SEVEN STEPS TO CUSTOMER SUCCESS AT SCALE

Seven Steps to Customer Success at Scale

Thomas E. Lah

Executive Director

TSIA

The Discussion

• The current state of the XaaS business model

• The Four Cost Buckets of XaaS

• Seven steps to Customer Success at Scale

2

Current State of XaaS

Revenue Growth

4

Average:

Q4 2013 - Q4 2014

7%11%11%

16%17%

18%21%22%

24%25%26%

29%34%35%

42%52%

56%61%

74%87%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

RealPage

IntraLinks

LivePerson

Medidata

Ultimate Software

Athena Health

NetSuite

Cornerstone Ondemand

Demandware

Workday

33%

Average annual revenues> $500M

Revenue Multiplier (market cap/revenue)

5

Average:Q4 2014 7.0

1.72.22.52.52.62.9

3.24.9

5.96.66.76.8

7.37.9

9.411.511.611.912.0

20.7

0.0 5.0 10.0 15.0 20.0 25.0

IntraLinks

Dealer Track

Constant Contact

LivePerson

Google

Cornerstone Ondemand

SalesForce

Concur Technologies

Demandware

ServiceNow

Wedge Model

6

“SaaS profitability just takes longer”

7

Cost to Acquire Revenue

• salesforce is spending almost $2 dollars on Sales and Marketing for

every $1 in incremental revenue.

8

salesforce: Profitability

How big does a XaaS business have to be

before it becomes profitable?

9

Cloud 20 Business Model

10

Q4 2013 - Q4 2014

66.7%

36.8%

15.6% 16.7%

-1.7%

67.0%

36.1%

15.3% 17.2%

-0.8%-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Gross Margin S&M G&A R&D OI

Q4 2013 Q4 2014

Cloud 20 Business Model:

Comparison to Service 50

11

66.7%

36.8%

15.6% 16.7%

-1.7%

67.0%

36.1%

15.3% 17.2%

-0.8%

52.2%

22.5%

9.2%12.6% 15.5%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Gross Margin S&M G&A R&D OI

Q4 2013 Q4 2014 Service 50 Q4 2014

Oracle and Profitability

• March 12, 1986: Oracle goes public with a

revenue of $55 million.

• August 1987: Oracle founds its Applications

division

• 1989: Revenues reach $584 million.

• 1990: In the third quarter, Oracle reports its

first ever loss

12

Thomas and Tien

13

https://www.youtube.com/watch?v=c3zVp59HQ-0

https://www.youtube.com/watch?v=c3zVp59HQ-0

XaaS Talk Track

• We are investing in growth (Sales and Marketing), that is what

investors value today.

• When we need to be profitable, we will reduce our high Sales and

Marketing expenses, making the business model profitable.

• Also, GAAP accounting does not truly reflect the health of an annuity

business.

– Have expense now (selling and adding customer) but revenue flows

over time so expense and revenues are not matched in a given year.

– We have line of sight to deferred revenues

14

Four Cost Buckets of XaaS

XaaS Cost Buckets

1. COGs: Cost to serve the customer

– Hosting, Datacenter

– Basic Bundled Support Services

2. CAC: Customer Acquisition Costs

– Land Sales: Sales and Marketing for acquiring new customers

3. CEC: Customer Expansion Costs

– Expand Sales: Cross-selling, Upselling to existing customers

4. CRC: Customer Retention Costs

– Sales and marketing expenses for renewing existing customers

– Customer Success

– Non-billed PS, ES, Account Management

16

High Margin, High Profit,

XaaS Business Model

17

Modified version of:

The Missing SaaS Metric: Customer Retention Costs, Totango

Subscription Revenue 100%

COGS 25%

Datacenter, Etc. 15%

Support 10%

GROSS MARGIN 75%

Sales and Marketing 30%

CAC (65% of S&M) 19.5%

CEC (15% of S&M) 4.5%

CRC (20% of S&M) 6.0%

R&D 15%

G&A 10%

OI 20%

TARGET

Current XaaS Ratios

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Target XaaS TSIA Cloud 20 salesforce

COGS CAC+CRC+CEC OI

18

Short term problem

(goes away with scale)

Long term problem

(NOT going away with scale)

Common XaaS Experience

• COGs do go down as the XaaS business scales

– So economies of scale do apply

• However CAC + CRC + CEC not declining enough to

create a profitable XaaS business model.

