Video

CLTV Isn’t the Whole Story: Don’t Shortchange Second Order Revenue (Video + Transcript)

courtney@saastrinc.com'

Courtney Rogin

Gainsight’s PULSE 2016 happened earlier this Summer, and Jason Lemkin hosted a four-part panel all about Customer Success from initial hire to scaling a team – and everything in between. We’ll be featuring videos and transcripts from each session, as well as top learnings from each.

First, the magic of Customer Success is second-order revenue, and without this, you’re missing half the story. In the first of four sessions hosted by Jason, we discuss if customer lifetime value really IS the full story and how to implement second-order revenue in your organization.

Featuring:
Matt Garratt, Head of Salesforce Ventures
Joe Loveless,  Director of Customer Success at PowerDMS
Cliff Cate, SVP of Customer Success at ToutApp

Top Three Learnings:

  1. What to take into account when factoring in second-order impacts.
  2. Key indicators of customers that are going to be your greatest advocates and referrers.
  3. How to track and communicate customer feedback across multiple departments.

Want to see more sessions like this? Join us at SaaStr Annual 2017 next February! Click here to purchase your tickets now!

 

Transcript:

00:04 Jason: All right. Good afternoon, everybody. I think we’ve got about four sessions here mostly targeted on some of our favorite themes around learnings from building your first customer success team. And I just wanna highlight a couple quick things from it. Do we have a clicker? I’ll just use this manual clicker. Where is the screen? Oh, on the side.

00:25 Jason: All right. Our first session is one of the first things that I learned really about the magic of customer success is second order revenue. And as we were all figuring customer success out a few years ago, everyone is about CAC ratios, customer lifetime value, what’s my magic number, and all of this. And then having been a founder that had taken something from nothing to tens of millions in SaaS, I realized that we’re missing at least half the story, which is second order revenue. And I built this chart a few years ago, which was my epiphany, which was how much is a customer worth? And we get the first year ACV, and then on the left we get upgrades, and they buy more, and we have what we call now net negative churn. And then it gets even better. Our champions quit after all our hard work of getting them, and they go to another customer and they bring it in. And then, finally, word of mouth and influencers work, but it all takes years.

01:18 Jason: It takes like three years to build up the ACV in a lot of counts, and it takes years for the second order revenue to happen. So if you’re a founder or CEO and you want everything to happen this quarter, our customers don’t really beget more customers in a quarter. They don’t even really beget more customers in a year, but in years two and three this sort of magic power comes out. And personally, I learned that at a certain point the best SaaS companies, the best recurring revenue companies, can grow almost 40%, 50%, 60% a month year over year just upselling to the existing base without even new customers.

01:51 Jason: So I kind of boil this down to this one idea. If your customers love you, because if they don’t love you, they’re not gonna refer you. You’re not gonna get more revenue. If you have this NPS of 50, 60, 70, however you define love, and you’ve been out there long enough, if you’ve been at your game, if you’ve gotten to four to five million, if you’re a few years out there, you just can’t be stopped. And so if you know nothing else, absolutely nothing else, at four to five million with a good NPS, just invest in customer success and take this back to your boss. Or if you’re a CEO here, don’t hire the extra sales rep, hire the extra CSM. This is where you’re gonna win long-term. So with that, let me introduce Matt Garratt, who heads Salesforce Ventures, and he’s gonna bring up a discussion to talk about this.

02:39 Matt: Great. So Jason gave a phenomenal overview. And so in this session, we’ll be talking about is CLTV. Is customer lifetime value really the whole story? And, as Jason said, if you’re only focused on some of the first-order effects, you may be under-investing in customer success or over-investing in sales. So with that, we have a couple of experts who will talk about this. We have Joe Loveless, who’ll be joining us. He’s the Director of Customer Success at PowerDMS. And we also have Cliff Cate. He’ll be joining us as well, and he’s the SVP of Customer Success at ToutApp. Thanks for joining us, guys.

