Customer Success and The Case for Intentional Revenue™
In my career, I’ve worked with and consulted many technology firms from small to large on customer renewal issues. Most have had at least a reasonable level of success, and many have gone on to do very well. Over the years I’ve collected a set of notes. I tried to understand why some have exceeded expectations and why some have fallen short. A lot has to do with consistent execution and growth, but then I looked at the numbers further – is it only about sales? About good products? Good after-sale support? It’s that and more. I’ve come up with a model that I call Intentional Revenue™ which has three elements.
Customer Desired Outcome
First, you build, sell, install and support a customer so they reach their desired outcome. You’re not selling a “product” or even a “solution”. A simple analogy – you’re looking for a new car and are considering a convertible. Reliability, power, space and value are important. But the end result is not a car. You’re buying into a lifestyle where you can put the top down and relax in the sunshine.
Your customers are the same. If a customer needs a new billing system, they’re not buying it from you because they like billing systems. They are buying because it solves a problem. They are buying relief from their current system. That’s the outcome they are looking for.
This all sounds simple. But in my experience, the value chain in technology solutions is often broken. Sales can oversell or over-commit. Products can be faulty or not deliver promised functionality. Implementation services seek sign-offs rather than delivering value. And support focuses on closing tickets not resolving the issue.
I’ve tackled and solved many problems in these areas. Often sales coaching will help along with deal reviews. Product reviews against consistent, communicated roadmaps also ensure alignment. Implementation services focused on success and not milestone achievements are critical. Support surveys that measure results, not closure rates, provide positive feedback and reinforcement.
The Intentional Revenue™ goal is to achieve 100% alignment between a sale and achieving the customer’s desired outcome. For every customer.
The key to long-term success for startups or mature companies is customer renewals. Software or technology is usually sold in one of three ways:
– Perpetual License (fee paid for permanent ownership; annual support is usually extra)
– Term License (fee paid for license and support for a fixed term)
– SaaS (fee paid to host a solution, for support and licensing, usually for a fixed term).
In these cases there are revenue opportunities beyond the initial sale. Implementation services and education are almost always added to the license costs. There are fees from ongoing support. And there are fees for major upgrades and updates (if not covered by the license agreement).
Customer Lifecycle Management
Customer Lifecycle Management is a discipline in itself. If a customer doesn’t get their desired outcome, their likelihood to renew decreases. A customer will also renew for a short period and look for a replacement if they feel neglected or abused.
Additionally, with renewals, there are two aspects to consider: rate and yield. The renewal rate is the percentage of customers who renew after their first term. Or, those who renew maintenance if they have perpetual licenses. Cell phone and cable services have high churn (non-renewal) rates. B2C software also can have high rates of churn, often approaching 50%. Enterprise software and mission-critical technology have higher renewal rates. But they are rarely 100%.
Renewal yield refers to the capacity or dollar value of each renewal. Let’s say that you sold the customer 500 seats of software, or 500 units of hardware, but they only used 200 of them. They are unlikely to renew for 500. It is more likely the customer will agree to 250 which covers their current usage plus some growth. That would result in a renewal yield of only 50%! It’s also possible to exceed 100%, if you sell more capacity during a renewal cycle. That’s usually a great sign that the customer is getting value and their desired outcome.
It’s much easier to tackle high renewal yields and rates if you think about it up front. I once took over a large portfolio of products. The products had fast declining yield (<50%) and slipping renewal rates. I was able to get the renewal rate to 100% and the yield over 90%. It requires a lot of effort if you’re trying to do it right before a customer renewal.
The Intentional Revenue™ goal is to achieve a 100% renewal rate and 100%+ of renewal yield.
How likely is your customer to recommend you to others? Referrals are a huge source of leads and future business. Of course, negative recommendations are not desirable.
Again, if your customer doesn’t renew, they didn’t achieve their desired outcome. They are not going to give you a recommendation, either. There are times a customer will get their outcome, renew, but not recommend. What’s up? The customer’s treatment before, during or after the renewal cycle is the culprit. The perpetrator might be your CEO or a support technician.
There are ways to measure Likelihood to Recommend (LTR). One of the most popular measures is Net Promoter Score®. Regardless of the method you use, if you’re not getting recommended, you’re leaving money on the table.
The Intentional Revenue™ goal is to have 100% of customers likely to recommend you to others.
You might argue that this works well for one type of product, or for one type of company. I’ve modeled out success for: (1) mature technology companies with term licenses; (2) mature companies that sell perpetual licenses; (3) startups, and (4) growth companies that sell SaaS or term licenses.
Some firms have strong sales teams but aren’t as strong in customer renewals. Others are great at renewal yield but not rate or vice versa. Some are “best in class” at the higher range for each. The model also includes all Intentional Revenue™ principles.
For the first few years of the model, the differences aren’t noticeable. But Intentional Revenue™ plays the long game. Here are the gains you could achieve over 10-years with the Intentional Revenue™ model:
|Solution Type||Average CAGR Improvement over 10 Years over baseline scenario by implementing Intentional Revenue™|
These are illustrations and your numbers may differ. But in all cases, there are tangible revenue improvements. The annual revenue run rate at the 10 year mark is close to double the typical case. This is even in a conservative scenario (mature perpetual). Small improvements in renewal rate, renewal yield and bookings growth deliver big results. If you aren’t already achieving the metrics laid out here, there is room for improvement.
Finally, this is not about selling. Nor about products. Nor about services or support. It is a holistic approach that requires all functions to work together.
How do you get started? Give me a call! My practice offers 3-day onsite assessment workshops to get you underway.