Expanding Customer Lifetime Value With the Right Sales Coverage
Expanding the Customer Lifetime Value (CLV) is a financial imperative for technology companies who seek to establish a recurring revenue business model. Expanding CLV ensures recoupment of Customer Acquisition Cost (CAC) and drives long term profitability.
Winning companies deploy the right customer-facing roles in the post-sale to drive CLV expansion. Importantly, these roles fundamentally differ from traditional high tech account executives.
As the software industry migrates to XaaS, these post-sales roles have become increasingly vital and represent a growing percentage of the overall sales investment. Consider the figure below:
Traditional high tech sales models deploy a single account executive role responsible for driving large upfront capital purchases. In a hardware or software sale, there is a small amount of ongoing recurring revenue associated with the warranty or maintenance support respectively, which a renewal representative often handles. Through a variety of studies and data collection, the Alexander Group (AGI) has found that in traditional models companies allocate approximately 90 percent of the overall sales budget to the single account executive/manager role and a mere 5 percent to “post-sale” coverage.
Contrast this model to the emerging XaaS-driven sales model that relies on a recurring revenue model. There is significantly more focus on driving CLV through customer adoption and expansion. Leading XaaS companies allocate up to 40 percent of their focus and investment in roles that drive adoption and expansion.
Several trends and practices are emerging on how to best drive CLV expansion through “post-sale” coverage, including:
- A distinct account manager role. While not true in all instances, there is a trend toward a bifurcated coverage model between hunters and farmers. The pure PM/farmer role usually occurs at the upper levels of the segmentation pyramid (enterprise and large accounts) and is responsible for driving quarter/quarter or year/year account growth.
- Customer success roles. These roles come in multiple flavors (AGI has encountered many different variations of this role in the marketplace) and are responsible for ensuring the customer is receiving maximum value from the solutions the company has purchased. Variations in the role result from different areas of focus, including such aspects as providing customer service, training users, identifying ways to optimize the implementation, and identifying opportunities for value optimization through upsell or cross-sell. In recurring revenue models, the customer adoption and usage of the offering is paramount to driving CLV. Otherwise, customers will either 1) not renew their subscriptions or 2) not increase their consumption. Both have financial impact.
- Revised role of product specialist cross-sell roles in the post-sales environment. These roles often existed in traditional software sales but typically focused on pre-sales activity, not post-sale work (i.e., once a customer has been up and running on an initial implementation). Today, product specialists in the XaaS model leverage awareness of the existing implementation and usage patterns (use cases) to drive sales of other features and products to either the same buyers or other buying groups within the customer. Product specialists in this environment either closely coordinate with the rest of the “post-sale” coverage team or find ways to access the customer usage information.
These three factors combined can create a post-sales engine that drives CLV expansion.
The Alexander Group has the frameworks, analytics, methods and benchmarks to help your company expand the lifetime value of your customers with XaaS. Learn more about the post-sale coverage models and roles and how to apply them in your company. Contact an Alexander Group Technology leader today.