03:15 Joe: Thank you, Conan. [laughter]

03:17 Matt: All right. So what we’re gonna do is we’re gonna dive into this topic, and we’ll do initial bit of level setting first just to make sure that everyone is familiar with customer lifetime value calculations. How do we then think about how do we integrate second-order impacts onto that? And then, also, when you start to take that into account, how do you identify those advocates? How do you promote them and make them happy champions for your business? And then, also, when you start to think about that and the overall impact of making investment decisions, how does that weigh in? Investing more in customer success versus sales and marketing. So with that, we will let Joe kick it off. So Joe, just to level set, can you talk us a little bit about customer lifetime value? Make sure that everyone is on the same page.

04:04 Joe: Yeah, to me, the basic customer lifetime value equation is really a left brain equation. It’s taking some of the standard numbers we know, churn rate, MRR, ARR, lifetime gross margin, and works into this calculation right here. This is the one we use at a 30,000-foot level for our company. What’s tough is it doesn’t help drive enough day-to-day, week-to-week decision making. It’s really great at a 30,000-foot level but doesn’t really help you generate new progress. And one of the things we like to talk about at PowerDMS is if you’re staring at metrics that are not generating rigorous debate and discussion, then you’re studying points of data that aren’t gonna create new value for you, so you probably need to rework it.

04:46 Matt: Great. So now when you start thinking about this broader network of fact and you’re taking in other second-order impacts, maybe walk us through some of the things that you’re taking into account.

04:56 Joe: Yeah, so second-order revenue is kind of taking the traditional lifetime value equation, and it says, “Let’s accessorize, right? Let’s see what else we can add onto this.” There’s the growth that can happen simply by the organization growing. There’s the additional license count. You can make new products that you’re selling. There’s advocacy. There’s piggy-backing, which I think you were calling champion change. And there’s also kind of culture creating that also happens within a customer that’s really hard to quantify, so I think what we’re seeing within a lot of our organizations is we now have customers of ours that their titles are even changing, that take on the name of your product or service and is really helping reshape an entire industry altogether. That kind of stuff becomes really difficult to quantify into some sort of simple value from that particular customer. So I think here’s kind of a base attempt at what that formula might look like, though.

05:50 Joe: So you take your classic lifetime value calculation. You then throw this idea of measuring what is the growth of the customer, and then there’s also this idea of the network effect of the customer which we’re trying to start to calculate as well and try to understand. So as you look at what is an individual’s, customer’s influence through referrals and references and reviews and how do you actually tie that value all the way back to the customer from the very beginning and how do you actually give them a number or score that represents that is gonna change even, I think, the segmentation that you and I do with customers.

06:26 Joe: So right now, the traditional segmentation is around ARR, MRR, how much money can they deliver to us this year or this month, but I think one of the things we’re trying to take a look at for us is not just how much money do they have that they’re gonna be investing in us, but how much could they produce for us over time. So traditionally, you would place higher value in a customer that’s gonna bring you 50K a year, when really who’s gonna be more valuable is the customer who’s actually only purchasing 20K a year, but they’re gonna refer you four times that year for another 20K a pop. So if we were looking at the traditional customer lifetime value, we would be investing in the wrong people when there’s really some other people out there who might be paying less to us, but actually could be placing more value into our organization over the long haul.

07:15 Matt: Got it. That’s a super important point I think. What Cliff will talk about in a little bit is what are some of the key indicators and how do you identify those customers that are gonna be great advocates and great refers. So talk a little bit… We talked about it in general terms. Talk a little bit more about the different forms that second-order revenue can take and how do you actively promote that?

07:36 Joe: So there’s kind of four quadrants here. I feel like one is product so you can create new solutions. You can also do more user saturation, increase license count purchasing that sort of thing, which is great if you’re working at kind of enterprise-level businesses that have more spend. If you’re working with small businesses, this becomes a lot harder to try to scale in this area. Same things with doing additional training, on-site training, certifications. Gainsight did their university yesterday, it’s kind of that same sort of concept. Again, great at the enterprise level where people have a lot more spend, a lot more difficult the small business level, and then on the other side you have advocacy, just references, referrals, customer reviews and then even what I call kinda swag share. So as we’re trying to figure out, what is the data we can give our customers that make them feel confident? And I think that’s really one of the key components to helping drive the promotion of second-order revenue within companies is the more you and I can help companies feel confident, the more we can increase their confidence, the more we can give them data to help them understand that they are succeeding on our platform, the more likely they are to trust us with new products, the more likely they are to recommend us to other people.

