The Effect of Customer Lifecycle Management on NRR and LTV

What creates value for a customer that would organically drive additional and continued investment in any Software solution?

It starts with defining a Customer Lifecycle for each target market. To create a predictive business model, the leadership would come to agreement on the answers to the following questions for each GTM target market.

1. What problems does the software solve for this target market?

2. What is the specific solution the software delivers to solve these problems?

3. What is the price tolerance the customer has for solving these problems?

4. What specific outcomes will need to be delivered to produce a high enough value and/or ROI for customers in this target market?

5. How will you measure when customers have achieved the value or ROI that establishes a business impact worth a continued investment in your solution?

Having company consensus on these questions will allow all the organizations to align and collaborate on how to deliver the best product and services to customers in each target market.

If we think about the CS organization; it generally collects a lot of data on their customers and measures many KPIs on how they use the software, levels of adoption and engagement of the software across their user communities. However, these metrics will not tell you how the software has impacted their business. The CS organization will need to understand what their end game goals are in order to delivery value. What specifically do we have deliver to customers to generate this value consistently across all customers.

For example, a common value that is defined by many software companies is improved productivity. The questions we have to help our customers answer, measure and acknowledge are;

Defining the Customer Lifecycle Management model for each of your target markets

1. What problems does the software solve for this target market?

The first step is to have consensus on what your target markets are when defining the problems the software solves. This is usually answered within the GTM strategy where the target markets have been defined. For example, you may define the target markets by industry. (i.e. Financial Services, Manufacturing, Retail, Security, Government, etc.) or by company size (i.e. using Annual Revenues and segmenting your customers into Enterprise, Mid Market and Small Business). You could have other more specific niche markets defined as well.

However you have defined these target markets, you will need to define the specific problems the software solves for each target market. In some cases, the answer may be the same for each target market but in most cases the problem is different, especially if the target markets are defined as different industries, departments or processes.

For example, if the problem the software solves is focused on reducing the errors in your order to cash process. This is generally a problem that needs to be solved in many target markets. As opposed to a problem in manufacturing specific to automating a job shop tooling process, this may only be a problem within the Manufacturing industry and even more specific within a department and process for certain revenue size companies.

It’s important to get to a set of specific problems the software solves rather than a generic statement where everyone in your market sounds the same. This is a great way to differentiate yourself in the market as well.

2. What is the specific solution the software delivers to solve these problems?

This is where you may have a different answer for different target markets even if the problem you are solving for is the same. The challenge many companies have in answering this question is in identifying the specific business solution the software delivers, not the software functionality it delivers.

A software solution like WalkMe or Apty that provides Digital Adoption solutions may answer this question by stating their solution delivers an easy to use adoption solution to help users learn software faster. While learning new software faster can be a deliverable to a software adoption problem, it doesn’t describe how the solution solves a bigger business impact. This is an example where the problem and solution sound too generic.

If we define the specific business problem as customers have challenges onboarding new employees, contractors or other contingent workers and it costs the company X amount of time and X dollars to onboard these workers each year, and impacts the company’s ability to deliver on customer projects or services effectively within required contract requirements or SLAs; then we can define the specific solution as follows:

The Digital Adoption solution provides a streamlined, faster onboarding process with increased job efficiencies for new employees, contractors and contingent workers to be effective within one week. This is much more specific and can be measured with KPIs for time, accuracy and ability to deliver, especially in the retail or construction industries.

The other option is to tackle the solutions by department or business process. Taking the same type of solution above, a Digital Adoption solution. If we identify one of the problems as having a difficult, complex order to cash process that historically has a high rate of errors or an online customer experience has a high rate of incomplete orders resulting in lost revenue. Then the solution delivers a streamlined order process, reducing errors and cycle times and creating an improved easy to follow online customer experience resulting in increased revenue.

3. What is the price tolerance the customer has for solving these problems?

Once you have your problem statements and solutions to these problems well defined, it’s important to ensure the price point you are planning to offer to these target markets will fit what customers are willing to pay to solve these problems.

The best approach I have seen by the top software companies is what I would call a “Beta Test Approach”. These companies basically take the offer to a small group of Account Executives that are selling in these target markets and ask them to test three different pricing options. The pricing options usually fall into a GOOD, BETTER, and BEST options. It also tests price scales to address expansions to enterprise levels to see how the pricing gets more attractive with scale. These Account Executives would target customers that they have good relationships with Executive level and key sponsors so they can have candid conversations about price tolerance for various levels of software license costs and the benefits required including ROI expectations.

I would also suggest having services package pricing options aligned to each of the price points (Good, Better, Best) available for the AEs to test as part of this process to understand the price tolerance and expectations for a land and expand strategy as well as a large upfront purchase, if separate services programs are applicable for your solution.

4. What specific outcomes will need to be delivered to produce a high enough value and/or ROI for customers in this target market?

To define specific outcomes for each solution by target market, I would suggest utilizing your product and consulting experts along with some industry and/or business process experts.

