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Speaker Details

Kellie Capote

Chief Customer Officer

Session Transcription

I am so pleased to introduce the speaker for the next session here at SaaS Metrics Palooza 23. And that is Kellie Capote, who's the Chief Customer Officer at Gainsight. She's going to be talking about those customer success metrics that investors love. Kellie, welcome to SaaSmetricsPalooza. So excited to be here, Ray. My favorite topic is customer success in particular, anything that's data driven. So welcome, everyone. I'm going to spend the next 20 or 30 minutes really stepping us through sort of what has the strategic shift in customer success been. And as a result of that, how do we need to elevate and really speak the right language and altitude to both our boards, investors and executive team alike? So as Ray said, customer success metrics that investors love. And I'm Kellie Capote, Chief Customer Officer at Gainsight, have spent the last six and a half years at Gainsight, which is a customer success platform. So I have the pleasure of speaking customer success metrics, attribution, results day in and day out, both with my customers and with my board and investors alike. So let's let's ground ourself a little bit. Customer success has been through quite an evolution journey over the past 10 to 15 years. And this right here is just to really illustrate in the early days, I think customer success and the way that we even presented it to our board and our investors was much more reactive. We were kind of the churn fighting machine, plugging the leaky bucket, driving retention. And while that absolutely still a foundational piece of our role in charter, it's gone through quite a quite a shift over the past five years in particular. And you'll see some of the thought leadership that we've put out there around the practice of customer success. And the big thing now is customer success as a growth engine for your business. So especially as SaaS has evolved, if we think of just the structurally how it all works, your frontline, your CSM organization is speaking with the customers that we need to renew, expand and create long standing advocates to drive new logo acquisition for our business. So this is what we call kind of customer success 2.0, the new growth engine. And as I said, this has been a shift for the past few years. You'll see here, this was something McKinsey produced. So consultancies agree that customer success has really become an existential part of doing business. And I think as we've gone through this roller coaster ride over the past several years with the pandemic and then kind of the downturn in tech, it's become universally understood and respected. The criticality of our install base and being able to keep that recurring revenue stream moving and also as a key avenue and driver of growth for our business. So one of the things I like to say is it's the end of pre-sales and post-sales as we know it. And what I mean by that is in many SaaS organizations, our sales process, as we historically understood it, is really just the initial sale in many cases. And then we have to earn the loyalty and the commitment from that customer time and time again, whether that's annually, every few years, and drive them to value so that they want to stay, they want to expand, and they want to grow. So this is this virtuous cycle of growth that I'm alluding to where really it's a constant motion of like, yes, we need to get them to first value. And that's usually coming out of that initial sale, understanding what their goals and outcomes are, driving their usage. And ultimately, once they've achieved that outcome, really the heuristic here and what we're trying to drive towards is we want to then be able to expand these customers and turn them into rating advocates that help promote our brand and attracts new customers in the door. So customer success and really customer success as a mindset across the company is really how we drive this effectively end to end. And as we start to think about the metrics, I wanted to frame it up because I think there's a mindset shift that we need to take, especially for CS executives and executive leadership teams as a whole. We need to stop just isolating customer success to just like churn prevention and retention. And the reality is kind of cue to the slides I was just stepping us through is so much of the success and the longevity and the sustainability of growth for organizations is really dependent on our install base and keeping them happy, driving ROI. So that in turn, it makes these renewals a non-event, but we're able to step them through what I call the value journey, which unlocks more use cases, more expansion, more upsell. So this is just a quick chart from KeyBank Capital, if you guys check this out, which really shows, I mean, especially for certain size companies and at a certain inflection point, the percentage of new revenue and annual recurring revenue that's coming from upsell and expansions is pretty massive. So this just underscores the importance of customer success, but also speaking at the right altitude and properly sharing with your investors and your board, the impact that your team is having on all of these different financial dimensions. And when we think about investors, they care about a few things, right? They certainly care