08:49 Jason: Do you score your customers in an advocacy in some way in Salesforce or Gainsight or otherwise? And how do you do it?

08:55 Joe: So we don’t do that yet. For us, that’s brand new, tip of the iceberg, that we’re really trying to work on. How do we kind of reverse navigate this? And no longer just segment based on ARR, but really understanding tracking the value that they’re creating for a company and all the other places. It’s really messy though.

09:12 Matt: And to that point, when you look at this quadrant, how do you decide which of these are the most important areas to really focus on if you could do advocacy, you can do swag share, how do you prioritize?

09:23 Joe: I think one thing leads to the other. So I think building customer confidence. And you’ve got to figure out in your organization how are you gonna do that, what are the specific tools. It might actually be through the way that you’re doing training, which I think then influences advocacy and at the same time you’re gonna have people within your company through business development, things of that nature, who are gonna be working on your additional products to add value. But as far as where to place that particular investment, I would say it really depends on the company, the size that they are, the market they’re in, and what’s working.

09:55 Matt: Got it. So that’s a great overview. So Cliff, before we get into some of the more tactical things you can do to identify those promoters and really make them active, kind of take us back and Jason did a good job of sort of setting this up at the beginning, but why is this so important? Why should we be focusing on this?

10:13 Cliff: So great baseline. I wanna zoom back up. I love this diagram. So traditionally, we spend a lot of time at this front end of the funnel, optimizing the sales teams. And then, what we’re all here for, probably all of us in CSMs, are all about this back half of the funnel, right? Once we get a customer, how do we make them happy, how do we get them to adopt the product, et cetera. Well, that’s all well and good but there’s this second-order effect that we’ve been talking about. And I think we need to start really focusing on this second-order benefit. Particularly if you’re a venture-funded company, there’s a lot more focus on how do you get more out of what you have today. So looking at your existing customers, when they’re happy, taking advantage of that. And there’s a lot of ways to do this, either they buy more like we’ve been talking about traditionally or they have friends and their friends buy more. And why is that important? Because these people that are buying are cheaper to do business with. They are a lot less costly to acquire, they usually convert a lot faster, the sell cycle is shorter. All of this is really, really important particularly in today’s new economy.

11:31 Jason: And just curious, do you guys… How do you quantify your advocates or tag them or score them? What’s the learning there?

11:39 Cliff: Yeah. So I think there’s no one way… You should… The question is there’s a lot of different signals here. Start picking a few and start trying to track them. So one of the things at Tout, we sell the sales people. Sales people tend to have a pretty quick turnover, less than two years on the job and they’re on to the next job, which is both a big challenge from my role but also a big opportunity when it comes to this. So, one of the specific things we do is a lead source. Were they a referral or a previous customer? We start tracking that and we look every month, every quarter, at the pipe line, what percentage. And that is a really good thing to start tracking. And then in a subsequent slide, I’ve got several other metrics we track.

12:24 Matt: Great. So as you said, before you can start advocacy, you’ve got to make your customers happy. So talk us through a little bit about that. How do you do that?

12:32 Cliff: Yep. So, Jason talks a lot about the $4 to $5 million magics, kind of sweet spot, and when this becomes a potential. A lot of that has to do with you have to get your customers to that value that they purchased the product for. It’s incredibly important that you don’t forget the basics. That you focus on getting the right customers and getting them quick time to value and getting them happy. ‘Cause it’s not until then that the advocacy can happen. So, a couple quick things that we put in place that make a big difference. First, pretty obvious, sell to the right customers. Why do I say this? That seems like an obvious thing. You guys have an incredible role in this. You guys know which customers are successful, which customers are happy. You need to influence marketing. You need to influence sales and get that feedback loop coming. So that’s a big part of what you should be doing.

13:26 Matt: And do you do that today? Is that something… Joe or either one of you, is that something you’re actively doing? Working with the sales team and saying, “Look these are our successful customers. While maybe there’s a bigger ACV deal down the road, we know that long term, this is gonna have more value.” Do you have those types of conversations?

