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Executive Perspective on Churn
- 1. The Executive Perspective on Churn January 28, 2014 #custome rsuccess Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 2. 2 Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 3. How did that get in there? 3 Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 4. What do we do about it? 4 Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 5. Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 6. Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 7. Transactions Relationship s Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 8. #customersuccess Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 9. 1. Why is Customer Success important? #customersuccess Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 10. 2. What should be shown at meetings? #customersuccess Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 11. 3. What are the best doing? • Are end customers using the product? • How frequently is each user engaged? • What is each customer’s Net Promoter Score – is it growing or decreasing? • Is the customer reference-able? • Are customers paying their bills on time? • Has your corporate sponsor left? • Are customers using your most valuable and differentiated product features? Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 12. Customer Success Preparing for the Board Meeting Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 13. Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 14. Customer Success for the Board Take 1 Source: David Skok, Matrix Partners Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 15. Customer Success for the Board Take 2 MARKETING SALES RETENTION Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 16. Customer Success for the Board Take 2 MARKETING SALES SUCCESS Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 17. Customer Success for the Board Take 3 Increase Drive 2% Retention 20% Multiple 2% Up-sell 28% Multiple Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 18. Nail the Board Meeting 3 Simple Steps Sales Customer Success Past Bookings Renewals / Up-Sell Present Market Share Benchmark Future Pipeline Health Score Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 19. Past Every CEO Claims 90%+ Retention! Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 20. Past Metrics Questions • Dollar churn or customer churn? • Include price decreases and downgrades? • Include price increases and upgrades? • Churn on total ARR/MRR or churn on renewable amount? • Controllable versus uncontrollable churn? • Churn by cohort? Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 21. Past Survey of 100+ Subscription Companies 63% include downgrades in churn 58% include upgrades in churn 46% track on dollars and customers basis Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 22. Past Five Metrics That Matter 1. Batting Average 2. Headwind 3. Tailwind 4. Net Revenue Retention 5. Magic Number Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 23. Past 1. Batting Average # Customers Renewed In Period ÷ # Customers Renewable In Period Are customers voting with their signature on the value of your product or service? Best-in-class: > 90% Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 24. Past 2. Headwind ARR/MRR of churn dollars including price decreases and downgrades ÷ Beginning of period ARR/MRR How much drag do you have on your growth? Best-in-class: < 10% Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 25. Past 3. Tailwind ARR/MRR of up-sell dollars including price increases and upgrades ÷ Beginning of period ARR/MRR How much acceleration do you have to new bookings? Best-in-class: > 20% Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 26. Past 4. Net Revenue Retention Beginning of period ARR/MRR + ARR/MRR from tailwind – ARR/MRR from headwind ÷ Beginning of period ARR/MRR What’s the net dollar impact from Customer Success? Best-in-class: > 120% Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 27. Past 5. Magic Number ARR/MRR of renewals in period + ARR/MRR of upsells in period ÷ Fully-loaded cost of Customer Success team + extended team What’s the costeffectiveness of Customer Success? Best-in-class: 3-5X or higher Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 28. Past Other Factors to Look At • Same metrics by region, vertical, product, segment • Churn by reason • Top churns and up-sells • Churn and up-sell by cohort Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 29. Present Churn Rate Benchmarks Base: 100+ SaaS and subscription companies Source: Q2 Customer Success Survey, Gainsight Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 30. Present Churn Rate Benchmarks Base: 66 SaaS and subscription companies Source: Matrix Partners & Pacific Crest Survey Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 31. Present Compare Apples to Apples Source: Matrix Partners & Pacific Crest Survey Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 32. Future Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 33. Future Customer Health Indicators Too Late Frustration Success Churn Low NPS scores Long support TTR Not referenceable “Sticky” feature usage Proven ROI Increasing adoption Lagging Indicators Leading Indicators Silence Disengaged Churn inquiry Late payments No product usage Not opening emails Declining adoption Sponsor leaves Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 34. Future Customer Health Scorecard Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 35. Future Predictive Analytics Adoption Healthy Customer Cohort Unhealthy Customer Cohort Up-Sell / Renewal Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 36. Sample Board Deck Past: Inputs Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 37. Sample Board Deck Past: Metrics Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 38. Sample Board Deck Past: Top Customers Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 39. Sample Board Deck Future: Health Score Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 40. Sample Board Deck Future: Health Score Trend Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 41. Sample Board Deck Future: Health Score by Customer Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 42. Gainsight Drive Customer Lifecycle Customer Health Maximize Up-Sell Measure Health Purchase Flag Early Warnings Renewal Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 43. Gainsight Calculate Health Scores Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 44. Gainsight Automate Metrics Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 45. How will you make CSM relevant to your board in 2014? 45 Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 46. Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 47. Q&A Dashboard access.gainsight.com/dashboard Guide access.gainsight.com/executive-guide-to-churn/ Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
- 48. Gainsight Confidential. 2014 Gainsight, Inc. All rights reserved.