• TSIA POV: Customer Success is critical to

the long term profitability of the XaaS

business model.

19

Seven Steps for Customer

Success at Scale

Parameters of Customer Success

• What do you want us to do?

• How will we measure success?

• What will help us scale?

• How will we be funded?

21

Charter

Financial

Model

Practices

Metrics

Skills

Offers

Technology

1. Charter





22

Charter

Financial

Model

Practices

Metrics

Skills

Offers

Technology

2014 TSIA Customer Success Benchmark

(76 Companies)

23

Software49%

SaaS29%

Hardware13%

Services9%

Company Types

Software SaaS Hardware Services

Charter Question

• What percentage of time does your Customer Success

organization spend on each of the following activities?

– Adoption: Assure that customers are adopting and leveraging

our technology solution

– Retention (Renewal): Assure that customers will renew their

financial relationship with our company.

– Expansion: Increase the amount of money specific customers

spends with our company

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Source: TSIA 2014 Customer Success Benchmark

Three Profiles of Customer Success

0%

10%

20%

30%

40%

50%

60%

70%

80%

Adopters Retainers Expanders

What % of CSM time is allocated to the following activities?

Adoption Retention Expansion Other

25Source: TSIA 2014 Customer Success Benchmark

Audience Poll

• Predominate charter of your Customer Success

organization?

A. Adoption

B. Retention

C. Expansion

D. Other

26

Participant Profiles

40%37%

10%13%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Adopters Retainers Expanders None of These Profiles

% of respondents in each profile

27Source: TSIA 2014 Customer Success Benchmark

Audience Poll

• Do you think the charter of the Customer

Success organization is impacting how

Customer Success is funded at your company?

A. YES

B. NO

C. Don’t Know

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2. Financial Model





29

Charter

Financial

Model

Practices

Metrics

Skills

Offers

Technology

Building the Customer Success

Funding Framework1. What is the target financial model your company is

attempting to achieve?

2. Will Customer Success have responsibilities for

traditional support activities?

3. Will Customer Success be responsible for adoption?

4. Will Customer Success be responsible for renewing the

customer subscription?

5. Will Customer Success be responsible for cross-selling

and upselling existing customers?

30

Example #1: Adoption Only

31

Five Questions 2 3 4 5

Support AdoptionOwn

RenewalExpansion

Y Y Y Y


COGS 25%


Support 10%

GROSS MARGIN 75%


CAC (65% of S&M) 19.5%

CEC (15% of S&M) 4.5%

CRC (20% of S&M) 6.0% 3%

R&D 15%

G&A 10%

OI 20%

3%Total % of Revenue Allocated to

Customer Success

1

YOUR TARGET

FINANCIAL MODEL

Example #2: All up and in…

32

Five Questions 2 3 4 5

Support AdoptionOwn

RenewalExpansion

Y Y Y Y


COGS 25%


Support 10% 10%

GROSS MARGIN 75%


CAC (65% of S&M) 19.5%

CEC (15% of S&M) 4.5% 4.5%

CRC (20% of S&M) 6.0% 3% 3%

R&D 15%

G&A 10%

OI 20%

20.5%Total % of Revenue Allocated to

Customer Success

1

YOUR TARGET

FINANCIAL MODEL

Funding Customer Success

at $500M in company revenues

$-

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

Adopt Adopt + Retain Adopt + Expand Adopt + Retain +Expand

Support + Adopt +Retain + Expand

Customer Success Funding

Customer Success Funding

33

3% of revenue

6% of revenue

10% of revenue

20% of revenue

7% of revenue

Cost Effective CACCost Effective Cross Sell and Renewal!

34

Impact of Customer

Success on growth

and profitability!

Data from Pacific Crest 2014 Survey

Audience Poll

• How does your company predominately fund Customer

Success?

