23
Monetization: Should I Charge for Customer Success to Boost Profitability?

You've heard from us in this book—over and over again—how much CS drives growth. But let's come back to Phil Nanus from TSIA, who was featured in the previous chapter. If you asked Nanus about how large companies measure the ROI of CS, he won't point to growth as his first answer.

For Nanus, charging for CS is the fastest and easiest way to demonstrate ROI and protect the budget for your team.

Other CS leaders choose to charge for CS because it allows them to spend more to get their clients to value. Eduarda Camacho is executive vice president of Customer Operations at PTC, a global software company that enables industrial digital transformation. “We're charging for CS not because we want to run it as a P&L,” she explains, “but rather because it helps us to secure the budget and grow the CSM team. The primary measure of the success of our paid program is whether we're protecting PTC's recurring revenue, facilitating expansion, and helping our sales team grow new logos by delivering customer outcomes.” So she's measuring the ROI of her paid CS team by pointing to its impact on subscription revenue as opposed to a gross margin metric.

Regardless of your motivation for monetizing CS—whether you want to prove its ROI or to drive recurring revenue growth—there are a few questions you'll need to answer:

  • When are you ready?
  • What are you selling?
  • How should you roll it out, price it, and measure success?

These are the questions we'll explore in this chapter.

When Are You Ready?

We spoke with two experts on monetizing CS to learn what questions you should ask yourself when considering whether to launch a CS offering: Catherine Blackmore, GVP Customer Success at Oracle, and Omid Razavi, VP of Customer Success & Services at SupportLogic, Inc. (which uses machine learning to help support organizations) and former global head of Product Success at publicly traded cloud company ServiceNow. Those conversations illuminated three questions:

  1. How mature is your software? If it's a new product, you probably don't know enough yet about how to drive value for your clients, so you won't know enough about how to package up a CS offering.
  2. How mature is your CS? You'll need a well-defined baseline (i.e. free) CS plan before adding a paid version. The customers who consider the paid version will want to know what specific additional benefits they will receive beyond what they've already been getting.
  3. How mature is your buyer? If your clients haven't bought the type of product that you offer before, they may not be accustomed to asking for this type of budget. It was probably challenging enough for them to buy your product, and it will be even more challenging to request budget for a CS offering on top of the subscription they're already paying. You may need to prove the value of your product before you can pitch the value of your CS service. On the other hand, more mature buyers may want to progress beyond the basic use cases for your software by getting more help from you. They'd be happy to pay for a high-touch CSM as a partner.

Naturally, you'll want to make sure that your clients are willing to pay for the extra benefits that come with a paid CS program. Typically, the companies that are charging for CS have a significant enterprise segment. We'll come back to pricing later in this chapter.

What Are You Selling?

First of all, you're likely not charging for all CSMs. Most companies that have monetized CS offer a free CS tier side by side with a paid one. Razavi from SupportLogic, Inc. emphasizes, “It is the customer that should opt for the right plan for them, and they should never be forced to pay. If they are forced, the customer may simply ask the salesperson to work within their budget, which essentially requires you to bake the CS fees into the license costs.” That means you risk cannibalizing your subscription revenue by making the client pay for CS. Instead, Omid recommends that you give the client the choice by offering a free tier.

You may offer CSMs who are more senior in the paid version. Charging for CS may help you afford to hire people with the advanced skill sets that could deliver the true transformation that your clients are looking for. Catherine Blackmore from Oracle often finds clients saying,

That client should be allowed to work with that high-caliber person if they pay for it separately, says Blackmore.

Camacho from PTC recommends not charging for a CSM specifically, but rather charging for a holistic program, or Success Plan, that includes the CSM (who could be dedicated to the account or shared across many accounts, depending on the package) as well as other resources that will help the client get to an outcome. PTC offers a “digital currency that allows the customer to get access to training, specialized experts, and all types of other services that the customer would require. The high-end bundle also includes access to a Technical Account Manager.” In summary, she explains, “It's not about monetizing your CSMs. It's about monetizing that whole support infrastructure for your customers so that you can help them get to that business outcome faster.” Razavi from ServiceNow agrees. A paid CS program “can encompass, for example, customer support with higher SLAs, premium education (training and certification), and some aspect of expert services (e.g. health check and optimization). It should be designed and delivered as a collaborative effort by all involved in the post-sales customer journey. As such, the revenue should be shared among those teams to create better processes, content, and engagement models that will ultimately benefit your customers.” You can drive bigger outcomes for your clients with this kind of cross-functional effort, particularly when you can invest further in it as a result of monetization.