about growth, they care about profitability, and most importantly, like they care about valuations, right? So we saw, you know, in the boom years, the past few years, like the correlation of net revenue retention and valuations was off the chart. I mean, you had Snowflake, I think, leading the pack in the top, right? And even though, you know, the economy has shifted a little bit, we're still seeing that there's a strong correlation between revenue, so revenue growth, and still balancing that with profitability. So while it's not growth at all costs, profitability, but revenue growth are still kind of the two table stake items that we need to drive forward. So what I want to talk about is customer success. What are the metrics that matter? So when I think about customer success, and I'm going to kind of isolate, there's a lot of functions, you know, services, support. When I think about the CSM management piece of customer success, this is the charter that I often use with my team and with the industry. So at the center of everything is sort of our leading, our lagging outcomes, I'm sorry, which is your net revenue retention, and your growth, and your gross revenue retention. Are we keeping our customers? And are we able to grow our customers? But outside of that, it's really important that you're able to orient and operationalize leading indicator metrics, such as verified outcomes and CSQLs. I'm going to step you through what these things look like. But again, crafting that narrative that's inclusive of all of the different revenue levers, which I'm going to share here on this slide. So renewables, that's your gross renewal rate or gross retention rate. Lead generation, your customer success is one of the most effective and highest converting lead sources for your organization. Are you tracking that? Are you able to demonstrate and articulate that? How's it trending? How's it trending by products? Upselling, cross-sell, advocacy, which we call CSQAs, Customer Success Qualified Advocacy. What percentage of your customers are referenceable? And then another way to drive revenue for your organization is to monetize customer success or customer success packages. We're seeing a big shift and trend starting to kick up on the monetization front, especially in the past 12 to 18 months. So the big point I want to get across here is when we're speaking with our board and when we're speaking with our investors, what's really important is to kind of have this mental model of always aligning, understanding what those lagging outcomes are. What are the strategic company goals around revenue and retention and profitability? What are the leading indicators that you can track on a regular basis? What are those signals? But being able to neatly stitch them back to the high value activities that your team is doing so that you can truly draw attribution and get credit for the good work that your organization is doing and how it's having true company wide impact on your results. So here's just a quick example of some of the things that we think about, again, kind of working with the end state in mind and reverse engineering. So lagging outcomes, we've talked about net retention, gross retention, expansion dollars, expansion rates, advocate influence deals, right? So what are those sales processes that your field team is in where they've leveraged advocates that you've helped curate and been able to close that deal? And then they certainly care about some of the operational metrics as well. The most common ones that boards like to look at is kind of your customer retention costs, right? What's the fully loaded cost of your CS team, operations, all those things over the revenue of the business? ARR managed per CSM, CSM ratios, and then the leading indicators. And I'm actually going to kind of take you through our framework we use for these, but here's some of the list of all the metrics in the middle. And then being able to neatly map what are the specific initiatives or activities that your team is expected to go do? And then go back and do that regression analysis and say, hey, when we actually do X, Y, and Z, we're able to see an uptick in these leading indicators. And then by the way, when customers have, you know, when X percent of our customer base is red or green, I mean, yellow or sorry, green in ROI, they're 20% more likely to go over you. So being able to tell that data driven story is a really, really critical piece. So here's a real world example of this. So at Gainsight, as part of our kind of health score methodology for our customers, we have this fun little acronym that we call DEAR, deployment, engagement, adoption, and ROI. We think about that as our customer outcome score. It's one piece, and then we have a customer experience score as well. And what we do on a regular basis is every six months, we look at customers that renewed in the trailing four quarters. What were these health measures like X months before renewal? We usually use six months prior to renewal. And it's wild and so impressive just to see the correlation of when the organization is driving these activities at the bottom. That's the key piece here. You can't have that missing link. When your team are doing these things, it's in turn driving these leading indicators, which is impacting in a positive way our retention for the business. And so I wanted to