Customer Success | 5 MIN READ

Customer Success: Cost Center or Profit Center?

Is Customer Success a Cost center or a profit center? Know all about CS profit center vs cost center and improve customer experience.

Niyathi Rao
Apr 22, 2021

Customer Success as a Profit Center

Customer Success as a Profit Center

Customer Success as a function is highly misunderstood. It is to be noted that CS teams are the backbone of SaaS companies. The recurring models and customer management requires a skill set that will help reduce customer churn. Initially, CS teams were thought of as cost centers. However, the role has changed with every company almost hiring a Customer Success Manager.

CS, however, needs to be a company-wide initiative. A proactive approach with CS teams will help customers understand how your organization can add value. Effective CS management can work as a profit center and not a leakage or cost lines. Let us first understand the base behind this cost center vs profit center.

Cost center vs Profit center

Customer Success services, traditionally, are a cost center. The main job is to fight churn. They where not looked as revenue sources. Instead if a customer left, it was considered the responsibility of the CS team alone. However, the industry evolved in 1990s with SaaS. In SaaS, revenue operations are driven by customer subscriptions and hence customer success. This led to companies understanding that CS can be a profit center when value realisation is achieved by clients. The perspective shifted vastly.

Traditional Approach: CS a Cost Center

A traditional approach of CS does not recognise customer growth and customer value. It did not 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, 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 is focused on increasing customer knowledge on the value they can realise from that product. It is up to the customers to take actions that will help them realise that value.

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 that are based on action to improve value and bridge value gaps. The three objectives of customer success are-

  • Onboarding
  • Retention
  • Expansion

These three are effective at helping customers achieve their goals. CLV or customer lifetime value is based on compound interest. A mere one percent increase in one metric leads to a ripple of enormous difference over a period of time. The key metrics that will help measure CS are-

  • Expansion revenue
  • MRR
  • Onboarding revenue
  • Recurring revenue

This difference is what makes the CS difference between customer success profit center vs cost center. The focus shift from delivering technology to delivering value is what constitutes the CS shift.

How to Drive CS as a Profit Center

The underlying difference CS can make is with product adoption and improving product experience. This is what makes it a revenue or profit center as compared to a cost center. 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 to take action and drive adoption accordingly.

CSM Executives Need to be Prepared

Your executives need to be prepared with helping your customers achieve success. Ensure that customer success is a company-wide responsibility. Make sure your customer success executives know about the product well enough to make customers get value.

Have Profitable Offerings

Developing knowledge and action combined offering will help drive CS value. Knowledge needs to help customers solve their actual crisis.

Understand and Segment Your Customers

Segmenting customers will help address various needs. Making sure customers get service as per needs is important. Keep in mind that 80 percent of your company revenue can come from 20 percent of existing customers. These customers can be found with segmentation and targeting.

Touch point based Service Offerings

Having multiple touch points with customers is important. This is what is required in CS 2.0. With professional automated touchpoint tools, CS teams can ensure customers are getting value.

Market Your Services

Marketing teams must be involved with your customer success efforts. What if the customer was told about features that do not exist? To reduce that gap, it is important to clearly articulate the value for the customer. Ensure that marketing is different for existing and new customers.

Sales and CS hand-in-hand

Sales and CS teams need to be together. Sales teams need to know the problems of the CS teams and vice-versa. It needs to be profit driven. Selling must be made in an efficient manner so that CS teams can scale. With upselling and cross-selling, it is possible to grow your company through CS.

Advocacy

Advocacy activities help drive customer success and growth. Revenue generated from advocacy activities is helpful in bringing community awareness. They will repurchase your program and even recommend it thereby increasing NPS. This is all based on the value CSMs can provide customers.

Bottom Line

A company can grow when the revenue expands or the customers are satisfied. With customer success as a profit center, it is possible to realise growth potential. When customers are at the center of any company efforts, customer success can be achieved. This goes beyond categorising CS as a cost center to a profit, revenue-generating center. CSMs in that aspect will offer helpful, unique guidance to customers to solve their problems. This will help reach business goals and also be helpful for customer loyalty.

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Niyathi Rao

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.

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