A word of caution: Make sure that the introduction of the paid program doesn't distract from the ultimate purpose of CS—to help grow revenue faster. You don't want your CSMs to merely check the boxes on the items you sold to the client. Concurring with this point, Camacho emphasizes that PTC's CSM program is different from a traditional professional service. “We leverage our CSM team to do many other things that are not about delivering against the monetized program. For example, we monitor our clients for risk, we intervene when we see issues, we replace our client's products with newer, better versions.” This allows them to deliver against their ultimate internal goal of protecting and expanding PTC's recurring revenue.

How Should I Roll It Out?

In speaking with Razavi and Blackmore, you'll download a host of tips on how to roll out the monetized CS plan effectively. We captured 14 takeaways here from the design stage through to ensuring accountability:

  1. Involve your clients: Blackmore notes, “We brought our customers into the design of the new program. We did a lot of discovery, so that when we did get to the point of educating our customers about the new offering, it was what they were looking for.”
  2. Define the target: With any new offering, know which audience you're optimizing for. Says Razavi, “You may arrive at enterprise accounts that spend > X dollars on licenses.”
  3. Clarify the products: “If your company offers more than one product, make sure either all or none of the products are covered by the premium CS plan,” Razavi explains. “It will be confusing to both the customer and your CSMs if you offer paid CS only for a subset of your products.”
  4. Get smart on pricing: We've dedicated an entire section to this topic later in the chapter.
  5. Create a beta program: Razavi recommends, “Offer the monetized CS to beta customers, then get their feedback to improve the plan. Double-down on services that add value and trim others that don't.”
  6. Decide who's selling: If you have a professional services sales team that's selling side by side with product sellers, you'll likely want them to pitch this new CS plan, too. That said, Razavi sees the benefit of product sellers taking the lead: “Make the monetized success plan simple enough that your product sellers can sell it, and that you do not need an overlay of services sellers, which will add to your cost. The product sellers should be fully compensated on CS plan sales, as they do with product sales. It should help them make their number and qualify for President's Club.” Given that a monetized CS plan will have a lower margin than your product revenue, you may get pushback from your Finance team on the idea of compensating equally for the two types of revenue. Explain that the CS plan is similarly recurring revenue and that it's critical for product subscription growth.
  7. Educate your team: “You have to educate all the people that touch the customer,” says Blackmore, “and ensure they know why the change is happening and what the change involves.”
  8. Focus on new clients: Start by selling the offering only to new clients until you're ready to sell to existing clients. “The plan has to be the right fit for your customers and for the company,” says Blackmore.
  9. Offer a grace period: Blackmore recommends a grace period in which nonpaying clients can stick with their CSM.
  10. Make it an upgrade: Make the new CSM that clients are paying for a true upgrade from the previous CSM, by assigning someone with greater seniority or with experience that's more relevant to the client's industry. “We explain to our customers, this isn't the same resource you've had before,” says Blackmore. “It's not about charging more for what you got before.”
  11. Align contracts: “Make sure the monetized plan is co-terminus with your license agreement,” Razavi suggests, “so the two will start and renew at the same time.”
  12. Introduce it early: Razavi emphasizes that training your sales team to sell the monetized CS plan early in the sales cycle, together with the product, will help communicate its value. You'll also have more luck defending your price, since introducing a product later in the cycle might have the effect of cannibalizing the subscription contract that the client was already securing budget for.
  13. Make it agile: “Update your plan every year to delight your customers and stay ahead of the competition,” says Razavi. “Your CS program should be a differentiator for your company.”
  14. Track outcomes and deliverables: Charging for Customer Success can actually make the client value your help more. Blackmore says, “Customer Success becomes way more valuable if it's paid.” So they may respond more rapidly to emails from your CSMs and do the things you've wanted them to do all along. It's a double-edged sword, though: Now that the client is paying for CSM, the CSM is really on the hook. “When it's free, the client probably doesn't pay as much attention to what that CSM does every day. But, when you start to pay for it, how that person delivers becomes so important. The CSM program is effectively a consultancy that has deliverables and the client wants signals to understand the value of what they're buying.”

How Should I Price My CS Offering?

When pricing your offering, Razavi suggests looking at four types of benchmarks that will determine the boundaries of your pricing decision.

