In a Customer-Led Growth company, CCOs are put in a unique position. Because the entire company obsesses over the value that customers are receiving, CCOs must use their close understanding of customer perceptions, use cases, and areas of friction to influence the company’s strategy. It requires an executive that thinks about the business, not just Customer Success, and has the ability to see gaps in the customer experience that other departments are responsible for solving.
In short, Customer-Led Growth companies demand a higher-powered Chief Customer Officer.
What is a Customer-Led Growth model? Customer-Led Growth is a business model where the entire company obsesses over ensuring customers are receiving value. They measure whether customers are receiving value, use customer data to drive pricing, target market research, content strategy, and the product roadmap, and make outsized investments in their Customer team.
To become the executive CLG companies need, CS leaders will need to grow their skills in 10 core areas. We’ve outlined those areas in this rubric. The rubric will help you see what areas need to be focused on in the next 6 months and beyond.
(Click the image to expand it in a new window.)
Note: I created this rubric for measuring executive performance almost 15 years ago. I've shared it with each company I advise and it's consistently the best tool I've used for aligning the company around the customer.
The rubric above outlines two areas of growth: the second sheet outlines general executive skills, the first sheet outlines how to grow as a CS leader in a Customer-Led Growth company.
How to use this rubric:
- Mark where you are on every competency (in Sheet 1: Poor, Average, or Excellent; in sheet 2: 1, 2, 3, 4, or 5. There are no in-betweens, you’re either a 3 or 4, Average or Excellent, etc.).
- Ask the CEO (or the top CS leader) to rate the company in these areas as well.
- Have a conversation about any discrepancies in responses, and agree on 1-2 areas you’re going to improve in the next 6 months.
If you don’t know where to start, start by getting to Excellent in these three areas to have the greatest impact.
High impact area #1: Influence the company's goals so everyone is focused on ensuring that customers receive value
CLG companies know that the customer journey includes touchpoints owned by all different departments: there’s Marketing (ads, content, website), Product (mobile and web apps), Sales (Upsells/Cross-sells), Services (Onboarding and training), and Customer Success. There are department-level and team-level goals that focus the entire company on ensuring customers are receiving value across those touchpoints.
If the company says they’re investing in helping customers receive more value but there aren’t supporting goals across departments, it’s the CS leader’s job to advocate that change.
Here’s how to make the case:
→ Get buy-in from the CEO to set a company-level goal with supporting departmental goals.
→ Map the entire customer journey.
→ Divvy up the touchpoints to each leader on the executive team.
→ Measure the value customers are receiving and report back a scorecard to the exec team monthly. (Note: You may also share this more broadly across the company to showcase how everyone plays a part.)
High impact area #2: Measure whether customers are receiving value
CS teams tend to follow the same path for maturing their way of measuring whether customers are receiving value:
Stage 1: The CS team uses measures like product usage data or NPS to determine whether customers are receiving value.
Stage 2: The CS team documents customers’ desired outcomes and whether customers have achieved those outcomes.
Stage 3: The CS team views “value” and “outcomes” as separate: a customer can achieve their desired outcomes and still churn for other reasons (e.g., competitive alternatives, the problem being solved is no longer severe enough to justify the price, etc.). So outcomes are recorded and measured, but the customer’s perception of the value they’re receiving is also taken.
CS leaders in this phase also understand that NPS and CSAT scores don’t capture “perception” of value. So listening posts are implemented along the customer journey to record how customers perceive various components including the problem being solved, the product, their training, the pricing, and so on.
High impact area #3: Change how you advocate for additional CS budget
Here’s the maturity framework most CS leaders go through. Think about where you are, and what can be done to “move up” in your journey.
Stage 1: At this stage, you’re advocating for budget using the basics. You’re likely using rule of thumb metrics like “One CSM per $2M in revenue” or “One CSM per xx accounts”. Those are tools for knowing how many people you’ll need to hire each year. However, using efficiency metrics like this puts a huge target on your department: the CFO will think of CS as an overhead department that needs to become more efficient over time. The result: decreasing investment in CS as a percentage of revenue as the company grows, making it hard (or impossible) for the CS leader to grow net dollar retention.
Stage 2: CFOs often care more about growing revenue than cutting costs, so at this stage you position Customer Success as a revenue growth function (much like Sales). The best approach is to show how a greater investment in CS will lead to increased Net Retention Rate. Think, “$1M additional investment will lead to $2.5M in retention rate improvements.” This framing gets the CFO comparing the return of a CS investment to other places where they can invest.
You can use this CS Revenue and Expense Forecast Planner as a starting point to calculate the ROI on a greater investment in CS.
Stage 3: The best approach to advocate for additional budget is to demonstrate how improvements in retention rate increase the company’s valuation—the thing the CFO ultimately cares about most.
Start by forecasting the impact an increased retention rate will have on the company’s valuation. If you don’t have your own numbers, you can use the study below by Gainsight that analyzed Bessemer Venture Partners’ Cloud Index on net retention metrics. The conclusion is that retention rate explains about ½ of a company’s revenue multiple (EV/Revenue).
On average, we see that for every 1% point increase in net retention, enterprise revenue multiple increases 0.7x!
This has astounding implications for investments in CS. Let’s assume a company is doing $250M ARR. Based on the chart above, if the company has a 100% retention rate, then the revenue multiple for that company will be about 5x. Let’s see what retention rate improvements will do to company value:
- 100% retention = 5x multiple x $250M ARR = $1.25B
- 101% retention = 5.7x multiple x $250M ARR = $1.425B
- 105% retention = 8.5x multiple x $250M ARR = $2.125B
If the CS leader can drive just a 1% increase in revenue retention, they can increase company value by an incredible $170M. Where else can the CFO invest to see those kinds of returns on company value?
Obviously there are other factors that impact company value like overall growth rate projections, profitability, earnings history, management team, etc. But because retention rate is so critical in the eyes of investors, it will play the biggest role in determining company value.
And that’s why it’s so important for CS leaders to reach this stage of conversation with their CEO and CFO. It’s time to get away from treating CS like an overhead department that needs to become more efficient every year. Instead, it’s time for companies to make outsized investments in Customer Success to drive outsized increases in company value.