revenue, not after you have it.
Silicon Valley companies with enough funding often now invest big at the beginning, with 2-4 people on the team right away.
Remember, a Customer Success person, like a salesperson or marketing budget, is an investment that should make you (a lot) of money, not just a cost to be put off as long as possible.
4. Visit Customers In Person
Unhappy customers don’t (always) complain before they leave. In-person visits can make all the difference in surfacing problems and in changing their attitudes.
Jason’s 5+2 rule on this is simple:
* Every cofounder, the CEO, plus every Customer Success Manager,
* Must meet onsite with 5 customers a month (that’s 60 per year), and
* Get 2 customer badges every year as a bonus (that is – you visit so often to warrant a badge.)
A phone call is not a meeting. By visiting in person, regularly, your company will learn more about what’s really working and not, earn more trust, and those customers will (almost) never churn. It’s much harder to tell a friend you’re leaving them than some faceless company.
“But what if I have nothing to say?” Just show them your roadmap, and ask for feedback on it, and on issues they are having today. That alone will fill the meeting.
5. Customer Success Needs Financial Responsibility & Metrics
When your Customer Success function doesn’t have financial goals, it’s value can get muddled.
One bad assumption is that “a great product will automatically create happy customers,” and you won’t need to hire people to actively work with your customers. However easy or incredible your product is, you need humans talking to select categories of your customers.
The whole point of Customer Success is to increase “Net Negative Churn,” so you need tools & processes to measure and improve the function, including how the people on your team perform.
To justify investment (such as in headcount or tools) by a company, plus create the hunger a Customer Success leader and team need to deliver measurable results, Customer Success needs to own some financial results: usually at least a) retention rates & sometimes even b) upsell revenue.
For example, at Gild (a case study later detailed in this eBook) Customer Success owns:
- “90 Day Adoption”
- Feeding usage data & customer feedback into the product roadmap
And it makes it easy for the executive team and board to see exactly how the Customer Success function’s contributing to Gild.
6. Evolve Customer Success Goals & Metrics As You Grow
i. Traction ($0-$1m): What do customers want, and what do they do with our product?
ii. Adoption ($1m-$5m): Why and how should customers include our product in their daily business?
iii. Retention ($5-$20m): Why do customers need to keep on using our product after the honeymoon?
iv. Expansion ($20m-$100m): Why should customers expand to more seats, more features?
v. Optimization ($100m+): Automation & improvements driven by data.
Why You’re Underinvesting In Customer Success
Are You Underestimating CLTV?
Everyone in SaaS talks about “CLTV”: Customer Lifetime Value – also known as “LTV”. (I try to avoid acronyms, but sometimes I just gotta use ’em).
You can see a detailed analysis of how to calculate Lifetime Value by David Skok at Saas Metrics 2.0.
And then, everyone goes on to calculate some magic metric telling you how much to spend on Sales and Marketing, usually some fraction (1/3 or so) of your CLTV, or about the first year’s worth of revenue from a customer. Sounds fine, so long as you have the money to fund it.
The problem is that this doesn’t go far enough. Standard CLTV calculations don’t account for virality and “second order” customers – the ones that come in later, from the first customer referring their friends. In other words, your average CLTV should be higher because the first customer should get extra credit for helping bring in their friends to your company.
By underestimating the value of a customer, you may underinvest overall in acquiring them. Or – more commonly – you invest too much in Sales and Marketing and not enough in Customer Success.
The Magic of Customer Success Revenue
Total Lifetime Revenue From A Single Average SaaS Customer:
Ok Sales closes its average Enterprise Customer A for $10,000 a year. Nice.
Then, in Year 2, average Enterprise Customer A adds $2,500 in additional licenses, for $12,500 total in Year 2.
Then in Year 3, they add another 25%, or $15,600 total.
So: Direct revenue over the first three years = $38,125 from that First Sale.
Now most customers last longer than 3 years, but let’s stop there for now…
Now: Accounting For Customer Success Revenue
* At the end of Year 1, your champion quits Enterprise Customer A, but goes to Enterprise Customer B to do the Exact Same Job. And buys your product again. (This happens about 10% of the time.)
* So that first sale is actually worth $42,000 (that first $38k above x 110%). But then it happens again in Year 2. So it’s really $46,000.
* And at the end of Year 1, your champion tells three of her friends about your company. And one of them purchases. (About 30% of the time.)
So the first sale is actually worth $60,000 with the second order revenue – if you’re making your customers super duper happy.
So your “all-in” CLTV, including second-order revenues, could be 2x your current estimate.