  1. Cost: What you need to price to make your margin target
  2. Competitor: What the competitors are charging
  3. The market: What price your clients are willing to pay
  4. Value: What value you are delivering for your client with this offering

For Benchmark #1, work with your finance department to ensure you understand how revenue will be recognized. Benchmarks #3 and 4 are particularly advantageous in the case of a CS service relative to other recurring services. Clients typically aren't willing to pay much for Support services (e.g. a designated Premier Support Representative). They're also not willing to pay much for Adoption Services, even though we as the vendor might believe that especially the latter delivers significant value to the client, since in this new Age of the Customer, the client believes that the vendor should take responsibility for ensuring that its product is adopted by the client team. On the other hand, clients have shown a high willingness to pay for mission-critical support services, since they want to make sure they don't get stuck in the case of a massive issue. That said, the strategic value of that type of service is low. What's great about a CS service focused on outcome realization is that the client often perceives it as mission-critical—“We need to get value out of this product if we're going to buy it”—and also the strategic value is high. As a result, CS offerings tend to command a pricing premium to other recurring services offerings. Razavi created Figure 23.1 to illustrate this point.

When you're evaluating your clients' propensity to pay, make sure to assess whether their purchase of your CS offering would reduce their willingness to pay for your subscription offering. Your SaaS revenue is far more valuable than any revenue from your CS offering, because it's higher margin and also likely will grow over time at a faster rate (via higher Net Retention). The first people to tell you this will be your Sales team. You'll want to prove to them, perhaps through a few initial pilot sales, that the CS offering won't cannibalize their subscription sales.

Here's an example of where you may end up on price. You may require a minimum, below which it's just not economical to serve a client. From there, we often see companies pricing their offering as a percentage of the subscription contract (Annual Contract Value, or ACV). You could choose to discount the percentage for larger contracts if the market demands it. Alternatively, for your larger clients, you may want to offer an even higher-touch model of CS—an even more premium tier of the offering—and you may be able to charge a larger percentage for it. Figure 23.2 shows how Razavi envisions the pricing curve.

Graph depicts the customer service offerings tend to command a pricing premium to other recurring services offerings.

Figure 23.1

Blackmore also knows of companies that offer CS as a fixed fee completely independent of the product purchase. Camacho from PTC adds further that the price of CS may have nothing to do with the size of the client (which is often correlated with the size of the product subscription). She notes,

Graph depicts the Razavi's envisions of the pricing curve.

Figure 23.2

You should also ask yourself, do you want your offering to be recurring revenue? On one hand, recurring revenue is valued more highly by investors, and it's nice that the contract can line up with the subscription contract for your product. On the other hand, you'd have to believe strongly that clients intend to renew at high rates; otherwise it can't really count as recurring revenue from investors' perspectives. That said, you probably have bigger problems if clients aren't renewing this offering at a high rate. In that case, you wouldn't be living up to the concept of CSM as an ongoing resource for the client, delivering value for the client in perpetuity, to ensure and expand that recurring revenue stream. It's a problem when clients (at least of a certain size) don't have a CSM. As Blackmore says, if I'm a CSM,

How Should I Measure Success?

Razavi recommends tracking several metrics to determine the success of your CS offering besides the sheer bookings and revenue:

  • Attach rate: % of new target accounts that purchase the offering
  • Upsell rate: % of existing target accounts that upgrade to the offering
  • Renewal rate: % of dollars of sold CS offering that actually renew when eligible for renewal
  • ROI to the client: a measure of Outcomes (as discussed earlier in this book) that shows the impact to the client from purchasing the offering

You should also consider how to measure the benefit of your monetized CS program to your company. We do recommend tracking the gross margin of this program, as Nanus from TSIA mentioned, to show that you're covering the cost of your CS team. In addition, you're likely charging for CS because you want to cover the cost of a program that you know is valuable to your clients and therefore to your company's recurring revenue. As a result, we recommend tracking the difference between the Gross Retention Rate, Net Retention Rate, and an Advocacy metric for target accounts that purchased the CS offering and those accounts that declined to purchase.

Summary

In this chapter we discussed how to decide whether to launch a paid CS program, how to roll it out and price it, and how to measure its effectiveness—to your clients and to yourself as the vendor. At the end of the day, investors will evaluate your business based on subscription growth, not services. But if charging for CS is a means to an end—allowing you to deliver more value and consequently faster growth—it could be a great move.