By Sabina Pons, Operating Partner at Growth Molecules™ and a 2022 Top 100 CS Strategist.
Congratulations, you just embarked on your next endeavor as a newly minted Customer Success Manager (CSM) at a B2B SaaS company… Now what?
The company will provide onboarding sessions to teach about the team operations, and how to perform your duties, but what do the company and Chief Revenue Officer (CRO) really care about? How can you prove to be a valuable employee right away?
How Should You Measure Customer Success?
As a CSM, it is important to know what Key Performance Indicators (KPIs) are most critical to measure the performance of a SaaS business. One of the most important KPIs for SaaS is Net Revenue Retention (NRR). As VPA defines, NRR measures how good your company is at retaining and growing revenue from existing customers. There are many factors that could impact your NRR such as, 1) a customer upgrading their subscription plan; 2) a customer buying a new product; 3) a customer downgrading their subscription plan; 4) or when a customer churns. All of these scenarios have a direct impact on the total earnings and are calculated along with the recurring revenues to get a clear understanding of your customer’s business health.
Here is a simple way to calculate NRR rate:
| NRR = | ( Monthly Recurring Revenue (MRR) + Expansions – Downgrades – Churn)
MRR |
X 100% |
Historically, churn rate was one of the most commonly used metrics for measuring customer success, however, this is not a good indicator, and in fact, typically makes business health look bleak. For example, if you are managing 20 customers and 2 of them cancel their subscriptions, the churn rate would indicate you are losing 10% of your business. While this may be true, it usually is not, because your happiest customers (your VIPs) are typically expanding and purchasing more products and/or services along the way. This is where NRR solves this old-age problem, and properly calculates your true customer revenue health.
Your CRO and Board of Directors watch the NRR very closely to measure business health with a strong indication of how your business will trend. It is also one of the macro key metrics investors look at when evaluating SaaS organizations, therefore, a strong performing NRR makes your company much more desirable with a higher valuation.
What Are Expansions And Why Should You Care?
Expansions are revenue that is generated over the customer’s initial contract or purchasing price and are perhaps one of the strongest indicators of customer satisfaction. They may be a result of the utility or ease of use of your products or may speak volumes about the implementation initiatives and how well the customers adopted and applied your products. Understanding why customers expand is extremely valuable and that same logic may apply to other opportunities, further attributing to the growth of your customer base. Learning and sharing this wealth of knowledge with your internal teams makes you extremely valuable as a CSM.
Acquiring new customers is very costly and typically requires a long pipeline of lead generation. While winning new logos is important and can be very exciting, the core function of customer success is to retain and grow your existing customers and that is exactly where you need to focus as a CSM.
How Can You Drive Expansions?
It is critical to know the different types of products and services your company offers for expansion opportunities. These expansions can consist in the form of an upsell, cross-sell, or add-on; All of which can provide a great boost to your revenue generation. While looking at expansion opportunities, it is also important to be familiar with the customer decision journey. Here is one of the most simplistic ways to break it down, as explained by McKinsey:
Awareness > Familiarity > Consideration > Purchase > Loyalty
While this approach can be applied to new business, it is especially true for your existing customers. They need to be aware of what additional products and services you provide. Make sure you keep educating them so they are familiar with your offerings and they will naturally take them into consideration, and ideally make the purchasing decision, resulting in a loyal and highly valuable customer.
To further drive your expansions, having awareness for specific trigger words and phrases that a customer might use will prove to be very handy. For example, if a customer mentions an acquisition/merger, or perhaps she/he says, “We aren’t using all the functionality…” those are flags for a CSM to help resolve customer challenges. Listening to your customers and really understanding their current business climate, can lead to a revenue expansion opportunity, or even early risk mitigation.
Last but not least, it is recommended to have a strategic account action plan, especially for your VIP customers. No two customers are alike and this account plan should include information about your customer’s challenges, goals, KPIs, and their key business initiatives for short and long-term priorities. Once you truly understand their business, you will become a trusted advisor by solving problems instead of selling products.
- As a CSM, you should be focused on NRR as your macro KPI for measuring your true customer business health.
- Expansion opportunities are the most beneficial way to generate revenue, and understanding why your customers made the decision to expand will provide you with a wealth of knowledge.
- Become an expert on your company’s products and services and invest the time to truly understand your customer’s business initiatives along with their pain points to become a trusted advisor that resolves their problems.
Check out these additional resources to help support your recurring revenue awareness and ongoing growth practice:
- Gainsight’s “The Essential Guide to Recurring Revenue” breaks down the different recurring revenue models and which may work best for your business.
- TSIA’s “Measuring Success in Customer Growth and Renewal” helps you to identify your “North Star” KPIs and shift focus from Gross Renewal Rate to Net Revenue Retention.
- Gainsight’s “3 Ways to Drive More Upsells that Every CSM Needs to Know” helps to identify at which point within the customer journey should you reach out along with strategic best practices.