Notas do Editor
- Nick:Hi everyone, thanks for joining today’s webinar. We have a really fun topic to discuss today and welcome your thoughts – please submit any questions or comments in the window to your right and we’ll incorporate them into the program.
- Nick: Intro topic
- Nick:I’d like to welcome Roger Lee, General Partner at Battery Ventures.As a board member of Angie’s List (IPO), Blue Jeans Network,Groupon (IPO), andWorld Golf Tour, Roger has been at the forefront of framing corporate priorities and focus on sustaining customer value.I’m really excited to hear his thoughts today. Welcome Roger!Roger:I am very excited to be here because the emergence of Customer Success is an incredibly timely topic and one that many companies, CEO and boards are struggling with right now. What I would like to do with my opening comments is touch on a few key topics: Why is Customer Success important to me and other investors/board members What we like to see in a Board Meeting on Customer Success What are the best companies doing in this area
- Roger:So, let’s start with question #1 – why is Customer Success important to me and other investors/board members? Before you can answer that question, I think you have to ask an even more fundamental question which is why is Customer Success emerging now? Why didn’t this movement take place 3, 5 or 10 years ago? Once you answer that question, then I think it will be easier to answer the Why Customer Success is important.
- Roger:So, why now? The simple answer is that the US economy is going through a fundamental business model transition from a transactional economy to a relationship economy. So, what does that mean? In the transactional world, a vendor sells a customer a product and captures all of the economic value from that customer at the point of sale. At that point, the customer is really on their own to make themselves successful with the product because the vendor got all of the money and they are not incented to make that customer successful. If this sounds similar, I am not surprised. This is how the enterprise software world worked for decades where a software vendor would sell their software for $1m (or in some cases $10m or more) and the customer had to go figure out how to make it work. The vendor would prefer that the customer was successful but they did not particularly care and that led to a long era of expensive failed implementations. It was during this era that the term ‘shelf-ware’ emerged which was software that was bought that was never successfully implemented and sat on a shelf collecting dust.
- Over the past decade however, we have migrated from this transactional model to a relationship economy. What this means is that the vendor and the customer have shared goals as the customer only pays for the product over time as it works and as they get value. This model should also sound familiar as the SaaS industry is built on this approach. Economically, the vendor only captures a small piece of the economic pie, typically somewhere between 1-10%, when the contract is closed and they collect the rest over 5-10 years as the customer renews their relationship with the vendor. You all know the virtues of the SaaS model so I won’t re-hash them here but suffice it to say.So, what does this mean? Well, since the vendor still has to capture between 90-99% of the customers life-time value, the vendor is highly incented to make sure that customer is happy, that they are using their product, that they are getting real value and that ultimately, that they renew. Because if they are not happy and getting value, they won’t renew and you will lose that customer and the revenue. And that is obviously bad.
- So, let’s go back to the core question – why is Customer Success important to me and other board members? With that short story as background, Customer Success is critical because a company can’t succeed without it. Once a business migrates to a subscription based model and they need to keep that customer happy for 5-10 years to capture 90-99% of the customers life time value, they have to put a Customer Success organization in place to ensure they capture that revenue. If they don’t embrace Customer Success, it is highly likely that customer base will churn at higher rates and will yield a leaky revenue bucket that will be very hard to overcome. Another way to emphasize the point is to think of this from a valuation perspective. As an investor and board member, I have a fiduciary obligation to drive the largest returns for our shareholders. As a software investor, there are a couple of ways to do this: First, make sure you invest in SaaS companies because they trade at higher multiples than traditional perpetual license software companies because they have much better visibility into their long-term revenue Second, make sure they invest in Customer Success because there is a very tight correlation between the SaaS companies that have the highest renewal rates and the highest valuation multiples. This is particularly true as companies become more mature and more and more of their revenue comes from their installed base – not from new logos. In other words, if your customers are happy and are renewing at high levels, your company will be worth more. The best way to accomplish this goal is to make Customer Success part of your culture from Day 1.
