Peter’s Perspective: Monetize Customer Success? Curb your enthusiasm

Written by Peter Armaly

Want the executive summary of this article? Don’t rush to monetize CS before conducting a thorough study. And there’s a spoiler… it’s way harder to monetize than you think and you’re not going to find much information in the public realm about what conducting a thorough study entails.

I feel that what’s been missing in the public discourse is a full recipe of what’s involved in implementing a monetization strategy. My impression is that everyone is just saying to everyone else, just do it. The good news for you is that I included in this article just such a recipe. You can jump to the end to see it (which is what I do when I consult online blogs to learn how to mix another cocktail to add to my repertoire) or you can read this article to understand why you need a recipe at all. After all, I’m not telling you how to mix a cocktail.

First, monetizing isn’t a bad thing… until it is

While it’s still a very controversial topic, advocating for monetizing Customer Success has suddenly become an increasingly acceptable position to hold. It’s like going to a party and stating an opinion to strangers that until recently was previously considered verboten but that is now seen as something open to discussion. For example, it’s no longer controversial to say out loud,” let’s charge for Customer Success”, any more than it is to say, “maybe it’s okay for societies to move towards a 4-day workweek”, or “downtowns will not die just because I work from home”, or that “the Ted Lasso show has lost its soul”.

If you said any of those things three years ago, you would’ve been met with scorn. And in the case of Ted Lasso, there might even have been a threat of violence, so beloved was he. Customer Success monetization? Now it’s become very commonplace to declare that the future of Customer Success is all about it. Here’s something though that’s bound to provoke controversy. The current wave of thinking about Customer Success monetization strikes me more as a surrender than as a bold vision.

Why is it a surrender?

Because the current wave ignores the fact that monetization in its present imagining, cannot scale. It relies far too much on people and not nearly enough on automation. People are expensive. Don’t get me wrong, some of my best friends are people (the others are dogs) but if we want to improve the renewal prospects of customers, we can’t just focus on how to do it with people. The current wave also marginalizes the hard and necessary structural work of Customer Success that can deliver far more enduring monetary value than the simple exercise of putting a price tag on services.

I get it. With all the cutbacks everyone is experiencing within their customer base, from drastically slowing customer procurement processes, to downsizing of subscriptions, and even to outright cancelations, the pressure has never been greater to pay close attention to doing what you can to keep customers. All of that coupled with pressure from your CFO to find ways to constrain and even shrink costs means if you’re a CS leader you’re in what seems to be a no-win situation. You have to find savings or revenue. One or the other. Your customer base can’t be covered adequately if you cut any more of your team, so savings are hard to come by. So, the easy and most obvious answer is to charge for the service you’re providing. Yay, monetization!

On the surface, CS monetization is tantalizingly simple. TSIA lays out the case below and says it:

• Aligns the interests of the organization and its customers. When an organization monetizes customer success, it’s essentially offering customers a value proposition that guarantees they will receive the full benefits of the product or service. This can lead to greater adoption and, ultimately, greater customer loyalty and retention.
• Allows organizations to transition from a cost center to a profit center. By developing and selling monetized offers, organizations can generate revenue streams that can offset the costs of customer success programs. This can not only improve the financial performance of the organization but also allow customer success executives to demonstrate the value of their programs to senior leadership.
• Helps organizations stay ahead of the competition. With more and more organizations recognizing the importance of customer success, those that are able to offer effective monetized solutions will have a competitive edge. Furthermore, by developing monetized offers tailored to customers’ specific needs and goals, organizations can deepen their relationships with customers and enhance their overall customer experience.
• Helps organizations create a more sustainable business model. By generating revenue from customer success programs, organizations can invest more in the development of new products and services, as well as in the improvement of existing offerings. This can help ensure long-term growth and success, both for the organization and its customers.

My take on TSIA’s case above is this. While that all looks and sounds logical and even difficult to argue with, all of it also requires quite a significant leap of faith on the part of everyone and overlooks the true effort required in order to make any of it operational. And aside from what’s mentioned in the first bullet, the case leans disconcertingly and heavily towards an internal vendor’s point of view. The whole set makes me think that monetization places the customer firmly in the backseat. It would be better if we could see positions argued that say, paying for something doesn’t automatically mean the customer values it (the often-heard reasoning is that free is worthless). It can even backfire on the vendor when putting a price tag on something of significance puts it under intense scrutiny and conjures up a reaction by the customer that says, maybe real value would come from a better product, not expensive services.