A. COGs carved out of Subscription

B. Sales and Marketing

• CAC, CRC, CEC

C. Other (G&A, R&D)

D. Don’t Know

35

3. Critical Practices





36

Charter

Financial

Model

Practices

Metrics

Skills

Offers

Technology

Key Phases in Customer Lifecycle

Management

37

Land Adopt Expand Renew

The Customer Life Cycle

Traditional strengths of technology providers

TSIACustomer Life Cycle Practice Map

1.0 Organizational Strategy and

Financial Performance

1.1 Strategy and Goals

1.2 Business Performance Management

2.0

Opportunity Management

2.1 Account Segmentation

2.2 Opportunity Management:

Renew


Expand

3.0

Customer Success Delivery

3.1 Customer Onboarding

3.2 Value and Visioning

3.3 Enablement

3.4 Adoption Monitoring

3.5 Opportunity Identification

4.0

Success Operations

4.1 Resource Management

4.2 Talent Management

4.3 Customer Analytics

4.4 Contract Analytics

4.5 Infrastructure

5.0

Success Engineering

5.1 Success Engineering Function

5.2 Product Portfolio Alignment

5.3 Solution Development

5.4 Intellectual Asset Management

5.5 Value Engineering

5.6 Product Integration

6.0

Success Marketing

6.1 Success Marketing Function

6.2 Strategic Pricing

6.3 Services Rollout

6.4 Customer Experience

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Customer Success Practices: Adoption

1.0 Organizational Strategy and

Financial Performance

1.1 Strategy and Goals

1.2 Business Performance Management

2.0

Opportunity Management

2.1 Account Segmentation


Renew


Expand

3.0

Customer Success Delivery

3.1 Customer Onboarding

3.2 Value and Visioning

3.3 Enablement

3.4 Adoption Monitoring

3.5 Opportunity Identification

4.0

Success Operations

4.1 Resource Management

4.2 Talent Management

4.3 Customer Analytics

4.4 Contract Analytics

4.5 Infrastructure

5.0

Success Engineering

5.1 Success Engineering Function

5.2 Product Portfolio Alignment

5.3 Solution Development

5.4 Intellectual Asset Management

5.5 Value Engineering

5.6 Product Integration

6.0

Success Marketing

6.1 Success Marketing Function

6.2 Strategic Pricing

6.3 Services Rollout

6.4 Customer Experience

39

40

Practices that Drive Adoption

Percentage of Customer Success organizations that can

monitor consumption remotely: 57%

Percentage of Customer Success organizations that have a

dedicated analytics team: 60%

Percentage of Customer Success

organizations that have data models to

predict renewal: 50%

Percentage of Customer Success

organizations that have formal

adoption framework: 43%

Source: TSIA 2014 Customer Success Baseline Benchmark

Prerequisites for Practice Success

• Process Quality:

– Design drives efficiency and effectiveness

– Leverages proven industry best practices

– Well documented

– Reinforced by tools and technology

• Process Adoption:

– Process is consistently adopted throughout the global

organization

– Feedback loop for adopters to provide innovations and

improvements

– Clear governance models 41

Process Quality Attributes

Does it Exist Documentation Tools and Data

Has the process been defined and

documented in any way

- or -

Is it an ad hoc,

reactively defined process?

Phases and Steps

Roles & Responsibilities

Inputs / Outputs

Swim Lanes / Process Flows

Target Metrics

Data Definitions

Forms / Templates

Workflow Automation Tools

Software Applications

Data Capture / Repositories

Reporting Tools

Alerts / Dashboards

42

Best Practice50% - 85% 25%0%

P r o c e s s Q u a l i t y

P r o c e s s A t t r i b u t e s

4. Success Metrics





43

Charter

Financial

Model

Practices

Metrics

Skills

Offers

Technology

Metric Definition Insight

% Subscription revenue spent

on Customer Success

Total annual dollars spent on Customer Success / Total Annual Subscription

Revenues Investing enough in CS?

CRC Ratio Total annual dollars spent on retaining customers / Total Annual Subscription

Revenues Investing enough in CRC?