So sure, figure out the perfect ratio of Sales and Marketing costs to CLTV to share with your board. Because the second order effects compound. This is where “Seeds” becomes a growth driver. They’re essential to fast, profitable growth.
7 Common Customer Success Triggers To Watch
Most Customer Success efforts still use a lot of guesswork and manual reporting. But get your data act together, perhaps manually at first and later with a product like Gainsight, you can get a fuller look at each customer, looking at indicators like:
- Contract data: e.g., customers not expanding, stagnating, renewal or key dates coming up,
- Support interactions: e.g., lots of low priority tickets or customers that stopped calling
- Billing / payment history: e.g., delayed invoices due to frustration
- Product and feature usage: e.g., which features are sticky and who’s using them
- Marketing engagement: unsubscribing to newsletters
- Survey feedback: e.g., bad input from key person
- Sponsor changes: e.g., exec contact leaves, new CMO
Now, data can’t warn you of every problem. You will always need humans talking to humans to uncover & resolve issues.
But this data will help you:
1. Develop triggers for when to intervene proactively before bad stuff happens. Obviously it’s easier to save a customer before they send you a canceling notice! First the team does this based upon intuition, and over time it can be based more and more on historical data and automatic triggers/alerts.
2. Standardize interventions so that each Customer Success Manager is using the same set of best interventions, and with this consistency you can better measure the effectiveness of each intervention or type of problem / solution.
Gild: A Case Study
Gild is helping companies better recruit engineers, by using data available on the web (including developers’ actual code) to help measure their abilities.
How Did Gild Dropped Monthly Churn From 4% to <1%? Read on.
Brad Warga, SVP Customer Success, joined when there were just 5 people: CEO, CTO, CSO, head of sales & head of marketing (now there’s 50+). Brad had been in HR/recruiting for 20 years, including recently being the VP of Corporate Recruiting at Salesforce.com, helping organize & execute thousands of hires.
The team wasn’t exactly sure what Brad would do at first, but they felt he could bring a lot of credibility, and he did. First, he helped bring in new customers.
After The First Year Of Selling
During most of the first year of selling, Brad helped bring in new customers, until there were about 50. Churn was artificially low – because everyone was on an annual contract.
When the contracts began coming up for renewal, churn jumped to 3-4% a month, or 30%+ per year; 2-3x their target.
Churn Goals: “15% & 0%”
Saas companies want:
1. 15% or less churn per year on their total number of customers, &
2. 0% or less (negative) revenue churn (expansion/upsell revenue from ongoing customers should exceed revenue lost from leaving customers).
Gild starting measuring and analyzing churn, and realized many of their assumptions were wrong, For example, it turned out that how often people logged in wasn’t a great way to tell who would stay or go. Gild actually needed to look at which parts of the product were being used, and how. How savvy were the users? What were their recruiting needs and methods
What Gild assumed would help spot churn – such as how often users logged or didn’t log in – was wrong.
The Three Methods That Dropped Churn:
By digging into these root causes of churn, Brad & Gild were able to systematize customer success and drop churn to <1% per month. It also made Gild much smarter about targeting the right kinds of customers from the very beginning with lead generation.
1. “90 Day Adoption”
The Customer Success team’s relationship with a customer starts when the customer purchases the product and it’s turned on. The team trains the new users how to use the product, what the best recruiting practices are, and re-sells / re-evangelizes Gild to the users to get them excited.
Gild found out that if there’s successful usage of the product in the first 90 days, then usage will be 3x higher for the rest of the year compared to a customer who didn’t adopt fast.
2. Quarterly Business Reviews
These “reviews” are formal and help hold the customer accountable to what they signed up for. Ideally, they’re onsite with the right customers.
3. Using Predictive Tools
Gild’s main Customer Success application is Gainsight, along with Zendesk (captures trouble tickets and feature requests), Salesforce.com, and Olark (chat).
“Don’t Ignore Your Users. Now more than ever it’s the users who decide whether to renew a product or not. As a renewal comes up, decision makers will ask the team ‘Do you use this product? Get value from it? Should we use it another year?'”
–Brad Warga, SVP of Customer Success at Gild
The Gild Customer Success (“CS”) team has about 10 people across three roles (out of 50 employees!):
- “Inside CS reps” who train, monitor usage & run analytics. There’s one rep per 70 users.
- “Outside CS reps” who handle & are measured on renewals. There is one rep per 30 users in their relevant customer segment.
- “Executive CS reps” who are responsible for upselling, and who work mostly with the larger or fast-growing customer segment.
These teams’ main app is Gainsight, which also displays Salesforce.com & Zendesk data, so everything’s in one interface. The Gainsight reports & dashboards make it easy to spot at-risk customers or customers who need more product, and gives reps a reason to call a customer to talk.
