3 Reasons Recurring Revenue and Renewals are Critical [Podcast]

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I was honored to be interviewed by Linda Popky of Leverage2Market Associates and one of the leaders in marketing innovation in the technology business. We discussed a range of topics, including:

  • Why recurring revenue and renewals are so important to so many companies
  • Why many companies (particularly in the technology business) don’t invest enough in recurring revenue
  • How marketing and selling to renewing and repeat customers is different from new business
  • What companies can do right now to increase recurring revenue and renewals, and reduce churn

You can find the podcast here (just under 30 minutes). I hope you find it useful – please let me know in the comments.

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Customer Success

Getting it Just Right: Measuring Customer Success

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In an earlier post, I discussed how to get measuring customer success right. It sparked quite a few questions about how to choose the measurement and how to ensure it causes you to be aligned with your customer’s business success. Here are some thoughts about how to get it just right.

The Goldilocks Customer Success Metric

In my earlier post, I compared two public safety companies that had very different measurements of how their customers became successful because of their products.

One was RedFlex, whose most often cited metric was the number of red light tickets issued because of their cameras (though, I don’t think they want to be measured this way). This metric misses the mark, because it does not measure an outcome that is of value to the people who have to make a decision on the purchase of the camera system. The goal is public safety, not more tickets.

In contrast, ShotSpotter (SST) measured a variety of outcomes, including number of arrests resulting from gunshots detected and number of convictions made easier because of their data. The goal—public safety—is the same, but the metrics are directly relevant to the outcome.

Let’s analyze these:

Neither company chose what I’ll call the “papa bear” metric, which is something such as increased public safety. This metric is far too broad, far too hard to measure, and while both companies do something that affects public safety, neither can claim to have increased it directly.

The number of tickets metric, which I’ll call the “mama bear” metric, is too narrow. It measures the direct result of the system, but it does not take into account any of the results the activity produces.

The number of arrests metric is the Goldilocks metric (or one of them). It’s not the direct result of the system (you could measure number of gunshots identified), and it does not claim to be a panacea for all police issues. It does measure an outcome most of us can link directly to which is increased public safety (criminals get arrested), and one the immediate buyer (police department) and the ultimate buyer (political leadership) can relate to and definitely care about.

One alternative to the number of tickets metric might be to look at the total number of accidents at intersections with red light cameras. For most of us, fewer accidents mean safer streets.

So How Do You Choose Your Customer Success Metric?

Let’s assume for the moment you are selling to a business.

Papa Bear

Increase revenue or reduce costs. I hope whatever it is you are selling to the business does one or both of these, or I suspect your prospective customer will never buy. That said, with very few exceptions, your product or service probably does not directly do either one, and the outcomes of your product are not “more revenue.” They should do things that lead to one of these two.

These are the wrong metrics.

Mama Bear

More twitter followers (sorry, social media folks, this isn’t a business outcome). This is certainly a metric, but for most businesses, it doesn’t produce something effective, nor does it (in any meaningful way) affect costs or revenue. It’s too narrow, and too immediate. Other examples are things such as, “keeps all your customer activity in one place” or “ensures everyone knows the correct procedures.”

Those might be things your product does, but they are not why your customer buys.

The Goldilocks Metric (encore)

If you were selling a product to a marketing department, the outcome might be “produces more leads in the pipeline” or “shortens the time to conversion to a sale.” Both of those are things your product might do where you can measure the effect your product has on either number of leads or time to conversion, and the metric has a credible effect on the business (in these examples, more revenue).

In another recent post, I discussed Christensen’s idea of “hiring” a product to “do a job.” Your customer has a job they need done (e.g., they need more leads). That’s something they hire a product to do. And it’s something you can measure before and after they buy your product, so you and they can tell how effective your product is for them.

Another way to consider this is that every team, every group, and every department in a company has business objectives they can measure. Your product needs to help their measurement of at least one of those business objectives moving in the right direction.

