How Customer Success Drives Revenue

Aaron Thompson (Head of Growth at Sturdy AI, fmr Chief Revenue Officer at SuccessHACKER)

The correlation between revenue and value underscores the indispensable role of a robust customer-centric strategy alongside an efficient Customer Success (CS) team. But amidst efforts to streamline operations and optimize resources, how do we tangibly prove the worth of investing in customers and the teams dedicated to serving them?

In this pay it forward webinar, Aaron Thompson, helps us unpack the steps in proving the value of an efficient CS team driving profitable growth - particularly amid lean market conditions. Scroll to the bottom to watch the full recording on YouTube.

Otherwise, read on to learn Aaron's step-by-step approach to calculating Acquisition Costs and breaking out different Revenue Streams to evaluate how CS can help generate and influence more profitable sources of revenue.

1. Start with Customer Acquisition Cost (CAC)

CAC highlights the efficiency and effectiveness of Sales and Marketing efforts in acquiring new customers. CAC shows the revenue and profitability of each customer (or set of cohorts) calculated over a specific time period. 

Aaron shares the steps to building and calculating CAC, digs into industry-standard ratios, and introduces the Profitability Health Level (PHL) concept to illustrate how revenue profitability increases when customer time-to-value is optimized and when customers extend their lifespan with your product or service.

2. Take it down a level with Revenue Acquisition Cost (RAC)

Not all revenue is created equally, and it's essential to recognize that customers generate revenue at different stages in their lifecycle, with each stage generating different overhead and costs. Customers can generate multiple revenue streams, and it's important to understand which revenue streams are measured by your business.

In this step, Aaron highlights the importance of breaking out these different revenue streams and their associated acquisition costs (RAC) to measure and calculate the profitability and impact of CS more effectively.

3. Identify your Impact on Common Revenue Streams

Aaron leads us through an exploration of the five most common revenue streams, describing how to measure and calculate the influence and impact of CS on each:

1. Net New Revenue: New customers & logos. 

2. Renewal Revenue: Renewing existing customer contracts. 

3. Upsell Expansion Revenue: Existing customers increasing use of the same product or service (more seats, price increases, etc.)

4. Cross-Sell Expansion Revenue: Selling additional products or services to existing customers (SKUs). These may or may not compliment the originally purchased SKU. 

5. Advocacy Referral Revenue: Customer Referrals.

The underlying principle is that acquiring net new customer revenue tends to have much higher costs compared to revenue acquired from existing customers.

The differing levels of ownership and influence held by your CS team across the various revenue streams highlight the crucial necessity of documenting the programs and tactics that CS has on each stream. 

Documenting also underscores the importance of aligning CS with your Sales process and funnel, utilizing your CRM for visibility, and establishing a clear line of sight for tracking and managing revenue streams driven or influenced by CS.

Watch the recording on YouTube at your own pace for the details behind how to prove that CS can be one of the most powerful engines for driving profitable revenue and sustainable growth in a subscription business.

Check out further reading on the topic:

1.Is Customer Success COGS or OpEx? | Understanding Gross Margins - Only CFO Newsletter

2. Quantifying Investments in Customer Success and Retention - The SaaS CFO 

3. Customer Success As A Profit Center- Winning By Design

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