just do a quick double click into the ROI one. What do we mean by ROI? How do you measure that? How do you think about that in customer success? My board loves this. I promise you, your boards will love this too. So we have this kind of naming convention. We call it a verified outcome. So it goes back to value selling and valuing delivery in this virtuous cycle of growth. A verified outcome is having the conversation and the identification with your customer. What is it that they're truly trying to do? What's the business impact by working with you and implementing or operationalize whatever process it may be in your technology? What does success look like for them? And being able to come full circle and say, hey, we knew retention was a problem. So we built out this end-to-end risk management process. And oh my goodness, the percentage of red accounts has decreased by this. And then probably in 6 to 12 months, being able to tie that back out to the lagging impact from a retention perspective. So this is actually something that I measure my CS organization on as a piece of their variable incentive. And what's really cool about this? Again, if you go back to the prior slide, it's customers that have a green, meaning that we have an active verified outcome. We've seen this basically be anywhere from 12 to 20% higher retention rates for those subset of customers. And so much that if you can really get data-driven with all of your metrics, and this will help you guide the team and the organization away, understand what initiatives you need to deploy, our customer outcome score has become the most predictive kind of modeling tool from us as we set our GRR targets for the next year. So this is just sample data to be clear. But as we go through our planning process every year, I step my board through kind of this GRR methodology. We do the look back of customers with... So CO score is just basically the combination of those DO metrics. Customers in these segments with this score who had a renewal, this is sort of their average retention rates. And then we use that to extrapolate it forward and build a very predictive model that has proven to be within like 1% to 2% accuracy for the past several years. So it's kind of a holy grail. You got to get it dialed in and tweak it. But being able to show and build confidence in your investors that you have a plan, it's predictive, it's data-driven, you know what moves the needle, what doesn't move the needle is really how you kind of get the respect and credibility you need in order to push the business in the right direction. So one of the things I did as we think about the shifts at customer success went from like reactive to proactive. I started to say a few years back, like we need to make customer success less squishy. And that's why a lot of these metrics and sort of how we think about the connectivity, the attribution, I really wanted to kind of take a first step and start to put this out there to the world so that our CS leaders, our CCOs or even chief revenue officers that have customer success underneath of them, we can really start to standardize how we speak about customer success, make sure our investors, our boards, our teams understand it, they get the benefit of it. So I put together what I call customer success board deck template pack. So this link is actually active when we share the slides. It's basically kind of a sanitized version of a lot of the slides I typically share with my board. I'm going to step you through a few just to give you a sense and a flavor of the types of things that land and resonate well for me as hopefully some food for thought for all of you. But in general, customer success has really made a strategic pivot from being a little bit more of an art in the early, you know, 10 like decade ago to being much more scientific, just like that, just like, you know, our revenue leaders are such as CROs, et cetera. So here's a few quick highlights. I'll just like share a few pointers. I have a best practices slide built in here if you want to spend some additional time on your own, but you always want to start with a strong data driven executive summary. So if you orient yourself over to the metric side of this, this is where I have my lagging outcomes, my leading indicators, you know, there may be a few other things that you want to add, but you certainly want your net retention, your gross retention, what's the expansion you're driving for the business. I always share with my board, you know, our metrics on our verified outcomes stakeholder alignment is what percentage of our customers are agreeing where we're multi-threaded. Basically, it's a persona mapping exercise and making sure that we're compliant based on the logic we've set out. And then certainly adoption and PS, some of the other key things here. So strong, strong data driven slide to kind of get you off on the right foot. Trending, I can't emphasize enough. You always want to speak to trends, what's driving them good or bad. And then more importantly, what are you then going to do to either go accelerate the good or go mitigate the bad and have a way to measure what the success criteria moving forward. So this is kind of a preliminary trending view. I will usually take this a step deeper, understand what trends are we seeing from an expansion perspective? What trends are we seeing from a