1 The Future of Customer Success www.tsia.com Thomas Lah, Executive Director and Executive Vice President ©2022 Technology & Services Industry Association | 17065 Camino Bernardo, Ste. 200 | San Diego, CA Success 92127 | Tel. 1.858.674.5491 Stephen Fulkerson, ViceSanPresident, Customer Research Marc Troyan, Director, Customer Success Research 2 Research Report The Future of Customer Success By Thomas Lah, Stephen Fulkerson, and Marc Troyan Introduction Over 70% of the technology companies that completed TSIA’s annual organizational structure survey reported they have established a customer success (CS) organization. These are not just born-in-thecloud SaaS companies. Hardware companies like Cisco and Dell that have been around for decades have customer success organizations. Any technology company that sells a technology subscription has learned that customer success is a critical capability for driving the adoption, expansion, and renewal of subscription revenues. But in many ways, customer success is still in its infancy. A majority of technology companies continue to run the customer success function as a cost center. Almost half of technology companies do not monetize any customer success activities. And many technology companies are struggling to determine a financial model that enables them to scale customer success. Because customer success motions are at the heart of economic success for XaaS business models, TSIA believes the technology industry will navigate all of the business challenges currently facing this function. In fact, TSIA asserts that customer success will become the dominant revenue engine for XaaS companies. This paper will explain why. State of the Art 2022 Let’s start with the current state of customer success. TSIA has benchmarked hundreds of CS organizations over the past seven years. Currently, high-performing CS organizations have the following attributes: www.tsia.com ©2022 Technology & Services Industry Association | 17065 Camino San Bernardo, Ste. 200 | San Diego, CA 92127 | Tel. 1.858.674.5491 3 • • • A clear charter that is aligned with executive expectations Well-defined processes in the following areas: o Customer on-boarding o Customer health scoring o Adoption monitoring The ability to track the following success metrics: o Customer renewal rates o Customer expansion rates o First-time-to-value (FTV) o Customer lifetime value Right now, most CS organizations are optimized to drive customer adoption. Some CS organizations are being given commercial responsibilities related to contract renewals and account expansion. Most executive teams clearly understand CS is critical in a subscription economy. However, there are trends that are putting significant pressure on the charter, structure, and financial model of customer success organizations. Emerging Trends Through interactions with our member companies, TSIA documents emerging trends and business challenges. There are seven trends that are disrupting the current state of CS organizations: 1. Focus on profitability. With rising interest rates and non-transitory inflation, cash is no longer cheap. This is forcing unprofitable technology providers to focus on reducing their cost structure and improving overall profitability. 2. Monetizing CS. One tactic to improve profitability is to monetize some CS activities that are currently performed for free. Those companies that monetize CS are actually improving expansion, retention, and Net Promotor Scores (NPS). 3. CS and commercial responsibilities. Another tactic to improve overall profitability is to migrate some commercial responsibilities from the sales organization to CS. This reduces overall sales costs. We see the expansion and retention charters growing significantly in CS. 4. Digitization of CS. Yet another tactic to improve overall profitability is to digitize some of the CS activities that are being performed manually. These digitization efforts include automating CS activities through customer success management (CSM) platforms, improving the digital customer experience (DCX), and investing in product-led growth (PLG) capabilities. 5. The role of partners. Technology providers are wondering how channel partners can be leveraged to deliver CS activities successfully. This is a cost-effective way to scale CS while ensuring customers of XaaS offers adopt and renew. 6. The rise of consumption and value-based technology offers. More companies are creating offers where the customer only pays for what they consume or only pays if they www.tsia.com ©2022 Technology & Services Industry Association | 17065 Camino San Bernardo, Ste. 200 | San Diego, CA 92127 | Tel. 1.858.674.5491 4 realize specific business value. The role of CS becomes even more mission critical in these offer models. 7. Changing skill requirements. As the above trends unfold, CS organizations are being required to have skill sets related to managing commercials as well as advanced project management capabilities. 8. Death of NPS. CS organizations are finding NPS is a lagging metric. There is now more focus on finding leading indicators for customer health. All of these trends are forcing CS organizations to rethink their current business model. TSIA believes that the CS organization of the future will ultimately look almost unrecognizable when compared to the current state. This may not happen in three years or even five or seven years. But it will happen. The economics of XaaS business models will force significant change. The Future of Customer Success There is no way CS will be the same animal it is today 20 years from now. But we do not believe we will need to wait 20 years to witness dramatic change. TSIA believes within the next decade the following seven realities will unfold in the CS business model: 1. Masters of value realization. The original charter of CS was adoption. With customers becoming more fixated on value realization, adoption will not be enough. CS will need to master the process of unlocking business value for customers 2. From adoption to expansion. As consumption- and value-based offers become more prevalent, CS will own the economic expansion of existing customers. CS will become the “hunting farmers” of revenue. 3. Customer success manager (CSM) as account executive. The criticality of consumption and expansion to economic success will elevate the CSM role to be the primary account executive for the customer. 