In today’s competitive business landscape, companies are constantly looking for ways to improve their bottom line. While it’s easy to assume that sales is the key to financial success, many businesses are discovering the profound impact that well-executed Customer Experience (CX) and Customer Success (CS) strategies can have on revenue through long-term value for existing customers.
Before we go much further, a little bit of context: Customer Success is in the business of helping customers achieve goals through value attainment, while CX is about exceptional end-to-end experiences that differentiate us and our brand from our competition. Product Experience (PX) is a subset of the broader CX experience world.
Within CS and CX financial performance of businesses are most influenced by the long term value that customers get from your products and services (CS), and the experiences they have with your business through which that value is delivered (CX).
1. Customer Success & Retention: Driving Financial Health
Retention of customers is the backbone of any healthy financial model. The cost of acquiring new customers is significantly higher (5x!) than retaining existing ones, yet all you ever hear about is all of the things we do as a business to find and capture new business.
By focusing on helping existing customers achieve their goals and delivering value from our product or service, CS teams significantly improve customer retention rates. Furthermore, when customers find the experiences that deliver more value to be enjoyable, they’re more likely to stay — ultimately leading to increased revenue and a less risky customer portfolio.
The financial benefit of CX/CS is clear if we believe that positive experiences and ongoing value realization results in customer retention. Research shows that increasing customer retention by just 5% can increase profits by 25% to 95%, depending on the business model and market. Between 2007 and 2022 Watermark Consulting studied stock performance as it related to CX influence:
CX Leaders outperformed the broader market, by over 260 points vs the S&P 500 Index.
CX Laggards underperformed by more than 175 points vs the S&P 500 Index.
CX Leaders generated total returns 5.4 times greater than that of the CX Laggards (a disparity that has significantly widened over recent years).
Clearly, benefit is there, financially, so what numbers are behind those numbers?
2. The Power of Increasing Customer Lifetime Value (CLV)
Within CS and CX businesses monitor Customer Lifetime Value (CLV)—the total value (in revenue) a company can achieve from a customer over the course of their relationship. The longer a customer stays and the more they expand their investment in your products or services, the more value they generate for themselves, and your business as well.
Customer Success teams directly contribute to increased CLV by first reducing churn (the loss of customers), which in turn increases retention, and then increasing value further through expansion. If customers churn, providers lose both the immediate revenue and the long-term revenue associated with renewals, cross-sells, and upsells. Although more recent studies reinforce this concept, this study by Bain & Co in 2015 visualizes the impact of the Compounding Effect best:
In addition to CLV, Gross Revenue Retention (GRR), and Net Revenue Retention (NRR) are two other key metrics that benefit from a strong CS strategy. NRR includes revenue from renewals and expansion, while GRR measures the percentage of revenue retained, excluding expansion. NRR should run over 100%, while GRR should run as close to 100% as possible. So, when a well-defined CS strategy is executed, increased retention and expansion pushes NRR beyond 100%, while retention enables GRR to approach 100%.
3. The Financial Impact of Expansion: ARR, EARR, and Upselling
Customer Success isn’t just about preventing churn—it’s also about expansion. Metrics like Expansion Annual Recurring Revenue (EARR) reflect the revenue that comes from existing customers through upselling and cross-selling. These efforts, driven by a strong value and experience driven CS team, tend to be far more profitable than new customers because they come at a lower cost and provide less risky revenue (customers that buy tend not to leave).
When customers realize value through great experiences, they’re more likely to buy more/ different products, features, or higher-tier packages. This expanded customer investment not only increases immediate revenue but also deepens the relationship and long- term customer retention. The foundation of this retention strategy usually starts by optimizing the attainment of value from their initial investment. Although Time to First Value (TTFV, the time between contract signing and initial value realization) is a great indicator, we believe that Time to Subsequent Value (TTSV) is a better indicator of retention, even if it is harder to measure.
Optimizing initial investment value also makes future selling (eventually) easier, because as a business we evidence our partnership to our customers by proving that value attainment doesn’t always come at an additional cost.
4. Case Studies: Real-World Impact of Customer Success
To truly understand the financial benefits of a strong Customer Success strategy, let’s take a look at some real-world examples:
Salesforce: Early in their growth, Salesforce struggled with high customer churn that threatened their financial stability. In 2004, their churn rate was 8% per month (96%, almost their entire customer base/year)! This led to the implementation of one of the first Customer Success teams, focused on value delivery. By shifting their effort from sales to value, Salesforce managed to reduce churn to under 1% annually. Their revenue, as a result, grew substantially, with NRR skyrocketing.
HubSpot: HubSpot, a leading marketing automation platform, focused on customer engagement and satisfaction, which led to more consistent revenue growth through existing customers. In 2018, HubSpot’s NRR was over 100%, indicating that their customers were not only staying but expanding their spend.
Zendesk: Zendesk, a customer support software company, focused its Customer Success efforts on building a customer-first culture and value delivery, resulting in increased customer retention, CLV and EARR.
The above examples are from companies that leverage long term contracts to ensure retention and are often associated with Software as a Service (SaaS) businesses, but they are not the only business model that has found success in/through Customer Success. The following examples are of businesses that don’t rely on long term contracts and still generate more business from existing customers than from new customers/ business:
Apple’s customer retention and frequent product upgrades have enabled the company to steadily grow revenue, even without a formal recurring revenue model. For example, in Q4 2021, Apple’s services revenue (which includes subscriptions, iCloud, and Apple Music) grew by 24% year-over-year.
While Amazon does have subscription-based revenue from Prime, it does not rely on long-term contracts, and much of its revenue growth comes from the increased frequency and volume of purchases made by existing customers. This model has contributed to Amazon’s growing dominance and profitability without needing to rely on traditional contractual recurring revenue.
5. Conclusion: The Long-Term Benefits of Customer Success
A well-crafted Customer Success strategy isn’t just a customer-centric initiative—it’s a core business driver. By focusing on value attainment, over short-term revenue generation, businesses create long-term financial sustainability, evidenced by increased retention/ reduced churn, and greater customer lifetime value (CLV). Revenue from a customer grows over time, but more than that, the risk associated with that revenue drops, as they become less likely to leave. Beyond the revenue, customer longevity matures the business relationship and are more likely to advocate for the business, and these customers ultimately lower the cost of finding more new customers.
So, if you are a startup, small business, or an established company, investing in Customer Success and Customer Experience is investing in transformation, growth and sustainability of your business, now and into the future. If you have questions about how, contact us and Two Tree Solutions would be happy to help!