Decoding Digital

5 Steps to Embracing Customer Success in the Subscription Economy with Nick Mehta

By Ideas @ AppDirect / April 12, 2021

Nick Mehta on Recurring Customer Value

As more industries and organizations move over to a subscription-based business model, how will their customer retention strategy change? The answer: customer success.

Nick Mehta is the CEO of the emerging customer success organization, Gainsight. He’s an expert in helping companies embrace customer success and passionate about the future of subscription services. Nick is also a respected leader in the tech industry. The Software Report named Nick a top SaaS CEO three years in a row, and he’s been a finalist for Ernst and Young's prestigious Entrepreneur of the Year award.

He joins Daniel Saks in this Decoding Digital episode to share his approach to transforming your business by incorporating a customer success strategy. He also discusses how to turn customers into advocates and why company culture is at the core of his CEO strategy.

1. Understand why customer success is important to subscription services

    Nick says there are two mindsets surrounding subscriptions and product sales. The first is a more transactional approach where you build a product, sell it, and move on to sell to the next customer. The second is where you have to re-earn your customer’s business. This is where customer success comes into play. With this model, you have to find ways to keep delivering value and enable customers to get their desired outcomes.

    After building, marketing, and selling great products, customer success is that extra step businesses can take to ensure their subscription customers don’t churn. It’s an additional strategy that businesses need to factor in, but it can drastically improve retention. Nick reports that this model has now created the sixth most promising job on LinkedIn, ‘Customer Success Manger’.

    So, what do you need to think about when introducing a customer success strategy? Nick suggests starting with onboarding. Onboarding your customers properly can make a big difference to the adoption of products and services, leading to happier, more loyal customers.

    2. Track and measure 6 key performance indicators

    When businesses move over to a subscription model, they need to track and measure their performance. Strong subscription businesses commonly do this using three lagging indicators and three leading indicators. You can use these to set end goals and shape your processes.

    Here’s a brief summary of the lagging indicators to consider:

    Gross retention rate: This is where you annually measure how much your customers spend per year to monitor if they’ve grown or contracted out of their existing service.

    Net retention rate: Here, you also take into account where customers have expanded their product use. For example, have they bought new services or added more users?

    Net promotor score: Are your customers just customers, or are they your brand advocates as well? With this KPI, you look at if customers are truly happy and successful and whether they recommend others to buy your services and subscriptions. Next, you can consider the leading indicators to help you optimize and achieve your aims:

    Adoption success: As best as you can, find a way to measure how much of your service people are using effectively. Are they using all of the features and functions? Do they know how to use the product’s advanced capabilities? If not, this could be an opportunity for customer education and growth.

    Churn likelihood: When you look at your customer’s overall health, you can start to predict those that may churn, stay, or grow. Take their satisfaction and experiences with your services into consideration. This includes looking at how they’ve utilized onboarding, adoption, billing, and technical support.

    Customer service efficiency: Nick points out that shifting your strategy towards customer success can mean you hire more people. However, this needs to be a business decision as much as a customer success one. So, much like understanding how much you need to spend to acquire customers, you should also find out how much it costs to retain them.

    3. Help customers get on board – and grow

    The key to keeping customers lies in evolution. Nick believes the future of your subscription product will be determined by customer experience and the technology combined.

    You may already be evolving your product year on year. Adding new features, moving to the cloud, even updating “bugs” are some ways you can offer more to customers. You might tie this to a plan of action or an organizational model, where you focus on getting customers to deploy one year, engage the next, and so on.

    When you bring customer success into the equation, your model shifts to include a more relationship-based progress style. Typically, this falls into three different types of customer success management.

    • The first is where there’s a direct divide between sales and customer success. Customer success teams are tasked with ensuring customers are adopting and getting value and the salesperson owns the commercial relationship.
    • In the second type, the salesperson closes the deal, then hands the customer over to a customer success manager (CSM), who subsequently handles everything.
    • Finally, the third is when a salesperson completes a sale and moves the customer to another salesperson or account manager. This contact then works with a CSM going forward.

    Depending on what product you’re selling or the situation your customer is in, determines which approach is best for you. If you’re selling an enterprise or big-ticket product with a lot of upsell potential, then maintaining a customer-salesperson relationship is preferred. However, if you have a more transactional product, it’s better for the customer to deal with a CSM after the salesperson has closed the deal.

    4. Build a customer success team

    Not all CSMs take the same approach. Your company culture can also dictate how CSMs operate within your business. So, you need to decide what your overall customer success style is and then recruit or train CSMs to fit any specific needs. Typically, there are four different types of CSMs, domain experts, technical experts, consulting and process managers, and organization and execution managers.

    Domain expert CSMs have experience within their customer’s domain. For example, the HR software company, Workday has CSMs that previously worked within HR roles, giving them direct insights into the customer’s needs and issues.

    Technical expert CSMs know their products inside out. Companies with high-tech or specialized products, such as those within the security industry, often work with CSMs who understand this sector incredibly well.

    Consulting and process CSMs know how to drive change within a company. This is most important for companies with big customers, as you will have to adapt to keep their business.

    Organization and execution CSMs pay close attention to detail. If you have a lot of customers, then it’s crucial to make sure everyone is receiving the correct help.

    When you’re building your customer success team, you can hire CSMs from a range of places to ensure that you’re getting the correct skillsets. So, if you want domain experts, hire from within your customer base. If you need technical experts, draw from your technical support, sales engineering or engineering team. Consulting CSMs usually have a background in a big consulting firm such as McKinsey, Accenture, or Deloitte. Finally, organization CSMs are skilled in execution. They may have experience in sales or a varied background where they get the job done.

    5. Embrace change and adapt

    Technology companies are some of the biggest adopters of the subscription model, but what opportunities are there for other industries? Nick shared a few examples of non-tech companies that are making the transformational change and instituting customer success and what you can learn from them.

    A B2B telecommunications company recently brought Gainsight on board to help them operationalize a move towards customer success management. The company sells telco services to lots of small businesses and enterprises. They have an account management and sales team consisting of thousands of people and followed a traditional model.

    However, their services were becoming increasingly digital. Their customers started to see them as a software company, and they decided to embrace the shift and lean into it. To do this effectively, the company researched how they could restructure to provide a better service as a primarily digital business. One of the main changes they’d need to make was to create a customer success team.

    In this scenario, the company could retrain a portion of their account managers and salespeople as CSMs. Now, Gainsight is working with the company on the technology to help put their new strategy into practice.

    Nick has also worked with business services companies, manufacturers, medical equipment providers and more, to spot opportunities for bringing their business up to date with subscription and customer success models. He’s positive that even more industries will adopt this approach in the future and, if your business is looking to move to a subscription model, customer success has a vital part to play.

    “Everyone's moving to subscription. As they do that, they can't afford to just sell to the customer and leave they've got to make sure they're going to be successful.”

    To hear more of Nick’s thoughts about customer success, the future of subscription services and how Gainsight’s incredible culture impacts both the organization and customers, listen to his Decoding Digital interview now.

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