The Goldilocks metric has to be specific and countable. ShotSpotter counts the number of prosecutions and convictions that use their data. You can count number of leads, length of sales cycle, reduction in overhead, etc.

So finding the right metric is really simple: It is a business objective, and it is countable.

Get that right, and you’ll have no trouble getting your customers to show you just how successful you are for them. Which is just right.

Tell us how you are measuring your customers’ success in the comments.

Photo Credit: Bill David Brooks via Compfight cc

Customer Success

Getting Customer Success Measurement Right

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The other day, the local news featured a story about the increasing number of San Francisco Bay Area cities and towns removing their red-light cameras. For most cities, the original goal of these cameras was to improve public safety by reducing accidents. While there are now fewer cars running red lights, it turns out accidents have actually increased, mostly due to drivers coming to sudden stops (to avoid a ticket) and getting rear-ended.

It also turns out the company that provides these cameras to most of the cities in this news report (RedFlex) takes, as part of its payment, a percentage of the revenue from the tickets issued using pictures from these cameras.

What does this have to do with customer success measurement? For RedFlex — and for you — everything.

How to get it wrong:

I can’t say what RedFlex knew about their customers’ (the cities, and presumably, their police departments) objectives when they sold the system. But I can tell how RedFlex defines the success of their customer: more tickets issued equals more success.

How do I know this? Because (according to the news report) they get paid on the revenue from tickets, and therefore have an incentive to make products that maximize ticket revenue.

But that’s not the main goal of the their customer. The police department’s goal is to improve public safety by reducing traffic accidents. RedFlex appears to have no incentive to do this.

RedFlex is using the wrong measurement: They don’t seem to understand how their customer defines success, or they don’t align to that definition. As a result, they are now losing customers.

How to get it right:

ShotSpotter (disclaimer: ShotSpotter is my client) sells a gunshot detection and location system. Like RedFlex, they sell this to cities, in particular to police departments.

When ShotSpotter sells a system to a new customer or renews a contract with a current customer, they ask questions such as: “How many more gunshots have you identified using our system?” or “How often were you able to get to a crime scene faster and make an arrest because of our system?” or even “How many times were you able to prosecute a perpetrator because of evidence from our system?”

These questions and the measurements that result from them align perfectly with the definition of success their customers have for themselves: Police want to respond to crimes quickly and catch perpetrators, and the district attorney wants to prosecute those perpetrators effectively and get them off the streets.

When it comes time for ShotSpotter’s customers to renew their contract (their main product is sold similarly to SaaS or cloud services), the customer and ShotSpotter both know exactly how successful they were using the system, and the customer can make a renewal decision based on exactly the right criteria. And ShotSpotter has a strong incentive to make a product that helps their customers meet those criteria.

What you should do right now:

Your customers may not be police departments. But every single organization, including your customers, has a reasonably well-understood definition of their own success. They know what they are trying to achieve, and they are looking to you to help them get there. It’s now your job to know what success means to them and be quite certain you can align your work to their goals.

Ask yourself: How do you measure the success of your customers, specifically as it relates to the use of your product or service? Do you know how your customers use your products to make themselves more successful?

That’s the easy part.

The hard part is looking at your own organization, not just at customer success, but at everyone who plays a role in how successful your customers become as a result of your products. That includes sales, marketing and product development, just to start. I’d bet it includes everyone in your organization.

Now you have to ask: “What incentives do we give our people to advance the success of our customers?” and then ask the most important question: “Are those incentives producing the right results for you and your customers?”

If the answer to that last question does not EXACTLY align to how your customers define success for themselves, then you are not using the right measurements or incentives.

And if your measurements and incentives are not quite right, you are left with two choices:

  1. Change them, or
  2. Watch your customers disappear

Do you have a good story about how you measure customer success? Or do you know companies that can’t quite seem to get it right? Share your story in the comments below!

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