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Aligning Sales and Customer Success Around Net Revenue Retention (NRR)

November 7, 2022
June 15, 2022
October 3, 2022
|
15
min.

Have you ever seen Finding Nemo? The little clownfish lives in the sea anemone in what is a classic example of a symbiotic relationship. It's beautiful. I'm now going to make a simile about how sales and customer success teams can achieve the same kind of beautiful harmony, supporting each other for the betterment of the company.

Get ready: the sales and customer success teams are like that clownfish and sea anemone.

Really though, sales and customer success can actually live in harmony for the benefit of the company. By working together, they can ensure customers achieve success and, most important, increase their usage of the product and the value they generate for the business.

In this post, we'll cover why sales and CS team alignment matters, how the relationship can improve each team, and best practices for Customer Success Managers and CS teams, (and Sales Managers/teams) to facilitate this kind of alignment.

What is Customer Success?

Customer Success (CS) is all about ensuring customers reach their desired outcomes using your product. A Customer Success strategy lays out the definition of success for your customers and how you'll help them achieve that success.

The ultimate measure of customer success management is high customer retention and low customer churn.

In addition, Customer Success Teams are often involved in generating expansion revenue through upselling and cross-selling - this is a critical area in which sales and success alignment comes into play.

It's the big picture-the organization philosophy that companies use to operate and should extend to all areas and impact all teams in a business. Cross-functional collaboration between teams is the backbone for achieving a well-defined Customer Success strategy.

What Does a Customer Success Manager (CSM) Do?

While Customer Success is an idea and goal for companies, most organizations place the actual responsibility on Customer Success Managers, whose primary goal is to provide customer support as they transition from the sales pipeline (prospects) to the support pipeline (active users).

Which makes sense! CSMs are typically responsible for maintaining customer loyalty, upselling existing customers to new features within the product, fostering long-term relationships with their customers, and ensuring that their customers are achieving the goals they were looking to accomplish when purchasing your product.

In addition, they carry out the day-to-day work to ensure the guiding principles of a Customer Success strategy are realized.

The customer success handoff is one of the first areas in which sales and success must be aligned. The transition from the sales team to the customer success team can be abrupt, so it's up to the customer success manager to work with their counterparts on the sales team to make it as smooth as possible.

Where Does Sales Fit In?

Customer success manager roles are growing so rapidly within the SaaS space because engaged, happier customers lead to less customer churn, more customer loyalty, and increased Net Revenue Retention.

Creating a strong CS team to improve the customer experience and ensure their success in the product pays off in the long run.

However, it's not enough to have proactive CSMs; you need to streamline your customer journey.

Think about it - the sales team is one of the first touchpoints potential customers will have with your product. They're gathering information on prospects- who they are, their pain points, what they hope your product will solve, etc.

All of that information is essential for understanding the experience a customer expects to have and the desired outcome they want to achieve.

Desired outcome: what customers want to achieve, the way they want to achieve it. That central tenant of Customer Success that CSMs are so often held solely responsible for.

But we just established that sales teams are the first to hear a customer's desired outcome for your product.

Right?

So we need to transfer that powerful knowledge over to those CSMs for customer onboarding.

Let's break down how these two teams impact and help each other support your customers' experiences throughout their journey.

How Sales Improves CSMs

This is not an exhaustive list, but enough to highlight some key benefits of actually aligning teams around the idea of Customer Success. When done right, the sales and success teams can become a beautiful symbiotic relationship driving your company's growth.

1. New Customer Acquisition

With sales, you want to ensure you're targeting the minimum viable segment; that you're building for the good fit customers for your business. That way, you can properly support them and make sure that they're going to get value from the product.

Avoid bad-fit customers: the ones you know aren't going to find immediate and long-term value from your product; they extend the sales cycle and cause internal friction around the prioritization of needs.

Although some might advocate that any customer is a good customer, you're really just setting your CSMs and company up for failure. 

Don't do it.

Target potential customers that will find immediate and future value from your product and can become collaborators along the process. It helps CSMs guide them through their customer journey, which in turn creates upsell opportunities and advocates that can be leveraged by the sales team later.

2. Information Enrichment

All that nuanced information gathered along the sales cycle needs to go somewhere. More than just updating account fields in your tools is required to properly convey a customer's desired outcome for your product.

Sales and the assigned onboarding CSM need to communicate the customer's pain points, goals, and desires moving forward.