13:43 Joe: Yeah. I think that’s something we’re always working on improving, but it’s certainly happening as we’re looking at the references, referrals, and reviews, and how they work to influence the sales process overall. That’s something… Actually, I’ll show a slide even just a little bit later just about that entire ecosystem that I think is so crucial to really companies succeeding.

14:02 Cliff: And an easy way to do this, if at your e-staff meeting or your managers’ meeting, if you’re a Gainsight customer, you should be using the health score, you should be talking about your red accounts. Why are these red? And your role needs to be the synthesis on that. And chances are there’s a trend in that red. And that’s a big feedback loop for sales marketing. So a couple other quick things, particularly if you have a segmented new business sales team and a customer success team, right when they become a customer, making that as smooth as possible, making sure that what the value that the sales team has uncovered during the sales cycle, your CSM team knows, and that you get that running smoothly, that transition because it’s all about getting that first time to value. A couple things we do is this kind of first value check-in.

15:00 Cliff: For us, it’s a pretty quick time to value, so in that first 30 days, I wanna be going back to the customer. I wanna be scheduling a meeting with them to check in with them on the goals and how we’re doing against those goals. The reason that’s important when it comes to this topic is that is the perfect time to ask. Typically, when customers see that first value, they’re very excited, they’re happy, and you can use that to your advantage. And then, the fifth point is social is such a huge communication channel for this. Make it super easy. When you have identified customers that are happy, I’ll talk more about this, but make it easy for you to promote that on social channels.

15:47 Matt: Okay. So, you’re starting to create some advocates, you know they’re out there. So, then how do you identify and track them? How do you figure out who are the right people to then follow up with?

15:57 Cliff: Right. So, this is kind of a laundry list. I think you can pick and choose some of these things. To my earlier point, there isn’t one magic number here or one magic metric, at least that I’ve found, to track this. But here’s some really good things that we look at. Obviously, product usage and health score, which I talked about. These are things you can be using as a tool to promote across the company and shed light on who are your happy customers? Where are the trends that are not working out well? Obviously, there’s been a lot of discussion on NPS and CSAT. Those are really great signals. And I also talk later about how to take advantage of when you get NPS score and CSAT scores, what to do about it. G2 Crowd, if you’re a B2B company. Both G2 Crowd and some of the other app exchanges, these are where your customers are going to learn about your product early on.

16:49 Cliff: So, can you direct some of your customers here? But more importantly, what are the signals you’re seeing because they’re all writing reviews here. You’re getting scores. You need to look here. Social, another thing, tracking your followers of both your account, but then also following your key customers. What’s the engagement that they’re having with your company on social? You can get really good signals on who the big advocates are. Event attendance, this is obviously a great example, but you can think about doing very local, personalized events. Happy hours, dinners in your local cities, and the people that tend to come to those are great sources of where your happy customers are.

17:31 Matt: So how do you track all this? How do you aggregate it? And you said there’s no magic bullet, but do you create some sort of aggregate score? How do you manage all this, particularly at scale?

17:39 Cliff: Yep. So, today, I’m not aggregating all this together. These are I see as signals that I have in literally a Google Doc, and there’s a number of things that we’re tracking and looking at.

17:51 Matt: Is that something you’ve standardized across your team? Are you pushing it down and you’re having in weekly discussions in your training? How does everyone in your team know what to track?

18:00 Cliff: Part of this gets bubbled up on a weekly basis in the e-staff meeting. Part of this is being tracked on a weekly basis that I’m talking with the broader team.

18:10 Matt: Got it.

18:10 Joe: A lot of fancy stuff and spreadsheets.

18:12 Cliff: Yo, yeah. I don’t know if we could remember…

[overlapping conversation]

[chuckle]

18:15 Matt: Sounds like a company.

[chuckle]

18:15 Cliff: Yeah.

18:17 Jason: Just out of curiosity, as you track these advocates in your Google Doc, how do you interact with marketing and both corporate and product and others in there because they’re looking to source advocates as well. How does that… Is there a virtual loop there? Are they attacks on your time?

18:32 Cliff: They can be, yeah, yeah. So they’re constantly. Sales is constantly coming. Marketing is constantly coming. “Hey I need a reference for this deal. I need a reference for this deal.” So one of the things we did is we exposed some of this in Salesforce and created a dashboard. Tried to make some of the self-service when it came to references so that the reps could first go there and understand, “Okay, I’ve got a customer in this industry. Give me two or three happy customers or customers that are really engaged.”

