The AHA! moment for any business used to be when the customer makes the purchase.
But tech services today are more inclined towards subscription-based or usage-based business models. this is because of the lower upfront payment required of such recurring revenue models, and the flexibility of paying for only what you need and how long you need it for. For enterprise services, we see this in cloud computing, platform services, cyber-security services, etc.
So the AHA! moment has moved from the point of purchase to the continuous points of purchases afterward. It is no longer that big of a deal to sign that customer. The important thing is to ensure that the customer continues to use the product, has no issues with it, and increase their usage with time.
After all, if the customer churns after they purchased the service for a month, all that sales investment would have gone down the train.
Imagine if your business has a 50% churn rate, that means half of your investment in sales and product go down the drain each month. Your sales team can work twice as hard, but your business will not see result at the end of the year. But if you manage your churn rate down to 10% and maintain it, that means that every increase in sales that you make will accumulate incremental recurring revenue down the road.
You can see now how important it is for recurring-revenue based business models to reduce churn rate.
One of the ways to do that is to shift the business investments to post-sales support: Support Account Managers, Customer Success Managers, Account Executives, Account Managers, Partnership Managers, what have you. there are many names different companies use to refer to the same job. they have one goal: make sure existing customers are happy.
Support Account Managers (SAMs) — attend to support experience
there are many ways to make sure existing customers are happy.
one of the most obvious ways is to solve problems that already exist. that is, when they encounter problems and they tell you about it. that is handled by SAMs.
the level 1 support service of SAM is to address customer problems. when enterprise customers encounter a problem, they are usually required to open a ticket so that the issue can be triaged through the proper channel so that the right team can take a look. but higher-tier enterprise customers can have access to a dedicated SAM that will hear them out. in some instances, this can be faster than going through the ticket channels and interacting with either bots or agents. this is where the SAM has a lot of experience in the problem that is being reported, or has special connections that can help the customer bypass some requirements. however, most SAMs will still need to fall back on the ticketing system to reach the proper teams. the advantage here is that the customer will have someone to call if the issue isn’t being handled on time or handled satisfactorily.
another level-1 support service of SAM is to manage incidents and high severity issues. we call them SEVs usually. these are mission-critical events that happen sometimes when for some reason, the client is unable to use the business’ service and it is causing major operational and financial impact to the client. due to SAM’s knowledge of the client’s set-up and also of the personnel from client side, they are the de-facto customer-facing person to relay information between the engineering teams and the customer during the incident management process. SAMs have to know how to simplify complex technical matters, and filter out what is necessary for customer to know vs contractually required to inform customers.
the level-2 to SAM service is to resolve issues at scale based on multiple customers feedback. it can be a big issue, for example if they have seen multiple customers stumbling upon the same product problem, they can shoot a feedback to their product team or engineering team to get it fixed. or it can be a small issue, such as a blue button that is always confusing customers to press incorrectly, and submit a request to get that change. if it is something that customers need to learn to do better, they can organise training sessions with the customers and share best practices with them.
SAMs can take a step back to look at the customer’s support journey as a whole, and identify areas of friction that can be removed for them. for example, replacing the need to open a ticket for commonly encountered issues and have customer press a button from the app or website immediately.
the level-3 to SAM service is to anticipate problems in advance, well before customer encounters them. since they understand the customer’s business needs and set-up, they might anticipate that customers would have a problem to a business’ policy that is coming up, and hence be the customer’s voice within internal meetings. a change in economic situations or competitor situations might also motivate SAM to plan how customers can structure their integrations with the business accordingly.
Customer Success Managers — in charge of revenue and forecasting
another way to make sure customers are happy, but perhaps in a less selfless or altruistic way, is to make sure that they are growing with the company. CSMs need to ensure that customers should be buying more, using more, or helping to refer your company’s services to their friends and other industry players.
on top of support work, Customer Success Managers (CSMs) are in charge of the book of business for the account. this includes forecasting the expected usage or revenue from the account for the next half or one-year, and share the strategy to engage the customer to meet the goal.
if CSMs hear that customers need a new feature to renew the contract, they may request for the product team to prioritize delivering that feature before the quarter ends. but this is not as easy as it sounds, as CSMs need to balance between the size of this contract renewal and the cost of prioritizing that development over other things that they had already asked them to do.
CSMs must also be aware of the outward competitive landscape to anticipate changes to the future revenue. new services in the market, or cheaper alternatives by competitors, or simply changes in the economic environment may threaten the forecasted revenue. almost anything can threaten the forecast revenue. this is why it is important for them to stay close to their customers to know what’s on the top of their minds.
in a start-up, a resource-constrained environment might mean that the CSM and SAM roles go to the same person. this account manager will have to take care of both the support work, anticipating their needs, and also plan and forecast their growth to make sure they are earning more from the customer each quarter.
in bigger, more mature organisations, it is better to split up the support and revenue work as each require dedicated attention to perform their jobs well. it might also seem like a conflict of interest to the customer, if the person attending to their support needs have vested interest to sell other services. nonetheless, both CSMs and SAMs need to work closely together to service the customer and make sure they’re aligned with what the customer needs.
How do you account for the business cost of such services?
going back to how we started this article about businesses shifting from purchase-based to recurring revenue model, this shift matters in how we account for costs related to SAMs/CSMs.
the cost related to selling a product can be charged as sales expenses. this includes salaries of the salespersons, and also other items like discounts, marketing transaction-based campaigns, anything related to increasing sales of the service.
but if we see SAMs as an issue manager focused on resolving problems of the product, they can be accounted for under Cost of Goods Sold under accounting perspective. having SAMs will increase the expenses required to produce or service a product to customers, and thereby reducing the Gross Margin of the business.
another way to see SAMs is as a value-added service. this means that we are creating a new service just for the customer. and like how we charge consultants and lawyers for their time spent on the project, we can charge them for the time SAMs spent on resolving their issues.
but this way can be tricky as customers may not be willing to pay additional fees over problems that seemed to have been caused by the business itself. here, we can consider adding SAM-related cost as part of the premium subscription package charged to customers as a whole when they pay for the services. this will offset the downward pressure on Gross Margin of the business.
as CSMs are in charge of increasing the revenue or preventing churn, CSMs can be accounted for under sales and business expenses too, since that is the ‘new sales’.