churn reason perspective? What's underneath of that? And then crafting an action plan that ties really neatly and something that we can kind of come full circle on board meeting after board meeting. The next one I wanted to say, again, it's not just about turn. Like you have to take the lead, right? And really represent the holistic impact that customer success has for the organization. So here's a little screenshot. Our CEO, Nick Mehta actually posted this on LinkedIn a few weeks back. And just like a snippet of something that you could share in your board meeting, but customer success qualified leads, CSQLs, are your most efficient way to drive growth for the business. They convert the fastest, they cost a lot less money than having to have your field team go bring in new logos. So really make sure you have a tight process to track what is the lead identification that your success organization is doing if they aren't actually owning the upsell transaction, which by the way, we're starting to see account management come more and more into customer success, renewal management, et cetera. But at minimum, what's the lead generation and how is that converting compared to the other sources of the organization? And then the other thing is like, know your benchmarks. I think it's really important. I always try and have some third party data as well. So it's not just this inside out message, but you have some kind of neutral thought leadership or metrics that you can stack up against. So some of the things, from a customer success perspective is like cost to retain, especially as we're all scooting into planning season, depending on when your fiscal year is, the board wants us to understand what's your customer retention costs. It's usually a piece of customer acquisition costs in understanding how you stack up. So we see a range of anywhere from like 5% to 15%. 15% is usually like smaller new organizations that are kind of investing to scale over time. And I'm gonna share some highlights in terms of some metrics that you can hopefully grab onto and use with your organizations. And then net revenue retention rate, like 120% plus is kind of always Northstar top performing. And I'll share with you based on some surveys we recently did, what we're seeing folks come back with right now. So let's jump into some benchmarks. We actually did a study with RevOpSquared a little bit ago earlier in the year, where we surveyed about 700 B2B technology companies. And what we learned is 97% of them have a customer success organization today. This is amazing. If we went back a decade, this would probably have been like 5%. So the understanding and the importance of the revenue impact that customer success can have is certainly understood. 61% of customer success teams are responsible for revenue growth. And that can be a combination of things. It could just be retention. It can be the lead identification. So sending that to your sales counterparts, which I always say growth is earned. It's not sold with customers. So make sure you're getting the appreciation and the credit for all the good work that your teams are putting in. Or we're starting to see some success organizations actually own a certain piece of upsell, the renewal, et cetera. And then 15% plan to monetize customer success in the next three years, or they're already doing it. And I'm starting to see an uptick in conversations I'm having with other CS executives on this. And what that tells me is that it's not only an internal benefit, but if you're able to monetize that and kind of stitch together a suite of resources to help your customers, your customers are also seeing value in what you're providing, which is what we're aiming to do here. And then lastly, I'm a CCO myself. So it's fun to see the growth of the role of a chief customer officer. 39% of companies with greater than a hundred million in revenue have a chief customer officer. But for me, this is less about the title and that it's becoming universally understood that our customers need to have a seat at the table because they are sort of the critical piece that keeps the growth going around. Oops, I don't know what just happened there. I think I accidentally clicked on the link. And then hot off the press, we actually just conducted a little bit of a smaller scale survey. We host a CXO event and I wanted to give you a sneak peek just in terms of like what's transpired in 2023, given the economy. And so what we saw was the average actual gross retention came back at 86%. And then we looked at like, how did this compare to what you expected? And it was interesting. So we had like about a third said that their gross retention, they're gonna kind of hit what they plan. About a third said that they're gonna underperform, usually in like a five percentage point swing. And then a third said that their retention is actually gonna get better, but usually within just a few percentage points. So obviously there's some dependencies here, right? Based on the market you serve, the customer base size you serve, et cetera. But in general, it hasn't tanked giving the downturn in the economy. But for lots of people, there's like a minimal impact that they are feeling this year. Net retention. So this actually kind of shows the distribution of it. So 105% of the average, we had kind of a critical mass in that 105 to 110%. This also went