4. The largest gear. Revenue owned by CS (renewals, expansion) will become the largest gear in the economic engine of successful technology providers. 5. Data and AI-driven success planning. CSMs will leverage AI wrapped around customer telemetry to create highly prescriptive success plans for customers. 6. Data as currency. CS organizations will partner with product teams to identify product and industry telemetry that has value in the marketplace. Access to this data will become a competitive advantage. CS will yield greater organizational power because they have the customer data and will be responsible for delivering greater success. 7. Extreme automation. CSM systems that automate tasks, improved DCX capabilities that allow customers to self-serve more effectively, and PLG capabilities that eliminate some of the current CSM activities will become commonplace. www.tsia.com ©2022 Technology & Services Industry Association | 17065 Camino San Bernardo, Ste. 200 | San Diego, CA 92127 | Tel. 1.858.674.5491 5 Migration of CS Business Models Ultimately, TSIA believes this is the journey facing the CS function: From a cost center focused on adoption to the largest revenue center of the company focused on value realization. We can already witness companies that have consumption-based offers migrating their CS organizations from focusing on adoption to focusing on value realization. The CS motions related to Google Cloud and Microsoft Azure are examples of this migration. We are also witnessing the migration of CS into having more commercial responsibilities.1 Datadog is an example of a company that leverages CSM capabilities to help reduce overall sales and marketing expenses. Figure 1 lists the job description for a CSM at Datadog and also shows the fact that Datadog spends less on sales and marketing than their industry peers. Figure 1: Datadog CSM Job Description The Opportunity: Over the last six years our product has exploded in the market with ongoing 70% year-overyear revenue growth. Today, thousands of customers love and trust Datadog. We’re scaling our Customer Success team to proactively drive new product attachment and effective strong relationships across our existing customer base through on-boarding, upselling, and cross-selling. You’ll advocate for the customer internally and focus on a positive customer experience. Check out some of our customer stories here. You Will: - Partner with the sales team to ensure smooth transition and on-boarding experience - Proactively build relationships with customers to achieve loyalty - Run the full sales cycle for any opportunity in existing customer accounts. - Identify growth opportunities and bring them to successful close - Act as an advisor to customers to ensure they’re leveraging the solution effectively - Monitor and identify usage trends to uncover renewal risks and support greater adoption rates - Collaborate cross-functionally with internal Datadog teams (support, product, finance, and legal) You Are: - Customer-minded, always trying to provide the most value possible - Passionate about building long-term and lasting relationships - A “closer,” confident to negotiate upsell and renewals Source: TSIA Cloud 40 and Datadog. www.tsia.com ©2022 Technology & Services Industry Association | 17065 Camino San Bernardo, Ste. 200 | San Diego, CA 92127 | Tel. 1.858.674.5491 6 Figure 2 shows the migration paths facing CS organizations. Figure 2: Customer Success Migration Paths Source: TSIA Research. End Game Metrics That Matter Today many CS organizations believe that there are standard metrics being leveraged across the CS community. The reality is that CS organizations are running wild with metrics. There are few metrics that are considered a common practice. TSIA has evangelized and worked hard to demonstrate there are metrics that matter in CS. Today, those metrics are still mostly focused on very traditional success metrics, such as: • • • • Renewal rates Churn rates Expansion rates Customer health scores In the future, CS organizations, and not just pacesetters, will be focused on different success metrics to better understand how and where CS needs to engage, and if it is worth keeping the customer or better to let them go: • • • • • Low, high, effective adoption Consumption Value achievement Customer growth Customer maturity www.tsia.com ©2022 Technology & Services Industry Association | 17065 Camino San Bernardo, Ste. 200 | San Diego, CA 92127 | Tel. 1.858.674.5491 7 • • • • Customer lifetime value Customer acquisition costs (CAC) Customer expansion costs (CEC) Customer retention costs (CRC) The Path Forward Customer success organizations have been working hard to establish their role within technology companies. And TSIA has benchmarked and helped plenty of pacesetting CS organizations over the years. We can assure you, we devote a lot of time and energy to documenting what “good” looks like and will continue to help our CS customers on a daily basis to accomplish their business goals. But now, CS organizations must embrace the fact they have a much larger role to play in overall company success. TSIA looks forward to helping them navigate these changes successfully and collaborating with them on this journey forward. Endnotes 1 TSIA has numerous research studies on the economic benefits of CS owning commercials. Visit https://www.tsia.com/customer-success. www.tsia.com ©2022 Technology & Services Industry Association | 17065 Camino San Bernardo, Ste. 200 | San Diego, CA 92127 | Tel. 1.858.674.5491 8 TSIA is the world's leading research organization dedicated to helping technology companies achieve profitable growth and solve their top business challenges. Services, Sales, Product, and Channel organizations at technology companies large and small look to TSIA for world-class business frameworks, best practices based on real-world results, detailed performance benchmarking, and exceptional peer networking opportunities. TSIA’s membership community consists of over 40,000 executives from 96 countries and represents 80% of the Fortune 100 technology companies. To learn more, visit: www.tsia.com www.tsia.com ©2022 Technology & Services Industry Association | 17065 Camino San Bernardo, Ste. 200 | San Diego, CA 92127 | Tel. 1.858.674.5491 ©2022 Technology & Services Industry Association | 17065 Camino San Bernardo, Ste. 200 | San Diego, CA 92127 | Tel. 1.858.674.5491
