August 11, 2024 | Read Online
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Phew... 20 inches (over 50 centimeters) of rain in Charleston last week thanks to Hurricane Debby. Glad that one's behind us.
Big week ahead in the Nathan household. My oldest is going to off to university. We move him in this Friday. Couldn't be more proud, but bittersweet for sure.
If you've been following along. We're honing in on a new name for the newsletter. Stay tuned for news on that in the next few weeks. We would love your help getting the word out.
Now let's talk about when you should consider charging for customer success services...
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One of the most common questions I see in the SaaS community is...
"Do you charge fees for customer success services? What should be paid vs. free?"
My answer?
Absolutely, and here’s why...
Before we get too deep into paid versus free services, let’s define the phrase “customer success services.”
I like this phrasing because it aligns with my view that customer success is an organizational capability, not a monolithic department of CSMs. Customer success services are all of the offerings – free and paid – that help customers maximize the value they get from your product and, in turn, the customer’s lifetime value to your company.
Of course, this capability begins with the product itself. But the best SaaS companies provide access to multiple types of resources at various levels of “touch” throughout the customer journey. For instance:
The more experience I gain in this field of work, the more conviction I have around one thing: generalist customer success manager roles lose their efficacy as SaaS companies mature.
White-glove CSMs who attempt to retain customers by doing anything and everything for them while trying to build relationships, facilitate renewal discussions, and capture product feedback simply don’t scale.
For resource-constrained startups in learning mode, generalist success managers work well. But in the profitable, efficient growth era you can no longer afford to carry loosely-defined roles that don’t show a specific, positive impact on the P&L.[1]
To be clear, there are fantastic, heroic individuals doing great work in these roles. But ultimately, they're fighting a losing battle. I believe they would be more effective with a specific, strategic remit and a numerical target within their control to reach.
But I digress...
No matter how your customer teams are structured, the services I mentioned above can become a drag on Gross and Operating Margins if you're not careful.
Most functional leaders in the customer organization would love to have additional headcount to deliver on their mission. But the reality is that every business has profitability targets which, if not met, will impact the valuation of the company.
CFOs and investors attuned to these dynamics will eventually cap the investments they are willing to make in these non-revenue-generating cost centers. This scrutiny may seem unfair but it is warranted. Especially with the free-money-fueled SaaS growth bender in our rearview mirror.
Teams who find ways to effectively monetize certain services can help drive ARR growth while expanding their teams and maintaining healthy profit margins.
As Dave Kellogg says so well in his 2017 Kellblog article: “Professional Services exists to maximize ARR while not losing money.”
As long as services don't make up too large a proportion of the company's overall revenue, most CFOs are content to break even or generate a nominal Gross Margin on services. That's because they are self-funding, setup customers for long term success, and maximize lifetime value for the company.
A win, win, win.
Kellogg further explains in a 2017 post:
I believe that professional services has real value [...] and that if you’re driving 0% to 5% gross margins with such a team that you are already supporting the ARR pool with discounted services (you could be running 25% to 30% margins). Whether you make 0% or 10% doesn’t much matter — because it won’t to someone valuing your company — but I think it’s a mistake to shoot for the 30% margins of yore as well as a mistake to tolerate -50% margins and completely de-value your services.
Hopefully you're convinced that charging for services can be a positive thing. Now the question is what services should be paid and which are included in the subscription.
My belief is that most one-on-one engagements delivered by specialized product, industry, and project management experts who need to understand one customer’s systems, processes, and culture should be paid.
If not, you likely won't be able to scale such high-touch specialist success resources.
When we talk services, the first thing that probably comes to mind is implementation. But other paid services can include consulting engagements such as audits and process reviews, premium support offerings, or even managed services[2].
These services typically represent what customers need outside of product features to be successful with the product. They can be one-time or ongoing engagements that carry recurring fees.
Now, it’s unacceptable to ask customers to pay for access to basic information because you haven’t documented your product features, best practices, or opened up access to a user community.
Most SaaS companies should also have an abundance of "free" resources and materials available for their customers.
A knowledge base full of well-written, up-to-date articles. User discussion forums. A library of how-to videos. Recurring, live customer webinars and workshops. And as a backstop, a support team customers can count on to quickly and reliably handle any question thrown at them.
These are non-negotiable. Failing to provide self-service options increases customer effort, decreases satisfaction, and impacts advocacy, retention and, ultimately, profitability of the business.
To net it all out, my strong conviction is that most SaaS companies should consider offering premium customer success service plan offerings. But these services aren’t a substitute for self-serve resources that enable your customers to self-serve and your business to scale.
You need both.
How do you monetize customer success services, and what’s included in your subscriptions? Join the discussion on LinkedIn here.
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[1] Furthermore these roles are often overlapping and in conflict with other account and process owner roles within the company, causing political infighting about customer “ownership.” More on this topic in a later post.
[2] Managed Services is a “done for you” option where the provider operates the software on behalf of the customer. This is an agency model where the customer buys a turnkey outcome.
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