- 2 – so, let’s move on to the second question, what we like to see in a board meeting on Customer Success? So, step one is to simply recognize that Customer Success is a strategic operation at your company on par with Sales, Marketing and Engineering and make sure your head of CS get airtime and a few slides at each board meeting. As we just discussed, you can’t build a durable valuable company without a dedicated focus on Customer Success so make sure your Customer Success leaders are in the board room with you. Step two is to have a few KPIs that you use to measure the efficacy of Customer Success. At the very least, you should have a slide detailing customers as Red/Yellow/Green as defined by the Customer Success team. I usually like to see those customers broken into two different buckets Customers in implementation Customers post-implementation who are now live I separate the two because I think they are different situations requiring different activities and different definitions of success from the Customer Success team. Perhaps more importantly, I think Customer Success needs to over-invest with customers during the implementation phase because that is the time when they are most likely to run into problems. I have not seen empirical data here but anecdotally, most companies run into their biggest problems during implementation so it is key that you get the relationship off on the right foot and over-invest early. Once you divide the customers into those two buckets, you should have very specific KPIs to define how each customer is doing and what the action items are to get them to a specific performance metric if they are not already there. Building on my earlier point, the KPIs for customers in implementation will be different than those who are now live. For example, during the implementation phase, you will want to track the implementation on track? Are all of the users trained correctly? During the post-implementation/live phase, you will want to track how many users are engaging with my product, is engagement growing/decreasing, what are my NPS scores, are they paying their bills on time, etc. Ultimately, you will want this to roll-up to a dashboard that is projecting renewals/churns/upsell. If your Customer Success team is humming, they will have the same, if not better visibility into your renewals, churn and upsell numbers for each quarter than your sales team has around new logo opportunities. This should not be a surprise because, after all, these are your customers and you should know everything about them since they are using your product every day.
- 3 – so let’s jump into the final question – what are the best companies doing in Customer Success? First and foremost, the best companies embrace Customer Success as a strategic function. As I mentioned earlier, the best companies think of their Customer Success leader as on par with Sales, Marketing and Engineering, they are in board meetings and they play a critical role in the company’s long term success. My favorite story about this took place at a board meeting for one of my portfolio companies and the CEO shared a story about conference he attended where he was asked to name his most important exec. The other panelists named obvious candidates, like their VPs of sales or engineering. This CEO, however, said his most important executive is his VP of customer success. His rationale? “If I can’t make my customers successful, nothing else matters.” Needless to say, I agree with him. I will also note that this company has had no customer churn the past 2 quarters and has incredibly high upsells so the fact that the CEO has embraced Customer Success in such a visible way is now paying huge dividends. In fact, this company just received a term sheet last week at a big valuation increase that was due, in part, to their great Customer Success performance. Once a company has embraced Customer Success, they think about the KPIs that are leading indicators to churn, renewal and upsell decisions. the best CEOs focus just as much energy studying the customer behaviors yielding customer success, since they provide early-warning signs about customers’ happiness or dissatisfaction. Key questions to ask include: Are end customers actually using the product? How many times per week or month are your customers actually logging into your software? Is usage growing or decreasing on a per capita basis—in other words, how frequently is each user engaged? And on a gross basis, how many users are being added (or subtracted) every quarter? What is each customer’s Net Promoter score – is it growing or decreasing? Is the customer reference-able? Were they willing to serve as a reference in the past, but then stopped? That’s trouble. Are customers paying their bills on time? Are their payment patterns changing? Has your corporate sponsor left? Are customers using your most valuable and differentiated product features? You want customers to take full advantage of your product. If they’re not, they may be disengaged and in danger of not renewing. Finally, I have noticed a few best practices amongst my portfolio companies to maximize the efficacy of Customer Success. Some things I would highlight include: Don’t wait to hire experts in customer success. Most companies wait too long to launch a customer-success organization, assuming sales or engineering can cover it. Big mistake. You want dedicated resources focused on customer success a few months before you even bring on your first customers. These staffers can clearly identify the processes and touch points for the successful adoption of your product. Your goal should be “100/100/100.” Meaning, you should focus on making your first 100 customers 100% reference-able and have them renew at a rate of 100%. You can’t invest too much in making your first 100 customers successful; they‘ll help you get your next 1,000 customers by acting as strong references and providing very positive word of mouth support. Don’t worry too much about scaling/efficiency at this point in your lifecycle – that can be solved later.Allocate some portion of your executive compensation/bonus plan to renewals and customer reference-ability from day one. You want to build customer success into your culture early. It’s impossible to maintain a long-term rate of no customer churn, as my customer success-focused CEO did in the just-ended quarter. But if board members encourage CEOs to make customer-success a priority, they can keep rates low and build more valuable businesses over time.With that, I will hand the mic back over to Nick.
- And heck – our company claimed a 97% retention rate, so I figured it would be smooth sailing. What I didn’t realize is:Every company claims a 90-something retention rateCustomer retention doesn’t just take care of itselfEventually, I learned that sales was only the beginning of the story in SaaS. Managing retention, renewals, references and the rest of what recurring revenue required became a big part of my day, in partnership with our awesome Client Services team.In SaaS, product and sales aren’t enough.For once, I learned that my dad’s advice was wrong. Well, that wasn’t the only time.After a happy ending to the story with the sale of our company to Symantec, I met Gainsight. When I heard about the opportunity to become part of this massive Customer Success movement, it was a no-brainer