How to transition from a cost center to a profit center in CS

If the last two years have taught us anything, it’s that sustainable growth from existing customers isn’t secondary, it’s core, and rooted in customer success. While there are still uncertainties up ahead, the intense focus on customers remains the same. So what groundwork can we lay down today to help drive growth from our existing customer base moving forward.

Let’s start by defining what sustainable growth looks like.

What is net-revenue retention (NRR)?

If you’re new to customer success and net revenue retention seems unfamiliar, let’s break it down. NRR is a measure of how well a business retains its recurring revenue over time. A positive net revenue retention, usually over 100%, shows that existing customers are not only staying but also increasing their investment in the company’s products or services.

High net revenue retention means customers are thriving with your company’s products or services and are choosing to invest more in the partnership over time. It also means that both sales and customer success are performing well. They’re selling to the right customers and are making sure that those customers are receiving high value from your product or service.

NRR also indicates sustainable growth, especially when the macro is uncertain. It helps to understand market confidence and valuation and reflect brand advocacy from happy customers. This metric becomes increasingly important as a business grows, often more significant than acquiring new customers.

Who owns NRR?

Many in CS shy away from the commercial aspects of the business, but it’s a missed opportunity to keep the conversation moving around maximizing and driving value for customers. If you focus on business metrics and continually improve and validate them with customers, it becomes natural to expand your services.

Once CS fully embraces a net-revenue retention target, a transition happens from being seen as a cost-center and having a seat at the table to being seen as a profit center. With an NRR target, CS teams immediately morph and transform into a team who owns targets and contributes to the bottom-line of the business. These teams often report directly to the CRO, they are more attached to Sales and are included in the commercial team.

Without an NRR target, CS teams can be viewed as a profit center, or reactive and taking tasks. Oftentimes these teams are seen to solve issues like a support team who know the product really well, but don’t have any commercial responsibilities.

Working closely with an account executive can be challenging if you don’t have a shared target or you don’t stay in ‘sync’ on the account. You’ll need to keep them involved in the customer relationship, coaching them on providing value beyond contract renewals.

They should understand the customer’s business well enough to be an advisor alongside you on strategy calls and even join executive business reviews occasionally. Most important is alignment with your revenue counterpart, so that commercial conversations with customers don’t feel awkward or forced.

Remember, CS brings a unique perspective to these conversations with access to usage data, adoption data and a deep understanding of the customer. Creating a symbiotic relationship with revenue teams and strategically approaching sales opportunities from both angles is a great approach.

Lastly, if you’re hesitant about sales skills, look for training and education resources inside and outside of your organization. While hitting targets is great, you’ll also gain a new perspective to help identify opportunities you may have missed before.

From reactive to proactive - achieving positive NRR

Starting off, everyone tends to be reactive, dealing with tasks as they come up, but the ideal scenario is to be proactive and anticipate issues to take action.

Here are a few ways to do that:

• Measure everything you need to improve. If you’re not already measuring Annual Recurring Revenue (ARR), start now with whatever data you have available. Analyze historical data to understand customer churn and the factors behind it. This might require some research, but it’s never too late to start gathering this information to create benchmarks for yourself. It’ll help you anticipate risks and take proactive steps to minimize churn and increase expansion.
• Reach out to customers with value beyond the regular communication cadence. Share industry news updates, tech advancements, or other insights that strengthen your relationship with customers and keep them engaged.
• Quantify success early on for customers and align it with business metrics to help demonstrate the value of your partnership. Consistently validate success with each metric showing that you’re making progress and adding value over time.
• Engage with multiple stakeholders within the organization. Beyond your day-to-day users, reach out to decision-makers and other key stakeholders to understand their perspectives and ensure alignment. Nurturing these relationships throughout the whole customer lifecycle is key, especially if personnel changes occur within the organization. Identifying and validating business outcomes with each stakeholder and maintaining strong relationships, ensures a better chance to minimize disruptions amid org changes.

The goal of being proactive is to make renewals effortless – turning them into non-events. It’s all about focusing on outcomes and seeing them as the result of your team’s day-to-day efforts.