A great approach is to organize brainstorming sessions with internal teams to formulate the right outcomes and timelines required and determine the level of measurable value to prove an ROI. The elements the team would define are:

• Define specific high value outcomes for each problem and solution

• Define a best practice process to operationalize the solution to drive on-going value

• Align value outcomes to at least one critical business operation

• Define measurable goal (s), KPIs that can be baselined and tracked to show improvement

• Align the measurable goal, KPI improvements to cost savings or increase in revenue

I would recommend using this information in the Sales Beta Testing program as well to evaluate how it resonates with customers and prospects. If it doesn’t resonate, the AEs can ask the beta customers what outcomes they would expect or require to substantiate the investment in the software solution.

CSMs can also participate in the Beta Program by partnering with the AEs in presenting these new solutions and pricing options to specific existing customers that are in each of these target markets.

5. How will you measure when customers have achieved the value or ROI that establishes a business impact worth a continued investment in your solution?

Software companies may provide some recommendations for how the software will deliver and prove out the value and ROI during a presales Discovery Session or post sales during a Design Session with the software consultant, the customer implementation team and key sponsors.

During these working sessions, you and the customer will be able to establish what the specific metrics are today that they track to drive innovation, improved operations in a cost effective manner for each of the processes that the software intends to impact. These metrics or KPIs are usually tracked by the customer in a daily, weekly or monthly tracker or BI report. You can request the customer to share what the metric was at a specific point in time (baseline) and the trend of improvement over time.

The roadblock many software sales and services teams run into is when the customer team members assigned to implementing the solution are not familiar or responsible for any key metrics. This is where the executive and key sponsors are critical. Relationships established at this level will allow the teams to get agreement on these KPIs and metrics that are expected to improve over time as a result of operationalizing the software.

Thus the AE and CSM partnership can establish good relationships with these sponsors and decision makers upfront and maintain regular communications to allow the customer leaders to share how these metrics are performing before, during and after the implementation. These conversations will continue with the CSM Executive reviews monthly, quarterly or biannually as appropriate to track the results and prove the ROI realization.

If the customer implementation team and core users are not helpful in defining and establishing these KPIs and what metric improvements would be required; another option is to ask the customer to include someone from their Finance team, CIO or COO, Business Operations or PMO Office to share the KPIs that are tracked at the leadership level for the specific departments and processes. Folks from these other organizations usually track metrics at a dashboard level and report to leadership weekly, monthly and quarterly. They can help evaluate the best options to show enough value to sustain on-going investments.

They can also share their budgeting process and how to help receive confirmation in their annual planning cycle that the customer has budget approval each year. The Finance team can help you take the productivity improvements, error reductions and other metrics defined that the software is designed to improve and align them to hard cost savings or revenue improvements. Finance can be a great ally in building the customer ROI story and business case for continued use of the solution.

The Final Effect of the CLM on NRR and LTV

When the CLM is well defined, you will basically have a well established communication plan with the customer to ensure the NRR each year. This plan will help the customer understand how to get from where they are today to the vision of how the software will improve their business operations. The CSM and Services teams will use this plan to continue to deliver value and ensure the customer is able to operationalize the software within at least one critical business process.

This will be confirmed with each Executive level meeting with the CSM/AE on a monthly, quarterly or biannual basis where you will be able to share the trend line of improvements to their KPIs and metrics.

With the help of the customer Finance team, you will be able to tie these metric improvements to hard cost savings and revenue improvements.

From the definition of the solution and defined outcomes, you will be able to map out the long term strategy for each customer. Whether this will be a land and expand strategy or a big bang delivery all at once, the CLM will help you define the long-term Customer Strategic plan.

I view the CLM effect on a land and expand strategy similar to the bowtie effect you may have seen as a sales cycle strategy. If we look at the implementation of a land and expand strategy as the plan a customer would follow to ensure value and ROI, it may look something like this:

If the CLM is mapped out as a land and expand strategy, then you would define the Phase I implementation plan as a land strategy with the specific outcomes that delivers value and solves Part A of the stated problem for a specific set of users. Then you may define a Phase II with specific outcomes that delivers additional value and solves Part B with an extended set of users and a final Phase III that delivers the full set of outcomes that will provide the complete solution to all users across the organization and/or company. This would be an example of a customer roadmap plan that delivers the Lifetime Value (LTV) of the software.

The time frame defined will be dependent on the solution and target market. I shared some examples of what timelines are recommended to target delivering the land strategy within 30 to 60 days and each additional phase within 60-90 days depending on the complexity of the problems being solved and solution implementation requirements. This time frame can be shorter (within days) or longer (within months), but with all SaaS solutions you will want your plan to deliver value within the first year in order to guarantee NRR and the setup for delivery of the LTV in the shortest time possible.

However, if the strategic plan is a big bang delivery whereby you will be delivering all the high value outcomes all at once, then the plan should be defined to deliver the complete solution and deployment of all licenses within the first six months or less to ensure NRR and LTV is achieved. If it is a complex enterprise customer you would still want to deliver enough of the value outcomes within the first year to ensure renewal and NRR growth.

In either scenario, the Strategic Customer Roadmap plan will be a plan which defines how the customer will realize and operationalize the value outcomes within a reasonable time frame and includes the plan for how the customer’s organization and company can go wall to wall with the use of your software across their entire company within a short time frame.  This roadmap plan is the treasure map to driving and guaranteeing consistent achievement of NRR and maps how the customer will get to the LTV.

As always, please share our newsletter with your friends and colleagues. If you are looking for help to build a CLM model, you can reach out to us at www.landnexpand.com for information on our CLM workshops or email me directly at [email protected].