Customer Success is the key to customer satisfaction, account expansion, and advocacy. To drive these outcomes, many startup SaaS companies readily provide customer success related services for free, especially at an early stage when every customer counts the most. However, most find that as their customer base expands, providing free services for every single customer becomes an unsustainable endeavor.
One way to resolve this challenge is by charging for certain customer success services (to be clear, some level of service should always be offered for free). Offering premium services for a fee ensures that your company can continually assist customers to achieve their expected business outcomes and still be profitable. In reality, startup companies are often puzzled about the most effective approach to charging for customer success without increasing the churn risk.
A few short years ago, I was approached by one such startup company. The client offered a great deal of help to their clients for free to ensure ongoing adoption after the onboarding phase was completed. This happened mainly because their clients lacked the in-house technical expertise to utilize the software. As such. The customer success managers frequently stepped in to ensure successful adoption. As their clientele grew, managing the software for every client became increasingly difficult in terms of bandwidth and budget.
In this blog, I’m going to share the framework that we helped them develop. The framework allowed them to offer a sustainable paid customer success service for ‘white-glove’ clients and transition their customer success program from free services to paid services.
Developing Paid Customer Success Service Strategy
Not all customers are made equal. To successfully capture revenues from customers, your customer success service offerings must ultimately align with their desired business outcomes (and ability to pay). Use the blueprint below to develop your own monetized services and improve your ability to support the appropriate customer experience for all your customers.
Step 1: Segment your Client Base
First, outline the different customer segments. From large organizations to medium-sized companies and small clients. Examine the typical use case and business needs for each segment. Then determine what activities each segment is expected to perform each period with your software in order to derive sufficient value from your solution. In other words, take the time to make a list of things you’re expecting each customer to do each period for them to derive value on an ongoing basis. The list may include the services they should be taking advantage of, the number of specific transactions they are expected to perform in your software or certain features and functions expected to be used in a specific period. Note that the list should include client activities expected during the adoption phase, not the on-boarding phase.
Step 2: Define premium customer success service packages
When defining each service offering, you’d want to take into account the customer experience and inherent churn risk of each customer segment. For example, per my experience, the larger the customer, the higher the expectations and need for a ‘white-glove’ type of customer experience. In addition, each segment is likely to have a different level of churn or down-sell risk. Use the list created in step 1 to prepare service packages for each customer segment. Ideally, each package should offer, at minimum, those ‘must-have’ activities to ensure enough value is derived and significantly mitigate churn or down-sell risks. You may then want to provide a list of add-on services to ensure each customer can tailor their own customer experience. Offering options for white-glove experience is going to be key, in some cases.
Step 3: Identify Potential Benefits to Customers
To better transition customers into your newly created paid service offerings, I highly recommend choosing a multi-phased approach. First, conduct customer research to confirm which services they might be more willing to pay for. Done right, your customer research will reveal which services are most important to each customer segment. Use this research to validate your service or adjust your offerings to ensure a customer-centric approach. In addition, validating clients’ wishes upfront (and having customer quotes to augment your campaign for your new service offerings), will make it easier to transition your customers to pay for services you currently cannot afford offering for free any longer.
Step 4: Determine Customer Fees
Once the list of service packages is complete, you’ll need to properly price them. One way to determine fees is by using a cost-based pricing approach. You’ll do so by estimating the average cost per activity. This entails estimating how long it takes for the customer success manager (on average) to perform each task. If you have a large customer success team, send out a questionnaire to assess how long it takes them to complete each task included in the service packages. Considering the estimated time and frequency of activities, the information gathered can then be used to determine the fees for each offering.
Once you have a reasonable estimate of the total number of hours needed to complete all tasks in each service package, you can easily derive the total cost for each package.
Another scalable approach is pricing your services using a value-based approach. Using this method, you will need to first find out how much your customers are willing to pay for the outcomes each service package is expected to provide. This method is called value-based pricing as it is hinged on the perceived value of the service to your customers. To be profitable, ensure that the set price covers your costs. To learn more about this method, I highly recommend reading Timothy Matanovich’s book, “Profitable Technology Services Pricing: How to use offering design and pricing strategy to accelerate sales and increase willingness to pay
Step 5: Conduct a Pilot
Change is hard. Especially one which involves charging customers for services they used to get for free. To mitigate risk and ensuring your transition is as smooth and as successful as possible, take the time to test your new paid service packages on a cohort of customers. Per my experience, I recommend including customers who have expressed an interest during your customer research (see step #3 above). Once the pilot is complete, user their feedback to optimize your paid service offerings and design an effective customer campaign with your marketing using customer quotes. Once this step is complete, introduce the new service offerings to your entire customer base leveraging quotes and successful use cases from your pilot phase. This will help defuse objections and position the change in a manner that focuses on the benefits to your customers.
Step 6: Expand selling
Once you’ve formally launched your new customer success service offerings, educate other customer-facing employees to understand the new paid service strategy. Expect some of them to object and have serious concerns about your new approach. A proper understanding of the services will help mitigate misconceptions. Most importantly, it would help promote the right service offering to the proper customer segment.
Making the investment to educate your entire company, will not only result in higher customer success services revenue stream but would also promote these healthy customer outcomes:
- Higher rate of Successful implementation of new features
- Better adoption and utilization rates
Overall, by having a proper design of your paid services you will obtain a better alignment with customer needs and desired experience.
Charging for customer success is advisable in certain situations and you should be taking careful and considerable measures before launching one. To be successful, you will need to:
- Develop an appropriate strategy for different client segments and determine fees based on customer perceived value as well as service costs.
- Test your initiative and continually improve your services.
- Provide clear guidance to the sales team so they can effectively communicate the value of the packages and make the right service recommendations.