Editorial
The Gist
- Immediate savings revealed. Cutting costs shows short-term financial relief but may ignore long-term impacts on staff morale and customer satisfaction.
- Employee churn increases. Overburdening remaining staff due to downsizing can damage project timelines and operational efficiency.
- Collaboration declines. Eliminating key functions disrupts teamwork and may lead to increased customer churn and decreased Net Revenue Retention (NRR).
Congratulations, you’ve relieved some big expense pressure, in major part, by gutting your customer success (CS) organizational function. You can now breathe easier knowing that there are fewer dollars flowing out than are coming in. The outcome from eliminating the overhead of people goes immediately to the bottom line, and when you gaze at that line, you can feel the noose loosen around your neck.
Let's take a look at at business cost-cutting as well as customer retention and customer churn.
Evaluating Success Beyond Business Cost-Cutting
Does business cost-cutting make you a successful business manager? You’re smart enough to know that the answer depends on more than being able to cut costs. And besides, it’s too soon to say. You’re certain, though, that three or four quarters from now, things will be much better. The market will have thawed, the election will be behind us, and the tentative buds of prospect interest will blossom into a full bloom of closed deals, helping to mitigate customer churn. Then, you’re sure the company will be in a better financial position, and you can begin to think about perhaps reestablishing and restaffing that, by then, long-gutted function.
Related Article: Building the Best Customer Success Team
Simplifying Business: The Lemonade Stand Analogy
Let me take a slight detour in this story.
It makes sense to me that for any business at any given point, a leader should think of their company in the simplest of terms. Products get produced, sales and marketing do their thing to get them into the hands and mouths of customers, someone answers any questions and ensures the customers are happy, and their feedback makes its way back into the products.
Easy.
Now, if you imagine a company being a lemonade stand on the side of a highway, do you think someone roaring past it at 80 mph would picture it as a successful business? After all, their impression would be based on only a brief glimpse of flashing neon lights and a number of cars in the parking lot. From that, they might assume your spreadsheet is blacker than it is red, and since it’s such a hot day, they would also assume your sales numbers are through the roof and your cash flow is good.
Related Article: What to Do When Budget Cuts Hit Your Customer Experience Program
Hidden Struggles of a Small Business
What they wouldn’t see are your broken refrigerators that force you to rely on Costco coolers filled with ice to keep your product cold. And they wouldn’t see your overworked staff who you can’t seem to retain no matter how much free lemonade you provide. They wouldn’t know about your litigation against a competitor down the road who you allege stole the recipe for your best drink and whose slogan is a little too similar to yours. And they would have no way of knowing that the line of credit on your house is getting dangerously close to the edge. And all of those things are pushing you to do more business cost-cutting just to survive.
Related Article: Customer Churn: Spotting Warning Signs to Win Customers Back
Hidden Costs of Cutting Customer Support
Back to your story and your business. Would that driver roaring past your company notice that in the three months since you took the action to eliminate that CS function, you’re losing employees in other functions? While losing more staff saves you even more money, the extra pressure being exerted on remaining staff is having an impact on project timelines, and since salespeople are now being tasked with onboarding new customers, you’re starting to hear chatter in the market about your company’s slow or botched onboarding process.
Would the casual observer notice that the sales funnel is less crowded than you like to see? Would they notice that your once vital and useful customer advisory board has withered because there is no one responsible for sustaining it? Would they notice that the product team that you say is untouchable is frustrated because they get nothing but escalations from the support team, escalations that would be unnecessary if only the customers would read the user guide or there was a better onboarding process?
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Also, not a small thing… would that driver notice that three-quarters of the year after your action, your customer churn is up and your NRR is slipping fast and is about to cross below 90?
Related Article: Inflation Is No Excuse to Cut Customer Experience Programs
Expense Cuts: Quick Fix, Lasting Damage
But at least the expense wolves aren’t at your door anymore, right?
You could’ve kept them at bay if you’d not reacted so severely to the initial downturn and, instead, focused on driving efficiency through measuring effectiveness. Instead of taking such a reductive view and going for the quick and easy win of cutting expenses of the organizations that aren’t measured explicitly by revenue attainment, you could have taken a breath and asked what would happen with your customer base if you removed those functions? Would it be negatively impacted?
Dismissing Retention for Immediate Gains
Or maybe retention revenue doesn’t matter as much to you when you’re under the gun as does new logo revenue. Maybe you’ve always been an NPS and CSAT skeptic, viewing them as pseudo-science, difficult to measure for impact, requiring too many follow-on processes and deserving of the chopping block. And maybe second-order revenue is too much to think about because it makes your head hurt. In any event, it’s too future-oriented and too abstract to consider when you’re looking at an ugly spreadsheet.
Building to Last, Not Just to Cut
Those are all good excuses for attracting wolves. Didn’t anyone read you the story of "The Three Little Pigs"? Maybe instead of a smaller and more fragile house, you need one that’s better built. Maybe in your next company, if someone is willing to lend you the money, you can focus on building out an enduring infrastructure that can deliver customer outcomes in measurable ways.
Linking Capabilities to Customer Retention
We did some research at our company, against data we collected for companies with whom we had conducted deep maturity assessments of various capabilities. We were interested in understanding, beyond relying on our instincts, whether a correlation existed between organizational capabilities and the ability of a company to retain and expand its customer base.
After analyzing the data, we were able to see that, broadly speaking, most companies struggle to build out strong, repeatable processes that can deliver predictable outcomes for customers.
Research Reveals Why Some Companies Turn to Business Cost-Cutting
Here are just a few of the key findings from the research, and that help explain why many companies struggle with customer retention and churn:
- We can't measure customer success impact on NRR. Only 27% of CS organizations can measure their impact on NRR. This figure is quite astounding. It means that while CS might be busy, if they don’t have the means to empirically measure their impact, they can’t correlate that activity with results. This leaves them exposed to those wolves.
- We can't manage customer data. Barely over a quarter of companies have effective strategies in place for managing data hygiene and quality. This is an age-old problem. Gosh, I was part of conversations on this topic over 30 years ago, and it seems to be no better today.
- We can't do customer journey mapping. A powerful way for understanding your customer and really sitting in their seat is through journey mapping. And yet, only a quarter of companies do them. Think about that figure. So many companies trumpet that one of the values they hold most dear is a deep desire to understand their customers. And yet, 25% is the number of companies that actually live it?
- We can't gauge customer sentiment. 75% of companies research alternative solutions before they consider renewing contracts and yet, only 23% of CS organizations have early warning systems (aka, health scores) in place for gauging customer sentiment.
- Collaboration can't be measured. A striking 84% of CS organizations claim to work regularly with other departments, yet only 21.1% can explain how that collaboration produces a measurable impact on NRR.
Data Shows Struggle to Systematize Customer Insights
There’s a lot more data from our research that supports a conclusion that, despite the wealth of technology and the decades of experience and institutional wisdom the business world has amassed, most companies still struggle to establish the right kinds of systems they need in place for understanding customer need and translating that into repeatable action.
Without those systems, it’s impossible to get ahead of customer churn and to drive higher rates of retention and growth from the customer base and avoid the need for business cost-cutting.
Maybe wolves will always be at our door. It sure would be nice though to learn how to domesticate them.
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