19:00 Matt: Jason, in any of your portfolio companies, have you seen best practices and managing all this at scale?

19:06 Jason: I am trying to learn as well as you are. I think that what I’m trying… What a lot of us have gotten good at is waiting logos, right? However we do it in Salesforce or other Gainsight, we know we have wait logos. If Salesforce comes in and buys 10 seats, we know we want Salesforce to be happy because the dominoes will fall. If we get Google, we’ll get Facebook, we’ll get Twitter. So there’s different ways we’ve all figured that in our waiting. You can hack it and claim it’s 100,000 seat account. You can do it for real but we all have logo waiting. I haven’t seen… And then I’ve seen a lot of folks with a disconnect for a lot of… They’ll start figuring out how to use something like Influitive and other processes to do it, but I haven’t seen the perfect composite score of who are my top influencers and maybe ultimately a full dedicated resource to just do… You wanna be a layer on top of customer success and your job as I know is whether it’s as silly as bringing cookies or making sure that they have the maximum exposure, I don’t know the answer, but sort of your Chief Advocate Officer has this idea whose time is kind of come I think.

20:06 Matt: Yup. Well, moving on to that, so you’ve figured out how to create advocates, how to identify them, so now how do you really activate them and get them engaged?

20:15 Cliff: So, yeah, again trying to be very practical. Hopefully, you can walk out of the room with a couple ideas. Here’s six that we’re using with great result today. So we talked about NPS, we talked about CSAT, so we use Zendesk in support, and as part of Zendesk process they survey every customer that has a ticket. I look at that data and everybody that’s given us a positive review I take a subset of those and ask them to take action. For us, we drive people to the marketplace as we talked about G2 Crowd app exchange and others or social. So we’re asking them to promote, “Thank you for giving us great feedback and now would you mind doing x.” And that has a huge… It’s a very easy thing to do and there’s a huge benefit. Second, it’s not just about getting your customers to… And all of us hopefully are living this. But it’s not about getting our customers just to learn how to use the features of your product better, use every opportunity to teach them and focus on the things that really matter to them.

21:20 Cliff: In a lot of cases, it’s about their career aspirations, so not how do I get to become a better user at Tout, but how to become a better sales person. Figure out how to ingrain that in the way that you work with your customers ’cause I think you really touch on something a lot stronger. Get customers together. Salesforce did a great job of this 15 years ago. Happy Hours Dinner, LinkedIn groups, it doesn’t have to be giant like this. It can be in location. And from that, you get great conversations obviously, but you tend to attract the people that are gonna be your advocates.

21:52 Matt: Are you doing that also in tandem with your marketing team?

21:55 Cliff: Yes. It’s driven by my team. But in tandem with them, there’s a lot of coordination. But for us, these local events in cities where we have clusters of customers, we’re going there anyways to have meetings with them. Why not have a dinner, why not have a happy hour, it’s really powerful and really…

22:12 Matt: Are you asking them to invite additional people or how do you get other people to come along?

22:16 Cliff: Tactically, the way I’m doing it today is we actually see them with about half customer or half prospect, so a lot of my partnership is with sales.

22:24 Matt: Got it.

22:26 Cliff: And then, I analyze the current advocates. This is some of what we’re talking about the tools around this. But once you got three or four really great advocates, how do you find four or five more that look like them? I think you’ll quickly see that there’s some common attributes, either the industry they’re in, the role they’re in, et cetera, to go find more. Build this into the product. Obviously, make it easy for people to promote your product. A lot of our customers are VPs of Sales, they wanna export all the great stuff in our product and bring it to the board meeting or their managers’ meeting. Make it easy for them to do that. And then partner with marketing, we talked a lot about this. Instead of it just being this interrupt driven thing, do the simple thing. Just set a monthly meeting so that you’re talking about the top customers and you’re starting to align on common things.

23:18 Matt: Joe, is there anything else you would add to that list? Or is there anything… Have you applied a lot of these and what have been some of the best successes that you’ve had?