The TSIA argument isn’t an unusual one and in fairness to that company, they do have a bit more in-depth guidance about monetization behind their paywall. But the high-level guidance I quoted from them above is similar to what many in the industry offer up for Customer Success monetization. In my view it omits the exploration of two significant considerations that should give executives pause. But before we get to those, let’s review a few fundamental principles of Customer Success.

What is Customer Success meant to be?

1. It’s meant to be a proactive service that anticipates and dynamically (i.e. in the moment) delivers on customer needs as they journey along the path towards solution adoption and value realization.
2. It’s meant to be a service that strives to improve the customer’s experience with the vendor’s solutions by identifying and removing friction points.
3. It’s meant to be an engine for driving product improvements and systemic change back within the vendor’s organizations through the collection of customer goals, progress towards them, along with customer behavioral, sentiment, and solution usage data-driven insights. This is the virtuous circle you might have heard of.
4. Only when #1, #2 and #3 are executed well can Customer Success become a de facto programmatic engine for revenue growth through upsells, cross-sells, and customer advocacy. To expect it to be #4 without being built and able to execute on the others is delusional.

Can’t monetized Customer Success practices be part of the story for achieving these things? Maybe, but we’ve seen very little evidence of companies hitting on all these for monetized services and if they have, it’s only for a small subset of customers. You know why monetized services tend to miss on these things? Because the focus is too much on delivery (which is what the packages are designed to do and what the customers are clearly buying). The problem arises when that focus leaves no room for building out the platform for more enduring, programmatic, and measurable processes. Typically, what’s measured with monetized Customer Success is revenue attained (on the vendor side) and the few specific deliverables listed in the package that the customer buys. More on that to come.

How do companies today deliver on Customer Success Monetization?

There are a lot of companies that have built out processes for monetization. Some have even achieved service profitability. I’ve been intimately involved off and on in the design and delivery of customer success monetization dating back to 2008. Half of them were profitable. But none of them were easy and I have a few battle scars as memories. So how is it usually done today?

• Companies include premium levels of support in the Customer Success package (faster response times, a dedicated level 2 engineer, business-context technical guidance).
• Companies include a dedicated CSM in the package to be the main contact/orchestrator (usually includes a success plan and sometimes includes a CSM-facilitated connection with one of the vendor’s top executives).
• Companies sometimes include services for discrete critical activities such as onboarding, product customization and integrations, and user training.

So, what’s wrong with any of those, you might ask. Nothing, except from a customer’s point of view, none of them are looked at as being particularly proactive because they all require the customer to do extra work. Again, I’m not arguing that monetization is the wrong strategy. I’m arguing that too often, companies embark on rolling out such strategies without fully costing them out.

Considerations rarely, if ever, considered

1. Training and management of roles – To implement a monetized Customer Success strategy involves so much more than simply assembling a package of services, as was described earlier. Someone needs to sell the service and if it’s expected that Customer Success professionals – as they are presently profiled – will do it, the initiative will likely fail. Selling is a profession and that means either the Sales organization will need to add the service to its portfolio or Customer Success will need to build that selling capability within its own organization. In either case, selling the services will require educating internal organizations about the why, the benefit for the company, and the benefits that customers can expect to accrue. Selling requires collateral, it requires use cases, it requires references, it requires example scripts. And that’s just on the how to execute piece. To really motivate the salesperson to sell the services, adjustments to their compensation is required.
2. Make Customer Success monetization a true customer-centric revenue generator (not a vendor-centric spreadsheet balancer) – Find out how customers truly benefit from a Customer Success service. Is it the fixing of things? That’s the job of Support. Is it to be the educator or explainer of the product? While it can do some of that, Customer Success isn’t built that way. That’s the role of an education services team or of knowledge portals and in-product help. Is it the negotiation and arrangement of commercial terms that work for both parties? That’s the job of Sales. Is it help with realizing the expected value from their solution investment? That’s the job of Customer Success. How do customers realize value? By receiving information about where they need to go, how long it’s going to take to get there, and how much effort is required. They realize value, in part, by understanding how they are progressing and how that progress compares to their industry cohorts. They realize value when they are guided in ways that are specific to their particular business and for the industry they are in.

