- Meal Kit Industry worth over $1.5 billion; Blue Apron Holding recently went public
- Top 5 SaaS companies – Salesforce, Microsoft, Adobe, Box, Amazon Web Services
- Ford, Porsche, Volvo, BMW, and Cadillac are offering drivers options to subscribe instead of lease
- Stitch Fix’s market cap is north of $2 billion
- Birchbox’s subscriber list has grown 1777% in the last 2.5 years
- Wikibon is predicting enterprise cloud spending is growing at 16% Compound Annual Growth run rate between 2016 and 2026
- Infrastructure-as-a-Service (IaaS) grew 36.8% in 2017
- Platform-as-a-Service (PaaS) adoption is predicted to be the fastest-growing sector of cloud platforms according to KPMG, growing from 32% in 2017 to 56% adoption in 2020
- Netflix – enough said
Whether you subscribe to Netflix, receive your weekly meals in a kit, have someone style your clothes, use Salesforce at work, or your company keeps its data on Amazon Web Services, the world is moving towards borrowing, leasing, renting, delivering your work and lifestyle via subscription services. The primary rationale for customers to move forward with any kind of subscription services is the accessibility and convenience. Subscription services offer customers access to products on demand usually in a monthly or annual renewal period. These products or services are easy to upgrade and can provide more value for limited periods of time or access to larger versions that would not make sense to buy outright. For example, if you are ordering weekly meals, you might be saving time shopping, planning out meals, or your time to chop vegetables. You are usually also saving on buying large quantities of a product you will not use that often, like saffron or bay leaves. The same is true for client-based subscription services (like SaaS or PaaS) which save on implementation time and the larger infrastructure and management to support. All of this convenience leads to lower costs of customer acquisition and shorter return of customer lifetime value investments. It also makes it easier for these customers to leave, attrite, or churn.
It is relatively easy to cancel Blue Apron or Netflix subscription. Or your company can move from one on-premise or SaaS tool to another within a matter of weeks. Historically, a change to your phone system or CRM could take months or years, now it is a matter of pointing data to a new location over the internet. Churn is the nemesis of subscription services. Let’s use a simple example:
- At end of the year has 1000 customers
- Has a monthly attrition rate of only 3%
- Therefore, has an annual attrition rate of 36%
- Company A’s acquisition teams need to add 46% more customers than last year so that the company can grow 10% the following year (1100 customers)
- If the churn rate was reduced to 2%, acquisition would need to add 34% for 10% growth
- If the churn rate was reduced to 1.5%, acquisition would need to add only 25% for 10% growth
In other words, reducing churn has exponential value to an organization, and more organizations are moving to subscription models, therefore service organizations need to better understand how subscription models operate and how to reduce churn. Reducing churn is a key component of Customer Success.
Mikael Blaisdell, Executive Director of The Customer Success Association, defines Customer Success as “Customer Success Management is an integration of functions and activities of Marketing, Sales, Professional Services, Training and Support into a new profession to meet the needs of recurring revenue model companies.”
Never in the history of commerce has the complete view of the customers (360-degree view) or the link between the top and bottom of the funnel been more important.
The critical period of Customer Success starts when the customer is finalizing their decision to make a purchase when the expectations are firmly cemented with the client or consumer. As soon as the customer makes the purchase, the most important aspect of Customer Success must be delivered – Value at Velocity. For long-term success or customer lifetime value, the company must show the customer substantial results early in their lifecycle.
An example I like to use when explaining Value at Velocity is an iPhone or Android app. Have you ever downloaded a cool app, opened it up and found it was way too complicated? Or wasn’t fun right away? How do you feel if you paid for the app?
In contrast, what happens when you like an app? It is easy to use. You advance levels quickly. You achieve results quickly. You are getting Value at Velocity.
Your first selections from companies like Stitch Fix need to be easy to order, conveniently delivered, styled well, returnable, and seamlessly paid for. SaaS companies like Constant Contact or Mail Chimp, who offer email creation and send subscriptions, need their customers to create that first email and be able to see the results within 24 hours. Larger PaaS companies need to have simple or easy implementation steps, visible reporting, and the ability to add or upgrade within short time periods.
As you can see in the top and bottom funnel picture, much of the Critical Customer Success Period is during the Support Phase of the customer lifecycle. There usually needs to be some kind of hand-off between the Sales activities or purchase period and the customer support/service functions. Sometimes this is a separate Customer Success team, sometimes Sales remains to assist the customers, and sometimes there is a direct hand-off to Customer Service so that Sales can continue hunt/acquire new customers. But at some point, Customer Support/Service will need to own a large part of the relationship. And at this point, Customer Support/Service will need to understand more than just how to handle individual transactions, they will need to understand how to support the relationship.
- Where is the “member” in their lifecycle?
- What is the cost to acquire this customer?
- What is the customer’s ARPU – Average Revenue per Unit (time)
- How long does it take to break even or profit from this relationship?
- Importance of referrals
- How easy it for them to cancel their subscription?
- How can support/service coach members to get the most out of the products or services (possible upsell opportunities)?
- How should your phone trees change? Are some members more important?
- How should your case management system change?
- How should your teams be organized?
Now even if you are not working at a SaaS, PaaS, or a subscription-based business, you actually may be in need of Customer Success strategies. Never has it been easier to switch banks. Traditional brick and mortar retail companies are starting to offer personal styling services. Many pay for “Information as a Service”, think Forrester or Gartner or even your news.
The future of Customer Service is Customer Success.