VP of Customer Success – Critical to the SaaS Business Model

When I first took over the Siebel CRM OnDemand division in 2004, I realized very quickly there were a lot of differences – some subtle, some not so subtle – that separated a SaaS business from a software business.

At the time, many of the metrics that those who currently run or invest in SaaS businesses now take for granted were then relatively new concepts and not necessarily a part of a traditional software business  – Annual/Total Contract Value, Monthly Recurring Revenue, Cost of Customer Acquistion Ratio, LTV Customer, etc.

A few days into the job, I received my first set of waterfall charts and I remember poring over the numbers trying to cull out the critical information. The first numbers I noticed were “Bookings” and “Monthly/Annual Contract Value”. These were straightforward enough but the second number that popped out at me was “Churn Rate”. It didn’t take a rocket scientist to figure out that a large Churn Rate is an awfully large hole to plug in the bottom of this business model. Our Churn Rate at the time wasn’t outrageous but the trend was concerning.

As a result, I realized there were three critical areas to making this business model work:

  1. Number and cost of prospects acquired
  2. Velocity rate and conversion costs of turning prospects into customers
  3. Churn Rate

I had a function in place responsible for the first (Head of Marketing) and the second (Head of Sales) but no one specific function in charge of number 3. In my experience, if there is a critical business function where there is no single individual/team who wakes up every morning concerned about achieving the objectives of that function, it is unlikely to get done — or at least not as well as it could be done.

As a result, I held a number of discussions with the sales, products, support and services organizations. We elected to create a function called “Customer Success”,  put in place a team and team lead responsible for achieving its objectives and had that lead report directly to me, as the GM of the division. This, I felt, would demonstrate to our employees and customers just how important this role was.

We determined the key metrics of success for this group would include:

  • Onboarding rate
  • Adoption rates
  • Usage rates
  • Renewal rates
  • Customer satisfaction scores

The result of this decision took our then-current Churn Rate and lowered it by 2/3rds. And, it served as a direct conduit to our Products team in terms of prioritized feature sets for future releases.

Consequently, I have become a firm believer that a SaaS company that does not have a senior executive in charge of Customer Success is one that doesn’t understand its business model and not one I am likely to invest in.

  • http://www.saaspulse.com Guy Nirpaz

    Hi Bruce,

    Very important post. I’m currently talking to many SaaS companies. Some of them already share your observation and put in place VP of Customer Success, and some hasn’t.

    A question though; I guess one of the most important concerns of the customer success team is being proactive about churn. Can you please share some hints on how your team proactively reduce churn?

    BR,
    Guy

    • http://www.interwest.com Bruce Cleveland

      Guy:

      There wasn’t much to it other than common sense. Here were a few of the things we did:

      1. We created dashboards that enabled us to view usage rates for each customer. We created thresholds for login rates and if a specific customer fell below that percentage, it would prompt a call from one of our Customer Success Managers to the Admin for that site.
      2. As part of that call, we attempted to determine if there were issues with the application that we could help rectify (e.g. training, performance, etc.).
      3. We put together a “get well” plan and worked with the customer until they gave us a green light.
      4. The Customer Success team worked with Customer Support bidirectionally. If there were bugs in our software, the Success team passed them into Support. If Support found that the customer was simply having trouble using the application, they passed the Customer over to the Customer Success team.
      5. We held the Customer Success team accountable for achieving overall Usage Rates of the application across our customer base.
      6. We used the Customer Success team to deliver a set of prioritized features by Customer to the Products organization.
      7. The Customer Success team was held accountable for managing our Customer Surveys.
      8. Each Monday, I reviewed a list of issues from the Customer Success team with my executive staff.

      Bruce

  • http://www.saaspulse.com Guy Nirpaz

    Thanks Bruce, makes perfect sense.

    Guy

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  • Amit Levavi

    Hi Bruce,

    A great post, and just in time too, as I am now dealing with the same organizatinoal issues.

    I would like to share with you some of the questions we are now facing and possibly to get your feedback:

    – Should a ‘customer success team’ be measured by operational attributes (e.g. number of logins) or by financial attributes (e.g. repeat sales volume)?

    – Once the ‘customer success team’ identifies an opportunity for an up/cross sell; Should they be the ones conducting the pre-sale engagment? If not, what is the relationship (and how do you manage the information handover) between the customer success team and the sales/pre-sale team?

    – What is the profile of a customer success manager?

    Thanks in advance,

    Amit

    • http://www.interwest.com Bruce Cleveland

      Amit:

      One is an activity that may have causal effect and therefore worth something but the other is the ultimate objective: increase revenue. I might consider having both as measurable objectives but use a weighted average that ascribes more value (a lot more value) to one over the other.

      I would expect the Customer Success team to get the sales rep/team on the call to manage the pre-sales engagement. This is where I think enterprise collaboration can be important – e.g. shameless plug: CubeTree – where you can set up account rooms and have sales reps and customer success teams subscribe to feeds from these account rooms. That way, people are only alerted when something is happening that’s relevant to them and it’s not lost in a deluge of streamed email.

      I think an ideal customer success manager is someone who has strong product/domain knowledge (or the ability to learn) and customer engagement skills. These people can come from sales, support or services positions. The best always have an extreme passion for being the customer advocate so it takes a special sales person to want to do this — service/support folks seem to transition well into this role.

      Hope this helps.

      Bruce

  • http://www.thehotlinemagazine.com Mikael Blaisdell

    Bruce,

    I hope you won’t mind, but I grabbed several of your quotes above and put them into the “Thoughts and Wisdom” area of The HotLine Magazine. I especially liked the point that “…if there is a critical business function where there is no single individual/team who wakes up every morning concerned about achieving the objectives of that function, it is unlikely to get done — or at least not as well as it could be done.” One of the key findings of the research is that the ownership of the ongoing customer relationship is unfortunately not clear in most SaaS/Cloud companies.

    –mikael
    The SaaS & Support Project / Forum
    The HotLine Magazine

  • Joshua Santos

    Hi Bruce,

    I really enjoyed reading your insights regarding customer success. Since this post is almost a year old, I was wondering if you could share some lessons learned from 2010.

    Thanks in advance!

    Josh
    (Customer Success Manager at a SaaS Company)

    • http://www.interwest.com Bruce Cleveland

      Good idea. I will do some interviews with a few people who I consider to be best in class in this position and will do a new post. Thanks for the prompt.

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