CAC Ratio % of Sales and Marketing Costs spent on acquiring customers/ This year’s annual

revenues – Last year’s revenueSpending too much on

CAC?

Adoption Rating Based on your companies adoption framework, average adoption rating for

accounts being served by CSMIs CS moving the adoption

needle?

Revenue Renewal Rate Annual Booked Dollars Renewed DIVIDED BY Annual Order Value Available to

Renew X 100Is CS impacting renewal?

Churn Rate # of Customers Not Renewed DIVIDED BY # of Customers Available to Renew X

100.Is CS impacting churn?

Expansion Rate Incremental Revenue from Existing Customers DIVIDED BY Total Subscription

Revenues.Is CS expanding existing

accounts?

Accounts per CSM Total number of accounts eligible for CSM / Total number of CSMs Over stretched or under

scaled?

Revenue per CSM Total annual revenues managed by CSMs / Total number of CSMS Right skills to impact

revenues?

44

Median Customers per Customer

Success Rep

25 25

16

0

5

10

15

20

25

30


45Source: TSIA 2014 Customer Success Baseline Benchmark

Renewal Rates

82%

93%

83%

76%

78%

80%

82%

84%

86%

88%

90%

92%

94%


What is the revenue renewal rate for your Customer Success organization?


Churn Rates

21%

18%

8%

0%

5%

10%

15%

20%

25%


What is your annual customer churn rate?


Thought: Not fighting high

churn—focus on expanding

revenues from table

customer base

Thought: Fighting high

churn so Customer

Success created to keep

customer engaged.

5. Skills of Customer Success





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Charter

Financial

Model

Practices

Metrics

Skills

Offers

Technology

Where CSMs Come From

40%

32%

3%

41%

31%27%

9%

17%

30%

1% 1% 0%0%

5%

10%

15%

20%

25%

30%

35%

40%

45%


What % of CSMs are hired from the following resource pools?

Customer Support Professional Services Sales and Marketing Product Group


Expand SellingLand Selling

Customer Engagement Models

50

Adoption Renewal

Customer Success Sales Sales1 Sales

2

3

4 Sales/Customer

Success (shared)

Renewal SpecialistSales

Customer Success

Renewal Specialist

Customer Success

SalesSalesSales

Sales

Sales Customer Success

Sources: TSIA 2014 Customer Success Baseline Benchmark; SRG Pulse Webinar Sept 2014; SRG Executive Forum Sept 2014

Customer Engagement Models are diversifying

Attributes of best in class Skills Assessment

Does it Exist Level of Documentation Tools Best Practice Attributes

Process for assessing

and tracking the skills of

delivery staff has been

documented

There are specific phases for

assessing, documenting, and

refreshing skills data

Roles and Responsibilities for

completing skills assessments

have been documented.

Metrics associated with skills

assessment are tracked (EX:

% of consultants that have a

current profile)

There is a template to

capture skills data

There is a central

repository for skill profiles

Skill profiles are refreshed at least

every six months.

After a self-assess, managers and

peers provide input into the skills

rating.

The categorization of skills is

effective - not too many categories,

not too few.

Highest ratings cannot be awarded

unless skill is demonstrated on an

actual customer project.

Skills are aligned with job

descriptions and career ladders used

by HR.

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25% 50% - 85% 100%

6. Offers of Customer Success





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Charter

Financial

Model

Practices

Metrics

Skills

Offers

Technology

Lah’s Law

• Feature functionality always commoditizes in XaaS

marketplaces.

