Why Customer Success is the Lifeblood of a SaaS Organization

When it comes to the Go-To-Market / Revenue organization in a SaaS business, there seems to be a bias towards focusing on sales. Sales hires are oftentimes the most expensive hires in the business, and in board meetings and investor pitches you will always hear the question: “What does the pipeline look like?”

But the reality is that in a SaaS business, Customer Success is the true lifeblood of the organization. There seems to have been a re-awakening around this phenomenon over the last few years in the software world. I say that because Net Revenue Retention suddenly became one of the most important metrics that investors evaluated when making determinations about a business. And if you look at top consulting organizations like Winning by Design, you will find that they tout a Bowtie Model for revenue where on one end you have a contracting funnel and on the other end – the Customer Success side of the business – an expanding funnel, comprising the revenue bowtie. 

There are many reasons why I think it is more important than ever for people in the software industry to give the Customer Success team their due. Below I rank them in order of importance.

1. All of your recurring revenue lives within this side of the business.

What makes software companies attractive to investors and buyers are twofold: the high margins and the recurring nature of the business. This is why software businesses have much higher revenue multiples than hardware or services-based businesses. In a hardware business, products are bought and resold for low margin, and there are often no guarantees about future business. The same is true in service or logistics-based businesses which have high costs of human capital. 

So if we know that recurring revenue is one of the two facets that ranks software companies above others in terms of revenue multiples, it stands to reason that the time responsible for recurring revenue is one of the most important teams in the business. At the end of the day, in a very stable business with high retention and good recurring revenue, the entire salesteam could be fired and there would still be a buyer out there somewhere who would be very interested in that business. Why? Because it’s a stable business. Investors like stable businesses. Growth is important in the very early stages of a company, but retention (and Net Revenue Retention) are always important. Because in the absence of retention, you never have anything that can scale. 

2. All of your cross-sell and upsell comes from this side of the business.

A lot of people in the SaaS industry make the mistake of thinking that it is only the new logo team or the salespeople who can drive incremental revenue. To be sure, there are some organizations that always bring in sales for new revenue opportunities. But even in those organizations, there is a customer success team responsible for driving that customer’s happiness to the point where they even want to consider such a possibility.

All this to say, at a bare minimum it is the customer success team who creates the opportunity for all cross-sell and upsell opportunities. But they are often the driving forces behind creating those sales themselves. Considering that Net Revenue Retention Percentage is one of the foremost metrics on investors’ minds, the Customer Success team’s ability to drive growth within accounts is one of the most important attributes of a company.

3. Customer Success preserves the reputation of the company.

Let’s face it – things are going to go wrong from time to time with your customers. And who puts out those fires? Sure, sometimes it is the salespeople. I know that I always jump in whenever I can to try to make sure I deliver on promises I gave to customers. But more often than not, it is the CS team who is going to resolve these conflicts. Their ability to do so in a timely and respectful manner is ultimately what will drive the “word of mouth” phenomenon around your business. At the end of the day, clients expect that some things may not go exactly to plan. They also know that there are phenomena outside of your locus of control. But how you react to those situations and how you treat them is what gives them the lasting impression about your business that can drive growth throughout your industry.

What’s more is that sales is often responsible for bringing customers across the proverbial line who may not be best-fit customers or who may have been promised something that is beyond the realm of realistic expectations. I’m not trying to be pessimistic about salespeople: I am one. But we all know a salesperson who just wants to make a dollar or two and may not do enough diligence with a customer before handing them over to the CS team. This is why there is a stereotype within the industry that CS often has to “clean up the mess.”

4. Your reference customers become reference customers here.

As the old saying goes, “there’s no such thing as a free lunch.” A lot of times when your customers reach the proverbial “finish line” of the sales process, they get excited about partnering with you and they start to wonder if it is too good to be true. What helps them feel good about their decision is knowing that their are other people just like them who have made a similar decision and who fared well. This is why Groupon originally made it so that a certain number of people needed to buy a deal before the deal would “tip” – the thinking for the buyer was that if it was a scam, at least a bunch of other people would be going down with the ship, too.

With that being said, a reference call will often happen as a last step before a client moves forward. In enterprise selling, a reference call – or several – is almost a foregone conclusion. Well, guess what? Not only do you need to have a team who makes happy customers, you also need to make sure that they will inevitably answer the question that always gets asked in a reference call: “How do they treat you as a customer?” Or perhaps the other variation, “Has anything ever gone wrong and how did they handle it?” I will sometimes call on customers who have had some sort of negative experience for my reference calls because they are the ones who can speak to how we handled it in a positive way and turned them into champions of our product. I thank CS for that in those situations.

5. Customer Success helps Sales know where to focus its energy.

In the same way that you measure a sales funnel based on conversion rates, volume, and velocity, you also measure CS in the same way. How quickly can they get a customer stood up? How quickly does that customer realize value? How much and how quickly does that customer expand?

When you collect enough of this data, you start to notice some patterns. CS will begin to identify that they enjoy working with some types of customers more than others. Let’s face it – we’ve probably all had a customer that failed spectacularly. Sometimes it is a coincidence. But a lot of times it is because there is something about that customer that makes them a really bad fit for the product. Only the CS team can help you to understand where to spend your time and energy. Yes, some customers will close faster and for bigger contracts than others, but if those customers are not retained and/or they do not grow, then they will negatively impact Net Revenue Retention, which is the North Star of any SaaS business.