So What’s the ROI Anyway? Pursuing the Holy Grail of Customer Success

October 10, 2015

return on investment, the holy grail of customer success training

As a relatively new discipline within the SaaS world, most customer success management teams have probably stood before a C-Suite executive committee and had to answer the burning question: “So, how much revenue can your group bring to our company?”

It’s a fair question. In response, managers in charge of customer training present an array of metrics like Committed Monthly Recurring Revenue (CMRR), Monthly Recurring Revenue (MRR), Annual Recurring Revenue (ARR), Recurring Profit Margin (RPM), Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLTV).

Related reading: How World-Renowned Design Consultancy IDEO Used Design Thinking to Build an Online School

Of course, customer churn — essentially the number of users lost during a specific period — remains the benchmark by which customer success teams are evaluated.

The bottom line is the bottom line

These mathematical formulas aside, it is still very difficult to attribute a particular ring of the cash register to a particular customer success activity. But the SaaS industry and customer success professionals continue to search for concrete evidence of the ROI of customer success management.

One strong case was made a year ago in a study done by Mainstay on how customers of Gainsight performed when using its automated customer success management solution. They found that over over a three-year period, Gainsight customers netted $11 million in additional revenue from increased retention and a reduction in churn and that they reap roughly $100,000 per quarter from up-sell and cross-sell.

Related reading: Why Customer Success Education Initiatives Need More than Just Product Training

The Gainsight study, it must be noted, comes with a few caveats. For one, only customers of Gainsight were reviewed for the study, so it’s not industry-wide.

Nevertheless, even that limited sample underscores the revenue-generating potential of implementing an automated customer service management solution.

New vs. old: Which brings in the most revenue?

Totango, another CSM platform, argues for a formula to calculate customer retention costs (CRC), which equals all the money spent on customer success -- the CSM team itself, account management teams, customer engagement and adoption systems, customer retention and nurture programs, professional services and training and customer marketing.

With that number in hand, by dividing by the number of customers, their value or the total annual revenue, you can begin to home in on valid ROI figures.

As Totango fleshes out formulas and guidelines for calculating CRC, two salient points emerge: CRC must be evaluated alongside customer acquisition costs (CAC), and a company cannot assume the CRC reduces over time. In other words, just because a customer stays doesn’t mean the cost to retain that customer decreases. The longer a customer remains, so, too, does the likelihood of increased costs associated with upgrades, more users and more customer education.

What’s the ROI . . . to the customer?

For B2B or enterprise products, customer success managers are expected to answer the ROI question not only for the C-suite, but also for customers. They must demonstrate to buyers the ROI they’ll obtain by purchasing their software solution in terms of increased profits and productivity.

Simply charting how many times a user logs into the program or using other subjective metrics are not going to convince a potential customer to buy the product. So, the ROI question is really twofold:

  • What training managers bring to their own companies.
  • And what they bring to the companies that use their product.

The ability to answer those questions in dollars and cents terms is the holy grail of customer success management.

 

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