By transferring this knowledge, CSMs can plan and address customer needs as they move through the lifecycle stages. This keeps the momentum and positive impression the Sales team has built to close the deal, moving through onboarding to become an active, engaged customer.

3. Manage Expectations

Even before purchasing your product, customers should know what to expect. 

  • What should they expect from the contract?
  • Who will they be working with after signing the contract?
  • What realistic value can they expect from your product in the first 30/60/90 days?

And more than that, you should aim to fully understand who your customers are and what they want from your product. That carries right on into the onboarding process as you continue to reiterate and demonstrate the value of your product.

This provides measurable milestones that customers can use to track their progress, reinforcing the value that your product is providing for them.

Taking a customer-centric approach to goals lets your customers define their own version of success, but it also should be used to set internal expectations of each team.

For example, achieving success means the sales rep's responsibility to clearly outline and introduce key customer insights to the assigned CSM before onboarding. After this, it's the CSM's responsibility to determine customer success goals.

This provides expectations for internal teams.

How CSMs Improve Sales

While Sales provides a lot of essential information that the success team can utilize immediately, the relationship isn't one-sided. A CSM constantly gathers new information from customers - both successful and unsuccessful in the product - that should be shared with sales to improve their outreach strategy. 

Let's get into a couple of examples of this below.

1. Identify Ideal Customers

Building a solid relationship between Sales and CS is especially useful when determining your Ideal Customer Profile (ICP). As companies grow and the product develops, specific types of customers and industries become a better fit for using your product. 

A good CS team will track which customers are achieving high success and provide that information to the Sales team to better target prospective customers that fit the latest ICP.

However, in the long run, CSMs identifying bad-fit indicators from existing customers may be even more critical. 

This may include companies that are too small or too large, sub-industries that require custom integrations but are low engagement, or even customers whose main interest was one section of your product functionality who feel underserved. 

CS teams often know what makes a successful customer and what makes an unsuccessful customer and therefore are the best source of information to generate a solid ICP for your business. 

With this information, sales can better direct their outreach, qualify leads, and bring on new customers with a higher potential for success and lifetime value - with the help of the CS team, of course.

2. Expansion Opportunities

Expansion revenue is the unsung hero of SaaS growth. All too often, companies look to net-new ARR as their only channel for generating additional revenue without realizing that their best opportunity is right in front of them. 

Expansion revenue is 4x less expensive to acquire than net new revenue. And conversion rates for selling to existing customers are up to 6x higher. 

Maintaining a positive "Net Dollar Retention" can have a massive compound effect on the bottom line. 

Upsell and expansion opportunities are critical for company growth. As customers move through their journey, you should always be on the lookout for where customers can experience new value. 

CSMs can set customer achievement milestones and use them as a sales interaction. Let customers know, "Hey you're not ready for this yet, but once you reach this milestone, we can set you up with (sales) to chat through how this functionality when you're ready." It sets expectations for customers and internal teams around long-term growth.

3. Customer Satisfaction = Customer Advocacy

References, case studies, and testimonials are essential to the sales process. 

However, fostering customer relationships to the level where engaged customers feel the value of your product enough to advocate for your company relies heavily on CSMs. 

Once customers have achieved loyalty status, reach out to them for reviews and testimonials that can be shared with the sales team, who can leverage them with new leads. Prospective customers want to hear value from your actual customers who love their experience.

Free Customer Health Scorecard Template

Net Dollar Retention

Current customers are the lowest-hanging fruits for revenue growth. Better yet, expanded customers are churn-resistant, recession-resistant, and competition-resistant.

The most successful subscription-based SaaS companies generate 20% or more of their new revenue from their existing customers. And yet, focusing on existing customers as a channel for revenue growth is something most companies fail to do. 

Generating additional revenue from your existing customer base is 4x less expensive, up to 6x more likely to close, and tends to exhibit more customer loyalty.

The "traditional" growth metrics used to measure SaaS growth don't fully consider expansion revenue.

Enter, Net Revenue Retention.

What is Net Revenue Retention (NRR)?

Net Revenue Retention

Net Revenue Retention is a measure of the retention of revenue over a period of time, not including new business. 

NRR is calculated as:

(Starting MRR + Expansion MRR) - (Contraction MRR - Churn MRR) / Starting MRR = Net Revenue Retention

Whereas Churn Rate measures how much revenue was lost as a percentage of total revenue in a given time period, NRR is meant to show the opposite. 

