Although SaaS market has been growing rapidly in the last decade, according to a recent industry report – “Enterprise SaaS still accounts for barely more than 20% of total enterprise software spending and therefore remains small compared to on-premise software, meaning that SaaS growth will remain buoyant for many years to come.”
It would be reasonable to forecast that it’s only a question of when (not if) majority of on-premise software companies will go through the transformation to become a SaaS provider. As we have already seen in the last few years – some very large on-premise providers have lost significant market share to SaaS providers, so most likely there will be new winners and losers emerging in the next few years.
As part of this transformation, companies will need to embrace one major evolution step – to establish and scale CS (Customer Success) function, which will be critical in order to have a ‘sustainable growth’. Because unlike on-premise model where Sales function brings majority of revenues, in SaaS model as the company’s client base grows, CS function will bring increasing share of company’s revenue (through renewals and expansions) and new logo bookings (from Sales) will continue to be smaller % of total revenue.
There are also some powerful economics of SaaS business on the cost side that drive the ‘profitable growth’ and successful SaaS companies are already taking advantage of these, for example:
- cost of upsell/expansion with an existing customer is less than half the cost of selling to a new customer
- cost of retaining an existing customer is about one tenth the cost of acquiring a new logo
For those who like to see stats in terms of ARR and CAC – this report from David Skok (one of the leading VCs in this space) shares their survey results.
Interestingly, last month a leading SaaS CRM provider announced the appointment of company’s first ever CCO (Chief Customer Officer) after almost 15 years since the company was founded. This indicates the emerging significance of CS at C-level and focus on driving excellence in post-sales operations – as this will actually determine a SaaS company’s profitable growth in the future.
It seems that the leaders of many B2B software organisations, are at different stages of figuring this out i.e. how to transform the company from a legacy on-premise provider to a leading SaaS player globally and if they are already a SaaS player then how to establish the CS function or how to scale an existing CS function.
If you (as a Founder/CEO/CCO/Head of CS) can associate with one of the above situations then you might find this framework useful.
So here are the 5 Ps (in the order of importance) – Purpose, People, Package, Priorities & Practices.
The first step should be to define the CS vision and build a well defined CS playbook (covering ‘what and how’ for the CS function). Based on this, define the roles & responsibilities (for each level) in CS org to make an impact not only in the company but also in the client’s business outcomes. This then also helps in the next point on ‘People’ to attract good CS talent.
Below are a few key areas (among others) to plan for:
- CS org structure – if your organisation is truly customer-centric, then it needs to be driven from the top in the company’s vision, values and culture. At what stage should you start to build a CS function and at what stage should you hire a CCO (Chief Customer Officer) reporting to the CEO to take ownership of CS goals? How would CS team co-exist with other similar functions like Customer Support, Professional Services, Account Management etc.?
- Number of people required in CS org to manage your existing clients and also to manage new clients expected to come onboard in the next quarter.
- Hiring people with the right type of skill sets and experience. Given CS function itself is new, so (unlike other mature functions) you won’t find people with 15+ years of experience in CS. So what combination of other skills/experience level works well for CS? From an attitude perspective – passion for Customer Success and high EQ are critical for success in this role – as it involves multi-stakeholder management, conflict resolution, being an evangelist internally and externally and doing whatever it takes to deliver value to clients!
Once you have on-boarded the right CS team, the next step would be to ensure they are motivated! So you need to ensure CS team has the right incentive structure to reward their performance. I have seen several organisations getting this wrong, as in some cases they are simply renaming the existing ‘Customer Support’ team (with no variable bonus at all) to ‘Customer Success’ (with revenue retention & growth as their new KPI) but the team’s package hasn’t been revised. In some companies, CS team also gets pulled by Sales (as technical pre-sales) to help in closure of a new deal (either new or existing client) by leveraging their knowledge of the product, solution architecture and implementation process – but CS team doesn’t get incentivised on the closure.
Note: According to this report from LinkedIn – CSM (CS Manager) is now in the top 10 promising roles and of course in huge demand already. Interestingly, the YoY job openings growth for CSM is 80%, which is higher than that of even a Data Scientist (at 56%). Although this report is for US, but it sort of reflects what would happen in rest of the world very soon (if not happening already).
So it’s important to have the right ‘purpose’ & ‘package’ for the CS team to stay motivated, otherwise it would be difficult to retain the top performing CS team members.
It’s essentially a three step process:
- Ensure that CS team’s priorities are not only aligned with company’s objectives at board level but also aligned (not conflicting!) with objectives of other functions like Sales, Marketing, Product, Tech etc. For example – Tech team’s KPIs should also include client NPS/CSAT score as a metric because if your product has too many P1 bugs or regression bugs on a frequent basis, then that will directly have an impact on client NPS/CSAT scores and churn rates, and CS team can’t do much about it. Another common example of debate is – who owns the KPI of upsell/expansion with existing clients – is it Sales or CS or both? And how would it work? And what are the pros and cons of each approach?
- Put in place a framework for defining priorities of each individual across all levels in CS org that supports the CS function priorities at company level.
- Close the loop by reviewing and updating CS playbook/priorities as needed on a quarterly/bi-annual basis based on the evolution of company objectives.
Ensure you have a comprehensive checklist for internal and external best practices for CS team to execute. Some examples (just a small subset of a longer checklist):
- What process/tools to use for onboarding new clients, addressing any gaps quickly, minimising ‘time to value’ and measuring ‘value delivered’ to the clients on an on-going basis. I have covered this in detail in my earlier article – ‘Customer-Centric’ Framework for New Client Onboarding in B2B SaaS
- How to segment your clients in a way that makes sense for your business and have a focused account strategy for not only top X% of clients but also for what I call ‘Growth’ accounts that are small today (and get ignored with legacy segmentation approach of Enterprise/Mid-Market/SMB) but have the potential to grow significantly in the next 12-18 months. This of course requires in-depth ‘Account due diligence’ by a CSM using a structured ‘Account Plan’.
- Given CS team is usually busy fire fighting some client issues, so how to streamline the production support (L1, L2 & L3 support), optimise bandwidth of your CS resources, scale number of accounts per CSM and ensure Gross Margins on support are healthy (aligned with the industry benchmark).
- What process/tools to use for collaboration with other internal functions like Sales, Marketing, Product, Tech, QA, Finance – as CS has to drive the cross-functional collaboration for delivering value to customers.
So there you have it!
Hope this is a helpful guide for getting started on scaling your organisation’s success in SaaS!