down a few percentage points. And interestingly enough, we kind of had an even split of it increasing by a few points and decreasing by a few points. But on average, this was more in like the 107, 108 range when we ran this in the past. And then if you're wondering what your CFO is gonna ask you in terms of spend, we're seeing that the average CS spend, now this one's shown as a percentage of ARR, so of revenue. So that's your CS cost fully loaded, came back at 5.1%. So that's down a little bit from 6% in 2022. And I would attribute that to just some of the cost pressure and efficiency that organizations really put more of a hyper focus on this year as we kind of navigate the unknown and hope for a good bounce back here soon. And so what's next? I just wanted to leave you with a few kind of thoughts for what's around the corner for success and some of the things you might wanna start thinking about. We believe, especially in this world where it's not growth at all costs, and we need to grow, but we need to do it efficiently, we call it durable growth, that digital, we're calling it like digital superpowers or augmenting all the great work that you're doing with human capital and adding digital strategies to it is really gonna be the next phase of customer success. So we always say customer successes equals driving our customers to their desired outcomes, CEO, along with an exceptional customer experience. And now more and more organizations are leaning into digital strategies that both help their teammates focus on the high value activities, help their, you know, meet the kind of the profitability goals and efficiency goals of our investors. And then frankly, drive a better experience for our customers where we can reach all users and we can personalize these experience based on their desires, their persona, their role, et cetera. So we believe in the end, you know, as you start to think about metrics, leveraging digital customer success to share to your board and investors how you're taking ownership over driving more efficiency for your organization, but also we believe it will be an important tool in your tool belt to actually drive growth and retention as well. So I imagine as we start to do these things in the next year or two, we'll be socializing even more metrics and success and stories and what have you on that. But I think that's really what's around the corner with respect to customer success. So I wanted to say thank you. I've included my contact information here for you. If you'd like to email me or contact me on LinkedIn and I hope that you found this useful. All right. Kellie, thank you so much. I bet the board just really appreciates the depth you go into. Two quick questions for you. Sure. Number one, has there been a metric that maybe you used to use and over time you realized, oh, it's not that important to the board or it's really not that helpful for me to drive decision making? Yeah. So I want to touch on two things. So NPS, I think it's an important metric. So net promoter score, right? Which is more on the experience side of things. I think it's an important metric from a learning mechanism perspective. It teaches you a lot around what your customers are feeling. Maybe it's things in the product. Maybe it's the customer experience that you're getting. But what we found is that's probably the least, it correlates the least to like gross retention and net retention. So I would suggest track it, but don't over rotate on that as like your connective tissue to the lagging outcomes. And then the other thing I can add, if you don't mind, is adoption. I think we used to look at adoption as way too binary. How many users are using it? Are they logging in? But now what we really want to shift to value and outcomes, which was that notion of verified outcomes, because it's not a true indication of, yes, they may be logging in, but are they actually getting business value? And the bar is like consistently raising on those renewal conversations where you need to have ROI if you want to renew that revenue. That actually begs the next question. In our research we've done together, we found that only about 25% of companies are using verified outcomes, proving the ROI is part of the CSM, incentive compensation, or even objectives. Do you think that needs to become a much more prominent part of CSM's goals, objectives, and incentive comp? Absolutely. I think that's like part of the journey we're going through right now is lots of organizations shift from like the art to the science and putting a stake in the ground. And what I say is adoption is necessary, but it's not sufficient. So I think there's still far too many organizations out there that are stuck in kind of just the adoption doing mode, and not focusing on like the results. Like really the charter is driving them to value. I like to think about as a value journey, even more so than a customer journey. If we're not doing that, we're not doing our jobs. I would highly encourage folks to consider that, especially as they're kind of stamping out what their compensation structures may look like for next year. Thank you so much for your time. Thank you for providing your content information for the audience. And that was Kellie Capote, the Chief Customer Officer at Gainsight. Thanks, Kellie. Thanks, Ray.

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