Customer Success as a function is highly misunderstood. Yet CS teams are the backbone of SaaS companies since the recurring business model, and customer management requires a skill set that can help reduce customer churn.
It wasn’t always seen this way. Initially, CS teams were thought of as cost centers. Now the role has changed, and more and more companies are building a CS team.
However, not every company sees CS as a source of revenue but as a cost.
In this guide, we’ll cover what a CS cost versus profit center is, which customer success falls into, and much more.
Cost center vs Profit center
Previously customer success services were considered a cost center. While its primary purpose is to fight churn, many stakeholders struggled to see it as anything more than an additional cost. They weren’t viewed as revenue sources.
Instead, if a customer left, it was considered the responsibility of the CS team alone. However, the SaaS industry evolved in the 1990s. As a result, revenue operations were driven by customer subscriptions and hence customer success. This led to companies understanding that CS can be a profit center when customers can see and get value from a product.
Traditional Approach: CS a Cost Center
A traditional approach of CS doesn’t recognize customer growth and customer value. It didn’t take into account that revenue growth can accelerate company growth. By not considering impacts like CLV, CS had a very limited outlook. This led to customer issues not being addressed in the long run. Also, the potential for upsells, cross sells, revenue increases, and other expansion revenue was lost. This led to a narrow perspective of what a CS team can do.
A typical customer success plan focused on increasing customer knowledge on the value they can get from a product. And it was solely up to the customers to take actions that would help them realize that value.
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The New Model: CS 2.0
CS is a revenue driver as opposed to a cost center. Profitable customer success needs you to deliver services based on action to improve value and bridge value gaps. The three objectives of customer success are:
These three are effective at helping customers achieve their goals. CLV or customer lifetime value is based on compound interest. Even a one percent increase can make an enormous difference over time. The key metrics that will help measure CS are:
- Expansion revenue
- Onboarding revenue
- Recurring revenue
This difference is what makes customer success a profit center and not a cost center. Because the focus shifts from delivering technology to delivering value.
How to Drive CS as a Profit Center
The underlying difference CS can make is with product adoption and improving product experience. The best way to deliver success via CS as a profit center is by increasing customers’ ROI. Sustaining effective adoption is necessary for business value. You need to ensure that customers are capable of taking action and driving adoption accordingly.
CSM Executives Need to be Prepared
Your executives need to be adequately equipped with product knowledge to help your customers succeed. Customer success is a company-wide responsibility, so ensuring that your executives—and by extension, their teams—are prepared is vital to helping your customers find value in your product.
Understand and Segment Your Customers
Making sure that your customers are segmented to address their various needs is another way to transform CS from cost to profit center. And since 80 percent of your company revenue can come from 20 percent of existing customers, taking care of your customers is vital.
Touchpoint-based Service Offerings
Having multiple touchpoints with customers is import5ant. This is what is required in CS 2.0. With professional automated touchpoint tools, CS teams can ensure customers are getting the value they need to reach their desired outcome.
Market Your Services
Marketing teams must be involved with your customer success efforts. To keep the transition from learning about a product to using it seamless, it’s important that everyone is on the same page about the value you provide to customers.
Sales and CS hand-in-hand
Sales and CS teams need to work together with problems, expectations, etc. And by doing so, CS teams will be able to upsell and cross-sell effectively.
Advocacy activities help drive customer success and growth. Revenue generated from advocacy activities helps bring community awareness. They’ll use your product again and even recommend it to others which can increase NPS.
A company can scale effectively when customers are satisfied, which as a result, can increase revenue. With customer success as a profit center, it’s possible to reach your growth potential. 22
When customers are at the center of any company’s efforts, customer success can be achieved. This goes beyond categorising CS as a cost or profit, revenue-generating center. This will help businesses reach their goals and increase customer loyalty.
Niyathi is an experienced content marketer with a love for SaaS tech products. She reads a lot (mostly fiction) and is a huge news junkie. Niyathi loves exploring different forms of inbound marketing and taking on challenges.
Published April 22, 2021, Updated June 21, 2022