Nov 20, 2018
How to Design Everlasting Value Propositions in B2B Marketing, Part 2
Increasing customer LTV with a Customer Success strategy
In the first part of this article I addressed how to accelerate the sales closing process with B2B customers. Using return on investment (ROI) as a justification, it is possible to shorten the sales cycle and ensure decisions come faster from within the buying organization.
ROI is the #1 thing that matters for B2B customers when making a purchasing decision. This means that, after they have signed the contract with you, they’ll keep exploring future alternative solutions that are cheaper. Remember: their goal is to increase ROI, which in turn means they won’t settle with your solution if they can find something that is more cost-efficient. In other words:
ROI as a sales justification (a.k.a. “value for money”) will work when closing a new customer, but it won’t cut it in the long term.
Once the closing is done, the next challenge begins: how do you keep your customers buying from you, year after year? Enter Customer Lifetime Value.
What is Customer Lifetime Value 🌱
Customer Lifetime Value is the total amount of revenue that a customer can bring during the whole history of the company. It is often shortened as CLV, CLTV or just LTV. It is extremely important to know how much money a customer will generate to the company, in order to plan your customer acquisition strategy. This will help you calculate how much investment you can put into customer acquisition and customer retention.
The main math behind the Customer Lifetime Value is that, typically, the closing itself is not the biggest source of revenue from a customer. Instead, a customer will generate the majority of the total LTV revenue for the company through retention. That is why customer retention is extremely important for the company’s long-term revenue.
When talking about B2B models, the two main reasons why customers typically leave are (in order of frequency):
- they find a similar solution that is cheaper
- the customer satisfaction is very low
Obviously, the long-term revenue and net profit from customers is not coming from the closing itself, but rather from fruitful customer relationships that last many years. And the only way to assure this is through a customer retention program.
It’s All About Customer Success 😍
Although Wikipedia often has a very traditional way of defining things, I personally think the one for Customer Success is quite spot on:
“Customer Success is the function at a company responsible for managing the relationship between the vendor and its customers. The goal of customer success is to make the customer as successful as possible, which in turn, improves customer lifetime value (LTV) for the company.”
In other words, Customer Success’ purpose is to make sure your customers will get the necessary help from you to grow their own business. The assumption here is that, if your customers succeed and grow their business, they will have more reasons to keep investing in your solutions. That is, if you help your customers grow, they’ll help you grow with them. Sounds easy, right? However..
Customer Success (CS) is still very poorly implemented in the majority of companies today. Most of the CS teams in the tech industry are actually working on “customer support”, which is a reactive way of doing customer success by fixing stuff that is already broken. Instead, true customer success 💕 should focus on being proactive and making sure the customer is constantly elevated with great service, new features and even unexpected good news.
Customer support is definitely part of great customer success, but it’s only a fraction. If you want to learn more about great customer support as a framework, I recommend you to read one of my favorite posts on the topic by Xavi Magrinyà: https://blog.xavimagrinya.com/great-customer-service-the-framework-8a5407346fe7
The secret to great Customer Success is to have a strategy that will help you grow your customers’ business and strengthen your existing relationship. Here’s my suggestion for creating your first simplified Customer Success strategy:
1 — Have a team dedicated to Customer Success 👥
First and foremost, you must have a dedicated team to help your customer. This implies you will have to separate customer support from customer success, preferably into different teams.
The job of the customer success team is to represent the voice of your customers’ shareholders within your company. That will make sure that your customers are always heard and taken into account within your organization’s priorities. Moreover, this will enable your customers to continue growing and improving their market position thanks to your organization’s unconditional support.
2 — Build a feedback loop 💬
Feedback loops are simply bi-directional communication channels to ensure mutual understanding:
- Choose a channel that your customer loves, to communicate with you. Some customers prefer face-to-face meetings, some prefer WhatsApp and some may prefer email. Use what feels the easiest for each customer.
- Establish a 2-way feedback loop: don’t use the channel to push news to your customer. Instead, use it for asking questions and listening to their problems.
- Document every message, request or complaint your customer is communicating over the feedback loop. Bring this information to product planning meetings.
- Periodically check that the feedback loop is still working and being used by the customer. If not, then rebuild it so that the communication keeps flowing.
- Remember this: no news is bad news. — A silent customer could be a customer looking for an alternative solution.
3 — Understand their business 💸
In order to have a deeper understanding of your customers’ business and what makes them grow, it is vital to understand the entire value chain, all the way down to the end consumer. This will help you design a plan for your product to empower your customer to deliver higher value and, in turn, make more money and grow. Here’s an oversimplified example:
This figure shows an oversimplified example of the B2B value chain. Your company provides value to the B2B customer which, in turn, delivers value to the end consumers. It is important to notice that, no matter how many B2B layers are in between, in the end the money paying back to the whole value chain will come from consumers. So it is really important to understand how your product affects the entire chain, in order to improve your value proposition for your direct customers.
4— Make product management embrace Customer Success 🤗
Now it’s time to improve your product or service to make sure you can support your customers’ business growth. It is the product manager’s job to make sure the product roadmap is built to enable and support your customers’ growth (= success).
Therefore, make sure your product manager have as a top priority to understand your customers’ business, their main issues reported in the feedback loop, and where their growth comes from. Then, they should use these three inputs to build the next features of your product.
Real Life Example: How we almost lost our biggest B2B customer 😕
In order for you to better understand the potential impact of Customer Success in Customer LTV, I want to tell you a story that happened to me two years ago. Our company’s biggest customer is one of the largest smartphone manufacturers in the world. This customer manufactures and sells directly to consumers. We provide them with software enhancements for their products that are used by millions of consumers every day.
During 2015, this customer struggled to keep the pace with their global sales, and they even started to loose market share against their competitors. For whatever reason, consumers were not interested in their phones any more.
During the next 12 months, our customer started a huge argument with our account managers. They wanted to have a big discount for our product’s license renewal, because their sales were not going as well they had always.
In an ideal world where we had a Customer Success program in place, our organization would have probably anticipated consumer dissatisfaction. This would have helped us build new software features to make the customer products more successful and keep consumer satisfaction (and therefore sales) high.
After that “accident”, I’ve been striving for putting Customer Success strategy front and center of all customer-oriented operations. Especially, if you work with B2B business models based on royalty fees, Customer Success becomes even greater, because the more you enable your customer to sell consumer products, the more revenue your company will make.
Conclusion
When it comes to B2B markets, there is only one thing that sells: money. Either you make your customers make more money or save costs (ROI). However, it is not only about closing the deal. If you want to keep your customers around and increase their life-time value (LTV), you’ll need to design your value proposition around Customer Success.
Customer Success helps you plan your product development to enable your customers’ products in new ways that will bring them growth. This, in turn, will also make your customer stick around and therefore increase their LTV and your company’s long-term revenue. That’s why true Customer Success is becoming central to modern organizations that seek for sustainable growth.
If you want to learn more about Customer Acquisition with value propositions based on ROI, please review the first part of this article: https://medium.com/@claudiomkd/how-to-design-everlasting-value-propositions-in-b2b-marketing-part-1-37148e5e2257
If you work in strategic marketing or business development and want to know more about this topic, drop me a line. You can also follow me on Twitter and LinkedIn.