54

Basic Offer: Complex Offer: Optimize Offer: Outcome Offer:

LEVEL 1

SUPPLIER

LEVEL 2

SUPPLIER

LEVEL 3

SUPPLIER

LEVEL 4

SUPPLIER

Supplier Operating Model

Product

Focused

Outcome

Focused

Feature functionality by volume

Feature

functionality by

volume

Feature

functionality by

volume

Process by

volume

Process by

volume

Outcome by

volume

The Technology

Industry

Products

Hardware and Software

Technology as a Service

Technology Services

Product Services

Optimize Services

Operational Services*

Adoption Services

Information Services

Outcome as a Service

55

Adoption Services is a New Category

56Source: TSIA Emerging Offerings Survey 2013 / 2014

• Vision & strategy

alignment

• Governance / Decision

making authority

• Adoption/usage monitoring

• Adoption scoring

• Adoption benchmarking vs.

peers

• Bu/siness KPI monitoring

• Business KPI scoring

• Business KPI

benchmarking vs. peers

• Industry-specific business

metric dashboards

• Performance monitoring

• Capacity analysis

• Account reviews

• Feature deployment &

utilization assistance

• Industry-specific feature

utilization training

• Assessment/audit of current

state/goals/gaps

• Best practice playbooks

• Success story webinars

• Web-based workshops

• Super user programs

• User group meetings

• Performance optimization

based on best practice insight

• Business or workflow process

improvement

• Best practice consulting /

advise

• Co-develop new capabilities

with customers to deliver

innovation to the market

ADOPTION PLANNING

CONSUMPTION MONITORING

CONSUMPTION OPTIMIZATION

PROCESS CONSULTING

Deliverables Cloud / Hosted Maintenance &

Support

Software Cos.

Maintenance &

Support

Hardware + Software

Cos.

Managed Services

Vision & Strategy Alignment

Account Reviews

Feature Deployment & Utilization

Assistance

Web-based Workshops

Adoption Services – Common for Cloud & Software commonemerging


Deliverables Cloud / Hosted Maintenance &

Support

Software Cos.

Maintenance &

Support

Hardware + Software

Cos.

Managed Services

Adoption / Usage Monitoring

Assessment/Audit of Current

State/Goals/Gaps

Performance Optimization Based on Best

Practice Insight

Business or Workflow Process

Improvement

Best Practice Consulting / Advise

Co-Develop New Capabilities with

Customers to Deliver Innovation to the

Market

Adoption Services – Common in Managed Service Offeringscommon

emerging


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80%

20%

Premium Support Offerings

We offer a premium support service today

We don't offer premium, but we do plan to

How Common are Fee-based Premium Support

Services for Cloud /Hosted Platforms?

33%

50%

17%

Platinum Support Offerings

We offer a platinum support service todayWe don't offer platinum, but we do plan toWe don't offer platinum, and we don't plan to

Source: TSIA Emerging Offerings Survey 2013 / 2014

Cloud 20 Revenue from “Projects”

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Q4 2014 CompaniesQ4 2013 PS

Revenue

Q4 2014 PS

Revenue

PS Rev

Trend

% Rev

from PS

Veeva Systems $16.0 $22.4 40% 27%

Workday $26.4 $43.1 63% 23%

NetSuite $21.1 $27.8 32% 19%

Medidata $13.0 $14.4 11% 17%

ServiceNow $18.3 $28.3 55% 16%

Ultimate Software $17.7 $20.0 13% 16%

Demandware $1.9 $3.9 106% 10%

LivePerson $3.4 $5.1 52% 10%

Jive Software $3.9 $4.4 14% 10%

SalesForce $71.6 $95.1 33% 7%

Athena Health $10.2 $10.7 5% 6%

RealPage $3.1 $3.0 -4% 3%

IntraLinks 0%

RackSpace 0%

Constant Contact 0%

Cornerstone Ondemand 0%

Dealer Track $6 0%

Concur Technologies 0%

Google 0%

LogMeIn 0%

$16.3 $23.2 35.0% 8.1%

7. Technology Stack for Customer Success





61

Charter

Financial

Model

Practices

Metrics

Skills

Offers

Technology

Customer Success Technology Stack

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Install Data

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Head room for Customer

Success Platforms

Customer Success at Scale

1. Define your charter

2. Define your funding model

3. Mature the required practices

4. Benchmark your success metrics

5. Define, evaluate, and track the skills required

6. Establish offers that target “business value”

7. Invest in the technology stack

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SEVEN STEPS TO CUSTOMER SUCCESS AT SCALE

Technology

Transcript of SEVEN STEPS TO CUSTOMER SUCCESS AT SCALE