How to price customer success - what is your monetization strategy?
Steven Forth is a Managing Partner at Ibbaka. See his Skill Profile on Ibbaka Talent.
Customer success has emerged as the critical discipline in the subscription economy.
The approach was pioneered by Salesforce when Marc Benioff realized that customer churn would, over time, sap its revenue growth and destroy profitability. The economics of subscription business models depends on renewals. Over time, renewals come to represent the majority of revenues, and, with cross sell and upsell, become the main driver of revenue growth.
This has led the top subscription economy companies to make major investments in customer success. Investments at this scale, which can be as high or higher than investments in R&D or sales and marketing, require a rigorous justification.
How is customer success being monetized? What elements of customer success should be priced? What pricing models should be used?
Before we apply value-based pricing to help answer these questions, let’s look at what customer success is, how it is different from customer support, and why it cannot be fully measured by customer satisfaction.
Customer success is focused on understanding your customer's business and how you contribute to their success. The customer support is more about your own products and services and how to use them. Customer success is focussed outwards on your customers. Customer support inwards on your own solutions.
What is included in a customer success program?
Customer Support is an important part of customer success. Most B2B solutions need some level of customer support (many B2C applications try to get away with the bare minimum of support). It is necessary but not sufficient.
Learning and Training. The next level of customer success is often training. Ideally this training is customized to the customer’s business goals and how your solution helps them achieve these goals.
Customized Data Analysis and Reports that can be generated for a specific customer’s business. A good report provides insights on which action can be taken.
Change Management. For major new systems and approaches, change management is often a big issue requiring explicit support and good planning.
The heart of customer success is to make sure that the promises made about value in the marketing and sales process are delivered on. The best way to do this is with a value calculator. This is a tool that uses a value model to calculate the value that will be delivered to a customer through the solution. It should provide metrics for economic, community and emotional value. The value promises made during the sales process are documented in the value calculator and then passed on to the customer success team that tracks its success in delivering on what was promised.
To support customer success initiative, Ibbaka is developing an Open Competency Model for Customer Success. One of the key roles we have identified in customer success is the Value to Customer Expert. Many people in the pricing community have the underlying skills and expertise need to fill this role (it is a good opportunity for talent mobility). Note that Economic Value Estimation is one of the skills!
We can use the principles of value-based pricing to decide how to monetize and price customer success.
Begin by making sure you are really talking about customer success and not just pricing support. If the value is part of the standard value proposition inherent to the platform do not price customer success activities. The investment in these activities should be captured in the subscription through renewals, cross sell and upsell. Trying to price standard customer success activities is a bad idea and will be seen by clients as double dipping.
Training is often a critical part of customer success.
Training is expensive to develop and deliver and there is often pressure to recover these costs directly. Sometimes this is a good idea, especially when the training is customized for the customer and to delivering on the unique value promise made. Other times, it should be covered as part of the standard customer success approach. See How to price your learning resources .
Customer success often includes things that look a lot like professional services.
These can range from large customer success programs costing hundreds of thousands of dollars to custom data analysis and reports. These are great opportunities to build the customer relationship and to add value in new ways. Too often these are priced on a per hour basis. This is generally not how you should price this work. Per hour rates are almost always cost-based pricing.
In most cases you will want to use project based pricing, with the price based on the value to be delivered.
This is also a good place to begin to test performance or outcomes based pricing. This is the future of pricing. As we are able to gather more data and apply more sophisticated analytics the contribution of different activities to value creation and delivery will be clearer. These custom projects can be a good place to test approaches.
For more on this, see Pricing professional services is a challenge for SaaS companies .
Looking for tips for enterprise software pricing strategies?
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Pricing professional services is a challenge for SaaS companies