Do this exercise. Look at the information that your customers find most valuable and that is understandably and reasonably something not found in the product. If it’s not something that can be reasonably expected from the product (integrations and special configurations, for example), then your customers won’t expect that information out of the box. They’re reasonable people. Once you identify that valuable information, think about monetizing that. Customers will pay for that because they understand it and they need it.

The recipe

1. Recognize that when customers think of value, they aren’t thinking of the Customer Success organization and its services. Even if they end up deciding to pay for CS services, it’s not the services that they value. It’s the outcomes that they can derive from working with the services. You can bundle as many enticements as you want into a high-end package, but if that package isn’t able to demonstrably show customers how they will realize the value they need, they won’t buy. Customers are becoming savvier and aren’t easily persuaded to spend on vague service offerings.
2. Talk with your customers. Don’t monetize anything until you’ve had conversations about the topic with customers. Tell them what you’re thinking and how you expect it to benefit them. They don’t care how it will benefit you and your company. It’s a tricky exercise to get right and so you need to be thoughtful and very strategic. Here’s an example. I’ve been using Peloton since March 2020, at the very beginning of the Pandemic. They recently sent a notice of a pricing change and I’m wondering how many customers they are about to lose because of it. Essentially, they are going to start charging a higher amount (almost double the monthly fee) for the customers who use the biking and running classes on their platform. Those two exercise modes of course align with the two types of hardware that the company sells, bikes and treadmills. Basically, if you want to bike and run with their instructors, you need to pay more. The basic membership will still give access to the other classes (strength, yoga, floor cardio, and stretching) but you can see where this could go in the future. The future of atomized services is something many customers might not want to consider.
3. Involve the business experts in your company. If you’re a CS leader, and especially a relatively new one, admit what you don’t know. It’s a lot of work creating a saleable service. You and your team may have been delivering on a set of services for years and now you think, we’ve proven it so let’s put a price on it. Not so fast. You have to go through a lot of preliminary steps, like steps 1 and 2, and include the process of costing it before you can set a price. How much margin do you need? Do you need to hire salespeople? How much are you budgeting for them? Are you instead going to ask the head of Sales to take on the responsibility for selling Customer Success? How are you going to sell them that the idea is sound? How are you going to convince them that it will bring benefits to customers, the company, and them? Through quota relief, perhaps? Maybe a spiff? How are you going to work with them to set up the right incentives to encourage their salespeople to actually put in the effort to sell? What about collateral? Do you know how to craft the right, concise messaging to capture the attention of internal partners? What about the collateral you’re going to need to sell it in the market? Who will create that? Will Marketing be expected to help? What’s in it for them? Who is going to have the sales conversations with customer prospects?
4. Think about your partner ecosystem. If you have partners, are you sure they will be cool with you selling services that they might already do or that they could do? Maybe you don’t see any potential conflict, but they might. This is a special gotcha and its omission reflects a typical view of partners as necessary background players but no more than that.

5. Legalize There is a process for ensuring the revenue from services can be recognized. Skip this step at your peril if you’re a publicly traded company. Even if you’re a smaller private company, it makes sense to follow GAAP’s revenue recognition standards if you hope to ever grow to become IPO-ready or to be acquired. Revenue is recognized when each element of an arrangement satisfies the following basic revenue recognition criteria:

1. • persuasive evidence of an arrangement exists,
   • delivery has occurred,
   • the software vendor’s fee is fixed or determinable, and
   • collectability is probable.

6. Announce Don’t be shy. If you’re monetizing for the right reasons, then you should be confident that announcing it on your website and in emails to your subscribers will be met with little to no controversy.

Rushing is risky

You can go ahead and rush to the end game of monetization, but you should ask yourself this question. What level of confidence do I have that it’s not going to negatively affect our retention rate?

Rushing to implement something because so many others in the industry are saying it’s a best practice isn’t a good enough reason to do something. Rushing to do something because people declare it to be an optimal way for value capture isn’t a good enough reason. Something becomes a good enough reason when it can be clearly shown that it will benefit your customers and that the complete math (the monetization apparatus supporting the policy) is fully accounted for. If all that comes together on the right side of the ledger, then by all means monetize. Otherwise, don’t.