C-Level Customer Success
A lot of companies treat customer success as an afterthought, or glorified customer support. Companies need to treat it (at least) as important as sales or marketing.
At Gild, Customer Success owns:
- 90 Day Adoption
- Feeding usage data & customer feedback into the product roadmap
By owning these and being able to clearly articulate them, it’s easy for the board to recognize the value of Customer Success there.
Use Data To Know Who To Reach Out To, When & Why
Turn Customer Success metrics/alerts into Dashboards to cut guesswork…
Five Ways Topcon Delivers Predictably Excellent Service
Frustrated Customer Support agents help create frustrated customers.
Customer Support (like sales or sales prospecting) doesn’t have to be a burnout, boiler-room job.
Why are the two teams that interact with customers the most (sales & support), so commonly mistreated or unappreciated? That needs to change, as frustrated agents (& salespeople) help create frustrated customers.
Topcon’s customers are in industries like civil engineering, surveying & agriculture – where mapping & positioning are vital.
Topcon has contact centers around the world. Angie Todd supervises the 18 USA agents in Columbus, Ohio and in Olathe, Kansas. Angie’s spent four years as a support agent and four years as a supervisor. The team handles handles 25,000 calls per year, which are all recorded and reported on. Angie says their goal is to provide predictably excellent service.
Support’s Two Main Applications
It wasn’t that long ago that the support team at Topcon used binders and paper to track cases and manage the team. Needing better documentation and accountability/metrics, Topcon implemented:
a) Salesforce.com for their Global Case Management system, and
b) NewVoiceMedia’s ContactWorld product (the #1-rated call center app on Salesforce.com’s AppExchange) for telephony: call routing, recording & reporting.
Neat for customers: knowing whom to automatically route you based solely upon your phone number and some data in Salesforce.com.
Angie’s Expert Advice – 5 Tips For Predictably Excellent Services
1. Get Agents Away From The Phone
Spending 40 hours a week on the phone and interacting directly with frustrated customers can be a recipe for agent burnout.
Get agents away from their desks regularly for product cross-training and for visiting customers at their locations. This will keep agents interested, fresher, and engaged. It will help develop more expert and confident agents with better attitudes and more ability to help customers, increasing first-call resolution rates.
In the past few years, it’s finally easy with internet-based call center/telephony applications (like NewVoiceMedia) to route calls to any phone of an agent’s (mobile phones, home phones, etc.). So agents don’t have to be chained to desks, making the job friendlier and more flexible for them.
2. Use Technology To Help Customers As Well As Yourself
Don’t forget that technology is also about improving the experience for customers as well as reducing your costs.
The last time you called a bank – how many times did you have to enter your credit card or account number before you got to the right person?
When a customer calls Topcon, NewVoiceMedia compares the phone number against data in Salesforce.com, and can automatically route that person to the right agent. The customer doesn’t have to type anything. For example, if they are tagged in Salesforce.com as a “Gold” level client with the best Service Level Agreement, that caller can be automatically bumped to the front of the phone line – no wait!
3. Take Agents’ Opinions Seriously
In most organizations, the Customer Support group interacts with the customer the most.
Unfortunately, some organizations overlook the support team and all that valuable knowledge. The support team is the voice of the customer.
4. Create A Career Path
Your best employees won’t want to stay in the same job their whole lives, they’ll want to grow. At Topcon, agents know they will spend 2-4 years in support, learning everything about Topcon and its products, as a first step in their career path.
If you hire right, you can use support as a fantastic training and proving ground to develop experts to transfer or promote throughout the rest of your company.
5. Specialize Agent Roles
Topcon has five “first level” agents with the basic understanding of all products; and 13 other agents specialized in their application or industry.
With a variety of support specialists, customers can get better service, and it creates different growth opportunities within support.
The Bottom Line: Use Your Damn Brain
80% of ideas throughout this ebook you should “just do.” The other 20% you’ll need to mutate, customize or throw away.
So what if you’re not the CEO? No matter what your title is, be an entrepreneur, not an employee. Don’t wait around for others to make something happen – take the initiative.
Test lots of different things; run experiments.
Have a plan, but hold it lightly.
Do more of what works. Stop doing or change what isn’t working. (It’s funny how often people don’t do this.)
Stop talking and thinking about it and just DO IT or at least do something.
Dig for the truth (not what you want to hear). Just try it.
Stay Tuned For The Next Chapter To Be Released, on “Nets”
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This ebook series you’re reading shares highlights from the forthcoming “full” book to be published, which will include even more case studies, more details, more apps, and more ideas.