23:26 Joe: Yeah. You were talking about out of your surveys as far as customer satisfaction goes, that’s where you drive advocacy. For us, we do it off of NPS results. So we send that out to a subset of customers every month. And then based on how they rate that, that’s how we start to identify our advocates and start to reach out to them. So part of that is inviting them into a community of advocacy and the other part of that is we know you really like us a lot and so there’s certain things that we’re gonna start to send to you that we’re not gonna send everybody else. Because even though you might not say you wanna be a part of our advocacy community, we know you really love us and you’re likely gonna do something for us here in the future.

24:04 Matt: Got it. Are there any anecdotes you have for any of these activities that you’ve done and you’ve seen just a tremendous amount of success? Or is there one of these that tends to be more successful than the others?

24:14 Joe: I don’t know that I would say there’s one that’s more successful than the other. I think ultimately this idea of partnering with marketing is the whole point behind this. I think the idea is I feel like we keep trying to pit this war in between sales and marketing and customer success. And I feel like it’s like, “Yes.” For us, at PowerDMS, we’ve got our Chief Marketing Officer, Kevin Knox, our VP of Customer Success, Sandy Miranda, sitting together right now because we see this as essential for us to be able to work together, is this entire partnership and we kind of see it as as an ecosystem. So our customer success team is not trying to simply mitigate churn. Their job is not defense. It’s kind of creating a customer creation ecosystem. And so that unity in between those two is essential.

25:11 Matt: Got it.

25:11 Jason: I just add. My zen learning on this list is number three. Number three. What we don’t tend to do especially in software companies that are in focus, we don’t get together enough. You cannot possibly meet enough customers one-on-one and even more importantly, though, you can’t have enough dinners and happy hours. The steak dinner is the best expenditure and thinking through this now live, customer success should have a steak dinner quota and budget. You should have both a quota and a budget. And if I want you to do five on-sites a month, maybe everyone on the team that’s senior should be doing two meetings a month like, “Here’s your new quota, I want you to do two. Here’s your budget.”

25:48 Cliff: It’s part of my quarterly [25:49] ____.

25:50 Jason: And its a quota, right? And the biggest trap we get into is that you don’t meet someone on the phone, it’s not a meeting, you have no relationship. They may advocate for you but it’s ’cause they love your product. But if you meet them, I can’t quantify this yet, the odds that you’ll get that referral go up five x. There’s some vast amount, so do a steak dinner, if nothing else, it’s that it sounds like silly in the age of the internet, but it’s the highest ROI, I think.

26:16 Matt: Right, the steak dinner metric.

[chuckle]

26:22 Jason: And you gotta drag your CEO there. A lot of times, the CEOs don’t wanna do it. They gotta go.

26:28 Matt: So kind of boiling this back as we talked a lot about CLTV and then second-order impacts and then when you bake that in this becomes an ever more important decision in thinking about investing in customer success versus sales. So, Joe, maybe give us an overview, how do you make this decision at your company? How does this play into that?

26:48 Joe: Yes. This metric is something we look at with our team, the board looks at it, our VPs and directors take a look at it. I think the tough deal is… The brutal honesty around lifetime value is it doesn’t tend to drive a lot of consistent debate because of the limited amount of data that goes into it. And I’m curious, your opinion on this. It really feels like it’s an investor’s number. It’s an attempt at a crystal ball at what does the future going to look like here.

27:16 Jason: Yeah, I don’t even care about customer lifetime value as a metric. If you have operational efficiency, it works itself out. Great enterprise products have all of net negative churn. Every product that people love has 120% to 130% net negative churn in the enterprise. In the mid market, it’s like 95% to 100%. In the SMB, they churn like there’s nobody’s business. My learning is if you have industry-leading net negative churn numbers, then the CLTV works itself out. And so, we focus too much on this and not enough on making sure that we’re driving net negative churn in the right direction.

27:57 Joe: Yeah. So like this kind of relationship between the customer attention cost versus customer acquisition cost like who we’re gonna invest in, sales and marketing or customer success. I really feel like again trying to pit each other against one another when really what we’re trying to do is kind of create an ecosystem of working together, which I feel like this idea of 2.0, which we might call customer lifetime value 2.0, really helps bring that unity together.

