What is success? Success management expedited or exposed?

06.07.20 04:05 PM By Matt Koopmans

If any role has become prevalent in the last five years, it is the "Customer Success Manager" at Business Application vendors. The premise is that successful customers buy more software - simple, clear, and difficult to dispute. But customer success has many dimensions - short, mid, and long term. The most important question to ask is - how is Customer Success measured? The prevalent measure is the objective KPI: number of software licences consumed. There is a correlation between business growth and software consumption, but correlation does not equal causation.

The correlation error

"Ice-cream is cold - therefore if it is cold it must be ice-cream" - A simpler analogy to the correlation error cannot be made - correlation does not equal causation. When business are successful and experience business growth - they may purchase or subscribe to more licences - but that is not a given. Businesses that make a pivot towards a disruptive manner of serving their customers are not necessarily growing the employee (and therefore software licence) base. You would not measure companies like Uber or Lyft on the number of vehicles they own in their respective fleets. In the same logic - "if a  business grows it needs more software - therefore if a business licenses more software seats it is because it is successful" is as flawed as the ice-cream and cold causation reversal.

The absolute error

Next to the correlation error, there is also the absolute error - "growth compared to what?" Absolute growth is meaningless if not compared to peers in the market. For example - if your business experienced a growth of 10% year over year, that might sound positive - but when the overall segment grows by 15%, your relative position has declined. It is therefore folly to measure business success merely on growth.

So - how would we measure customer success?

Customer success means how much your customer is enabling the success of their customers (at least in the B2B market). As per the above-mentioned correlation and absolute errors, this is not measured by merely taking your KPI's such as licences purchased as a measure of success. So why are we not measuring beyond what is easy, even if we know the measurement is not a useful success indicator?  Why are we not really measuring success? If it was easy, we would all be doing it today - instead of measuring what is useful and reflective, we measure based on the data we easily have available. A war analogy - you do not fight a battle with the information you need, but with the information you have. You may not have all measures you wish to effectively measure customer success - nor will you have access to the full causality chain. But, there certainly are measures available that can be incorporated into the success metrics. The difference with the metric of "licence consumption" is that they require collaborative goal setting with the client.

Easy metrics that make more sense than licence consumption

Following are easy data points to capture with your clients:

  • Days sales outstanding (DSO) - if your solution addresses this by getting the customer paid faster
  • Profit before tax (but after depreciation) - efficiency introduced should reflect in the profitability of the overall business
  • Inventory turnover - by better planning, an increased return on inventory
These are some simple metrics to capture - and with appropriate software in place, this should not be difficult to do. Of course, these do suffer from correlation or absolute errors - albeit a lot less than just the increase in licences.

The perfect metric to capture customer success?
Perfection is difficult to approach, and impossble to achieve. Whatever metric we choose, there is a resignation in the fact that there are things such as correlation and absolute errors to contend with. One thing is for certain - it is not a metric set in isolation by the software vendor - it is something worked out between vendor and client. Something on my mind would incorporate productivity, growth, and market performance. What would it look like?
How about: year over year increase in profitability by employee.
Profitability per employee - total profit before income tax (but after depreciation - or EBIT) divided by the average number of FTE during the year.
The increase in profitability year over year in % gives a year on year growth (or in case of negative, decline) percentage.
Another metric of value could be: increase in revenue divided by increase of market segment all up (this requires multiple measurement points if a company operates in multiple segments). A revenue growth of 10% (1.1) is offset by a market segment increase of 15% (1.15) by dividing 1.1 with 1.15 = 0.9565 (a relative decline of almost 5%). This by itself does not indicate success or failure due to the implementation of a business application, but when you combine this with the profitability per employee metric, a more complete picture starts to form. For example, the relative market share decreases at the same time the productivity per employee significantly increases - this is a strong indicator the company is able to grow and take away market share from the competition due to efficiency increases (for example).

In conclusion - customer success management concerns many facets and a long-term focus

Customer success management is more than just taking a periodic metric. Especially metrics that only infer customer success because they buy more product of you is flawed - not only that, it is exceptionally lazy and does your long term relationship with the customer a considerable disservice.

Customer success is a journey, where client and vendor agree on metrics for growth to measure. This is not a transaction metric, where we measure it once and claim result - it is a development metric, a journey undertaken with client and vendor, with periodic measurements and where applicable, adjustments.

  • Customer success is not a single metric, but a combination of multiple metrics as applicable in the customer journey
  • Customer success management cannot be executed or measured independent of the customer, it is a collaborative effort where the vendor truly wants what's best for the customer
  • Customer success management is a multi-year journey, where a mutually profitable and beneficial relationship is cultivated between customer and success manager

Good to know

Aurelian Group Digital Business Services Business (Gold and Premium) contain a Digital Business Success Transformation component, where metrics are established and your progress plotted, measured, and directed over the course of the engagement. This is in addition of the expedited Accounts Receivable Management process that is part of the plan (minimise your days sales outstanding to directly increase your cash-flow position).

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