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Segmentation, Variable Compensation, The Channel, and Metrics. What Do They Mean for Your Customer Success Strategy?

ServiceSource recently held a webinar in conjunction with the Technology Services Industry Association entitled “The Mid-Market Matters: Why Companies Must Rethink Customer Segmentation.”

When it comes to customer success, many businesses are unknowingly promoting a strategy that encourages churn by focusing the bulk of their customer care efforts and attention on the enterprise. While this segment is important and does generally make up the majority of a company’s annual revenue, it isn’t actually where the most growth opportunity lies. The enterprise is typically more mature and on a much slower growth trajectory than those in the middle-market.

To achieve meaningful revenue expansion in the margin, companies must refocus their efforts and begin giving mid-market customers the attention they deserve. View the full customer segmentation webinar on-demand and learn more on this topic. Additionally, below are responses to a few questions related to customer success strategies that we received from the audience during the webinar.

How does Customer Success Manager (CSM) variable compensation factor into growth for the mid-market segment?

Variable compensation plays a pronounced role when it comes to overall CSM performance. To implement a truly transformative customer success plan, it’s a critical best practice to institute a mandate for growth. CSMs should feel responsible for driving expansions across their accounts. Unfortunately, many businesses run into problems when they treat customer success teams as a “feel good” organization, a new-age replacement for traditional customer service, or as a reactive tactic to retain revenue.

The most efficient way to avoid this problem is to tie CSM performance to specific numbers and goals. What financial metrics are they expected to own and hit on a quarterly basis? How are they driving growth and expansion, and not just reducing churn and retaining customers?

 


A truly effective CSM will have customer growth consistently tracked as a core component of their personal KPIs and, ultimately, tied to their individual compensation.


 

What is the role of the channel in mid-market customer success?

The channel ecosystem has been a significant driver of growth for many tech companies over the years. For some organizations in fact, the channel has accounted for 70-80% of total revenue. Clearly, this model has worked extremely well for the distribution and fulfilment of physical assets. However, it’s safe to say that the channel is starting to have less of an influence and impact in the software, subscription, and cloud industries.

Businesses typically deploy their own account executives and customer success teams at the enterprise level and can build very strong relationships doing so. But when the same does not hold true for the mid-market, they often end up lacking critical direct connection with their customers and lose visibility into the health of those accounts, putting them at risk of churn. This is why a number of organizations have taken it upon themselves to build out a “channel success manager strategy,” standing up a third-party team to help the channel deliver better customer outcomes.

 

When you’re looking at metrics, what is a customer success KPI that isn’t as important to focus on?

One metric we see being overused is Net Retention Rate, or NRR. While you might have a few handfuls of very sizable customer expansions, you can at the same time be churning out a major portion of your accounts and still see a growth rate of over 100% NRR.

If you are seeking long-term, sustainable growth, you cannot overlook what is happening with your gross churn rate. So while NRR is good to track and important to keep in mind as part of your overall performance dashboard, it’s critical to get a closer view and make sure it’s not covering up the loss of other opportunities.

 

Can you explain more about CRC and what that entails?

CRC stands for Customer Retention Cost. This key performance indicator has been gaining more and more traction lately in the world of customer success.

Customer Acquisition Cost, or CAC, is a popular metric and measures how much an organization spends on sales and marketing costs to get a new customer in the door.

While CAC is certainly a good statistic to be aware of and track, it still only provides surface-level insights that don’t promote a plan of action. CRC, on the other hand, is a much more holistic number that better demonstrates the full ROI you receive from your customer success strategy by not only gaining the new customer, but also how efficiently they are growing, expanding, and renewing their contracts.

Learn more about ServiceSource’s Customer Success solution, and follow us on LinkedIn to stay up to date on all of our latest insights and events.

Author

Nick Herff