To begin with any project or even an organization, you must “Start with Why”, as Simon Sinek puts it. This holds true even for building an effective business case for customer success.
Ask yourself first, why would your CEO or CFO invest in such a program? Once you are clear on this, rest of the things will fall into place progressively.
To get started on building a business case, you need to follow these four steps:
- Highlight the problem
- Propose a solution
- Mention cost
- Quantify outcomes
Let’s look at them individually in the context of customer success.
Highlight the problem
If your company has not yet started its customer success program, there would definitely be a lot of opportunities to optimize your revenues. Identifying and quantifying these areas of improvement would be a good starting point to highlight. They are:
- Churn rate: This can be shown in two ways – Revenue churn and Customer churn. Get these numbers by analyzing your company’s past performance over a year and calculate the MRR/ARR or the number of customers lost in this period. Compare this figure with the acquisition cost and document the loss in ROI due to early churn.
- Upsell limitations: Calculate the bucket size of customers who qualify for upgrades or account expansion. Then calculate the number of actual upsells that have taken place in a specific duration, say a year. Most likely, there would be a considerable gap between the two.
- Poor onboarding: Due to lack of optimized onboarding process or no dedicated personnel to direct it, how many customers churned during the first 30 to 60 days post sales. What was the average time to value for these customers? Most likely it would be much higher than your industry standard.
- Barriers to product adoption: Lack of real-time monitoring and proactive support might have caused barriers for customers to adopt the product. To back your point, document the churned customers’ usage hours and depth of engagement with the product.
- Loss of potential referrals: Lack of process to track referrals could be one problem. Less referrals could be another. Compare the cost of acquisition (which would be much higher) with that of investing in building brand advocates.
Likewise, identify all other problem areas applicable to your business context.
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Propose a Solution
The second step would be providing solutions to all the problems identified above. With reference to the different aspects of customer success, show how you are going to resolve each of them.
The above table shows the “What” part of the solution. But these solutions are incomplete until you have a plan in place to achieve them.
Hence, “how” you are going to do this should also be shared and will cover another set of steps for creating your customer success program:
- Setting up your team: Hiring the right talent and defining their KRAs would be needed for you to build your team. Based on the current installed base, a proper customer success capacity planning would be needed with the right reporting structure in place.
- Creating process: You need to specify the process and framework to guide your operations team, your technical specialists, onboarding specialists and the cross-functional collaboration needed from other departments.
- Selecting the right tool: The customer success platform you would be needing should also be mentioned in your customer success business case.
- Reporting mechanism: Your customer success business case should also include the expectations, like the needed support, from your superiors to whom you are presenting it. You should also mention the KPIs that you would report to them on a regular basis.
Sharing your plan would instill confidence in your executive members to consider the value proposition of your customer success initiative.
The overall cost to start a customer success program should be broken down into its multiple components for a more accurate estimate. The associated cost would include:
- Staffing cost: Headcount of CSMs/CSLs required to serve the current installed base along with the Director of CS. Their average salaries should be summed up to arrive at the total staffing cost.
- Automation cost: What tool you would use along with the plan to subscribe that meets your customer success automation needs should be well-researched in advance. If possible, have a word with your short-listed vendor to get the quotations.
- Training cost: Identify the cost involved with necessary training your team might be needing.
- Incentives: If you plan to incentivize your staff based on performance, then mention that too. What percent of revenue growth or retention would become an incentive would be worth mentioning here.
- Outsourcing cost: Do you plan to outsource some of your components like RPO or customer success optimization on a timely basis by hiring an expert? Mention this too.
Having arrived a final figure by summing up all the costs above would help executives to assess their annual budget with respect to the ROI to initiate customer success.
The best ways to quantify outcomes are in the forms of reduced cost, revenue retention and revenue growth. List down the metrics revealing this information in your customer success project proposal with respect to their current state and future targets.
- Churn rate: Set up a target for reducing the revenue churn on a monthly or yearly basis. If the current churn rate is 30%, set a target to reduce it to 15 to 20% within a year. An ideal churn rate is considered to be 5% (annually, not monthly) for SaaS organizations. However, it varies for different niches.
- MRR increase: Based on the current MRR of the company, calculate the percentage increase after you reduce the churn rate. Quote the figure in your slides.
- Upsells estimates: Count the number of potential buyers from your existing base and multiply them with the price of an upgraded plan or another product. Show the final figure that you aim to earn through your customer success program’s upsells initiatives.
- Lower Time to Value: If your current average time to value is 15 days, show how you can reduce that to 5 days. Which means lower churn rate and more bandwidth for the staff.
- Lower support cost: Customers with dedicated CSMs would naturally need less assistance from technical support staff. Find the current frequency of calls and set a target to reduce them through proactive engagement of your CSMs.
- Leveraging referrals: Identify the potential customers whom you can turn into your brand advocates. The word-of-mouth marketing is usually free with no direct cost involved and works better than the traditional marketing with higher CAC. Calculate the savings on CAC through referral channel.
- Higher Lifetime Value: Estimate what lifetime value you plan to achieve for an average customer and compare that with the current value.
- Higher valuation of Business: Investors usually consider LTV, churn rate and retention rate to measure the health of your business. This has a direct correlation with your business valuation. Make sure to mention this point.
Apart from these, you can also include some industry-wide customer success stats to back your research.
While creating a business case for customer success, it is easy to get lost into the details. But what matters most to the C-suite is the breadth of your research, the comprehensiveness of it, rather than vertical intricacies. The more abstract information you provide and keep it focused on the outcomes, the better it is. However, keep the details always ready to back your points should they need to go deeper on any aspect.18
Convert all these details into your presentation slides with a bit of aesthetics and you are good to go!
Rohan has over 11 years of experience in client services, marketing and hospitality field. Previously, he was head of digital marketing for a hi-tech mobile application. Rohan is driven by new challenges and the possibility of making an impact on individuals and businesses.
Published February 19, 2021, Updated March 01, 2023