An NRR of over 100% means that you have expansion revenue that is greater than any level of churn.

How Do Sales and Customer Success Work Together to Increase NRR?

Increasing Net Revenue Retention can be done in three ways:

  1. Upsell
  2. Cross-Sell
  3. Decrease Churn

Companies have different rules about who is responsible for any or all of these strategies. However, regardless of which team is leading the charge, Sales and Customer Success need to be fully aligned to be successful. 

What is Upselling?

Upselling refers to selling a customer more of what they already have. In SaaS, that might be more seats or increased data allocation. It can also refer to a higher price tier that includes additional features for the product they already have. 

What is Cross-Selling?

While Upselling focuses on having the customer grow their use of a single product, cross-selling is a strategy of selling an existing customer for one product on another. For example, HubSpot has numerous "Hubs" that focus on different teams - Sales, Marketing, Success, etc. A cross-sell, in this case, would be getting a customer who is currently only paying for Marketing Hub to purchase Sales Hub as well. 

What is Churn?

Customer churn refers to when an existing customer either breaks their contract or decides to not renew. Churn rate is the calculation of churn as a percentage across your entire customer base over time. 

Who is in Charge of Upselling and Cross-Selling?

When it comes to expansion revenue strategies, you will find a good mix across different SaaS businesses regarding which team is in charge. 

Some companies see upselling and cross-selling as a sales motion because, well, it is, and therefore put the responsibility on the sales team. 

Other companies see upselling and cross-selling as a function of customer satisfaction and a great customer experience, making it the responsibility of Customer Success. 

You will also find companies that put an Account Executive in charge of this motion, perhaps with the help of Sales Enablement. 

Regardless of which team is in charge of expansions, sales and customer success must work together to make it work. 

How Can Customer Success Increase Net Revenue Retention?

As mentioned before, NRR can be increased by expanding revenue from your existing customers or decreasing the number of lost customers. 

For both of these avenues, Customer Success teams play a crucial role. First and foremost, a delightful customer experience will create a customer advocate that will stay with your product longer. Customer satisfaction is one of several indicators of potential expansion opportunity or churn risk. 

When CS builds a deep relationship with their accounts, making a "sale" won't feel like a sale to the customer. It will be a trusted advisor doing what they do best - advising. 

Beyond providing ongoing customer support, CS teams need to keep their finger on the pulse of their customer's behavior. While explicit feedback in the form of a Customer Satisfaction Score (CSAT) or Net Promoter Score (NPS) are informative, the things customer do in your product sometimes say a lot more than what they say. 

CS has to take real-time action when a customer shows signals of potential expansion opportunity (such as nearly using their entire allotment) or churn risk (such as exporting their data) and move quickly to intervene or capitalize.

For companies that put the responsibility of upselling and cross-selling in the hands of the sales team, customer success still plays a pivotal role, assisting the sales manager in closing the sale. 

At the most basic level, empowering sales with all the information they need about a customer decreases the conversation's friction. Including detailed notes in the CRM, for example, will help a sales rep avoid redundant questions. 

Other valuable insights when approaching an existing customer with an upsell or cross-sell would be contract utilization - what percentage of the features or volumes in their contract or pricing tier have been utilized.

Drilling one level further, whoever is in charge of closing an upsell or cross-sell will need a detailed understanding of how a customer is using the product, what they did in the product that fired off an intent signal, and easy to follow playbook for capitalizing on it. 

How Parative Helps Increase Net Revenue Retention

Parative’s Customer Behavior Platform drives growth based on customer behavior, product usage, and contract consumption. The Parative Revenue Expansion System enables you to monitor the usage signals you care about, score them, take action in the tools you already use, and then analyze your existing signals to optimize them for better conversion.

With Parative, you can:

Drive Growth

Identify expansion opportunities based on contract utilization, gated engagement, and usage intent.

Drive Retention

Implement alert systems for identifying early indicators of risk and standardizing quantifiable customer health.

Optimize employee productivity

Democratize access to the data insights they need to do their jobs in the tools they already use – without ongoing support from internal technical teams.

Learn More About Parative

Learn more about Parative by heading over to Parative.com today.

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by
Mark Lerner

Head of Marketing @ Parative, the Customer Behavior Platform. SaaS enthusiast, B2B Marketing Specialist, Startup Survivalist. Dad x2.

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