Monetizing Customer Success: A Primer

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Monetizing Customer Success: A Primer

The primary charters of customer success (CS) organizations are driving customer adoption of technology, ensuring renewals of subscription contracts, and identifying opportunities to expand wallet share within each account through upsell/cross-sell. But as technology sales begin to focus more on selling outcomes, enterprise customers are increasingly willing to pay more for additional services that will help them achieve more significant results faster. This willingness has opened the door to growing interest in how to monetize customer success.

According to TSIA’s customer success benchmark survey, 40% of companies have monetized CS offerings, up from 38% last year. The annual revenue generated by businesses monetizing customer success offerings averages $29M, with pacesetters averaging nearly $50M in annual revenue. So, there is enormous revenue potential here. Companies that monetize CS offerings are seeing strategic value beyond the revenue.

In the research report, “Monetizing Customer Success,” published in June 2021 by Stephen Fulkerson and Hal Stanley, they found that companies that monetized CS also saw:

  • Net Promoter Score (NPS) averages 17 to 27 points higher
  • Up to 10% higher expansion rates
  • 2% higher retention

If you have not started monetizing your customer success organization, or are early in that journey, I wanted to provide a bit of detail on the approaches we are seeing to help shape your offers and strategy.

Although there are examples of fixed fee, a la carte options for CS for-revenue offers, most companies who monetize CS, 66%, do it as an annuity to the customer’s annual subscription. A common approach is offering tiers of offers, with higher tiers including more high touch, dedicated resources for the account. As seen in this chart, most companies, 86%, have multiple tiers of CS offers.

Tiers of Customer Success Offers

Monetizing Customer Success: Tiers of Customer Success Offers
Source: TSIA R3 Poll, Monetizing Customer Success, Feb 2021

 

Tiers are typically labeled to indicate a graduation from Basic to Premier support and may use terminologies like Gold, Silver, Platinum, or Basic, Advanced, and Premium. The lower tiers generally offer a less personal touch, emphasizing digital and self-service resources to monitor adoption and onboarding. Higher tiers tend to be more proactive and outcome-focused. This means more dedicated resources for the account, proactive monitoring, personalized onboarding relative to the customer’s desired outcomes. The goal is providing a more human touch.

Smaller firms may introduce a cloud offering with a single tier of service, and the cost of onboarding and support are bundled into the subscription price. As the customer base grows, introducing new monetized tiers will help fund the expansion of the success team, and ensure faster time to value for larger customers. Of the companies that monetize customer success today, 71% say they are doing it to grow revenue, 50% say there are hoping to optimize margins for the CS operation, and 32% are looking to for-fee services to fund additional CS staff.

Interestingly, when you look at the offerings or capabilities that are considered customer success activities for monetization, clearly, we are crossing the bounds into what was traditionally considered support, professional services, or managed services.

Features Included in Monetized Tiers

Monetizing Customer Success: Features Included in Monetized Tiers
Source: TSIA R3 Poll, Monetizing Customer Success, Feb 2021

 

Proactive, multi-vendor, and reactive support were all part of support maintenance contract options for On-Premise technology vendors. Process consulting and risk management are more commonly thought of as professional services. IT staff augmentation is a standard managed services offering. Other offerings in the chart, particularly those related to consumption and training, are more consistent with the recognized CS charter of driving product adoption.

As you introduce new tiered offers, hopefully, this information will help you determine the elements to consider for inclusion. These elements will be additional to the traditional reactive support service levels. This can include offering something like Monday through Friday support from 8-5pm, with a 4-hour response-time window, in lower tiers. For higher tiers, support hours expand up to 24×7, with shorter guaranteed response times.

Beyond the tiered approach to monetizing customer success, some companies are introducing a menu of for-fee services. Examples of this are usually custom training and onboarding sessions. An example could be a software vendor whose product includes an analytics module offering advanced coaching on leveraging the analytic capabilities. One company I work with sells an additional package with a resource dedicated to fine-tuning your analytics on your behalf. Sort of an on-call data scientist. However, this remains a rare practice, only used by 14% of companies. While monetizing customer success offers is becoming more common, it doesn’t mean everyone has figured out how to do this profitably.

While monetizing customer success offers is becoming more common, it doesn’t mean everyone has figured out how to do this profitably According to the CS benchmark, only 21% of companies measure gross margin for monetized CS offers. The average margin for those who do track project margins was 25%, compared to 44% for PS project margins. While the CS team may be taking the lead on positioning and delivering more for-fee services, they definitely should be collaborating more with their professional services counterparts on how to structure projects, measure delivery costs, utilization rates, and project margins for this to become a scalable, profitable business.

We are still early in this journey, with many companies only now building a customer success team and defining the rules of engagement. For companies with maturing CS practices, introducing monetization is a way of generating revenue and guaranteeing your most strategic accounts receive the personalized assistance they need to achieve their desired outcomes faster.

Based on conversations and presentations at our conferences, the biggest challenge for success teams is defining which offerings to monetize. Once the offerings are defined, it’s equally difficult to determine how to price them competitively and profitably.

With this in mind, I offer these final recommendations:

  • Get the offers and pricing right. Work with your Service Development Team to gather some competitive information on offers they are seeing. These offers can include various tiers and how to price them.
  • Start slow. The usual progression is to go from bundling adoption and success services into the subscription price. This is the easiest route to take while you’re growing your brand and customer list. When you decide to introduce tiers, and a la carte offers, don’t introduce too many offerings at once. This will will only confuse your customers and your sales team, as they struggle to differentiate the offerings. Introducing one additional tier each year would be a logical way to grow your monetized portfolio.
  • Focus on margins. Partner with your professional services team to understand the critical metrics to measure profitability. These can become your new for-fee services, including project costs, utilization rates, and project margins.
  • Do the math. As you introduce for-fee offerings, be sure to perform correlation analysis to identify the relation between offers and account value. Ideally, understand which offerings have the most renewals and expansion impact and focus on additional offers that are similar.
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