28:24 Cliff: So you pose the question, if you are the CEO. I would pose the question a little differently or make the suggestion to the audience. Given that we’re all success leaders, you have to start doing this. You should be on the offense, and you don’t need to have a dedicated role initially to do this. You don’t need to wait for marketing to do this. This is part of doing your job and marshaling the right resources within your organization. Start simple. Start doing a few of the ideas we’ve talked about and then you’ll start gaining momentum within the organization. But if you don’t do it, then marketing is gonna start doing it and foisting that on you. So I would start finding ways to identify your advocates and start kind of fostering them.

29:12 Matt: As so Jason, you sit on a lot of boards and you’re thinking in guiding companies and where to marshal resources, are you often having to push more and say invest harder in customer success? And you’re sort of the head of sales or the CEO is not in alignment, is that a dynamic you see a lot?

29:30 Jason: What I’m trying to push now is for customer success to be a quota carrying function. This solves all these functions, once you figure out what the heck your net negative churn should be, unless you’re doing very small business. Okay, well, if we wanna hit 125% from the base next year, this is the quota. And finding a VP of Customer Success that will carry a quota and that will achieve a significant variable cap when she or he achieves it. That’s the next frontier. Because if you get alignment around that and you’re CRC, which I don’t even use it, that’s my new metric today I get it, but it has to have a cost associated with it. If you figure that out, then everything works out natural. So, that’s my attempt to over simplify is turn this in… This isn’t account management. This isn’t upsell. This isn’t farming. This is total installed base. I have $5 million in revenue exiting last year. Our goal next year is to turn into seven. That’s our goal. We know we can do it because we did it last year. We want to do 20% better this year. And if you blow it out, you’re gonna take a piece of every dollar home. And if you don’t make it, we’re gonna top you.

[laughter]

30:33 Jason: I don’t know the consequences exactly. I’m a positive guy. But turn this into a quota carrying, and the folks have been doing it for a while that are aggressive. They’re either willing to do it or we morph the job.

30:44 Matt: Are you’re seeing that companies are signing up to these quotas and that they’re…

30:48 Jason: No. No one wants to do this, but I think it’s an excellent [30:50] ____. But I think the flip side is you gotta… You pay the VP of CS that’s quota carrying, you pay a lot more.

30:56 Matt: If you propose an incentive package, that goes along with that, with a huge upside, I think that might…

31:04 Jason: This is what I’m pushing with every company that I work with. It’s evolving. I don’t see this happening every day. This is the next frontier.

31:09 Cliff: It’s already changing. I think if you polled this team or this audience a year ago, you would have gotten a very different answer than today. So that trend’s already happening.

31:17 Jason: Yeah, it is. I’m not even just talking about a bonus. I’m talking about a quote, your quota. The CS carries it.

31:23 Joe: You’re talking about topping people.

31:25 Jason: No, no. I’m being a little facetious but… And there’s 11 different ways to do an org chart with customers. It’s a confusing function in terms of who reports to whom, but I love this idea of the quota carrying VP of Customer Success.

31:39 Matt: Got it. Well, so why don’t we quickly just do some of the key takeaways? So, obviously, second order revenue materially improves the CLTV and more than that it just fundamentally changes the dynamics in which how you dedicate resources into the company. When you take that into account again, you might start to think more about investing in customer success. If you don’t, it might lead to under-investment. As Cliff pointed out, make sure you get customers happy, build into your system ways to identify those people and customers that are gonna be advocates, and then really build into your workflow. How are you going to engage those advocates and measure that? And so there’s a number of tactical ways which we talked about to drive second-order revenue. And then think about segmenting customers, not just on their ARR but also on some of the factors that we’ve talked about because as Joe said, maybe there’s some customer that bigger ACV deal, but if you go after the customers that are gonna be good advocates, they fit that profile, you know that this is the type of customer that if you make them happy that’s gonna have a spiral effect and really you should focus on those. Any last points to add?

32:54 Cliff: Start experimenting now. If you’re not doing this today, pick one thing and start experimenting.

33:00 Matt: Super. Thank you.

33:02 Cliff: Yeah.

[music]

Published on July 19, 2016
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