Cost reduction replacing Cost center

CS teams can drive value and revenue. However, they can also influence other aspects of customer engagement.

These are Product pricing and The cost of owning and operating the product.

Let’s start with the product pricing.

CSMs are not solitary figures in the business landscape. They are part of a team that includes sales, product, and marketing colleagues. Together, they gauge customer sentiment towards pricing, living and breathing expectations, and value perception. As they strive to create a pleasant experience and drive stakeholders to achieve business outcomes, they are exposed to market trends and competition, similar to their counterparts in sales.

CS leaders should not underestimate the power of their teams' feedback in shaping pricing strategies. Understanding why their CRO and CFO set these strategies provides a solid baseline for managing the customer post-sales experience. When gaps between value and pricing are detected in the field, CS teams play a crucial role in flagging them internally, thereby influencing the pricing strategy.

Few examples:

1.????? Product pricing is on the lower end based on a “land-and-expand” strategy, a method where a product is initially offered at a lower price to attract customers, with the intention of upselling additional features or services later. The CS (and sales) feedback is crucial to understanding whether this approach fits the product and potential added value to the customer.

2.????? Tiered pricing based on premium features like advanced analytics or dedicated support. While CS drives customers to acknowledge the need to switch to a higher tier, the balance between incremental cost and value is essential feedback to be shared with sales, product, and marketing colleagues.

3.????? The product pricing is on the higher end, reflecting additional premium benefits delivered to customers. However, due to technical, operational, or knowledge gaps, customers struggle to acknowledge it. In this case, CS feedback may highlight wrong assumptions underlying the pricing decision.

Pricing is a sensitive issue involving finance, sales, marketing, and senior management. Customer Success input can serve as a reality check and valuable input to the pricing decision process. As such, I encourage CS leaders to promote this notion in their teams and not consider pricing strategy as a “black box.”

The cost of owning and operating the product

The customer's cost of using the product does not equal the price they pay the vendor. In other words, the subscription cost is only a fraction of the overall cost the customer has to bear.

The total cost of acquisition includes the following:

?? The price charged by the vendor

?? The “Cost of Buying”

?? The cost of risk

The “cost of buying” splits into the following elements:

1. The cost of the purchasing process.
2. Deployment and Data migration cost.
3. Integration Costs
4. Training and Internal acceptance costs

The cost of the purchasing process

This includes the client’s effort in performing market research, preparing and managing an RFP, running a POC, and completing legal, compliance, and procurement activities associated with a new vendor/solution.

The CSM perspective:

While this cost is usually a “sunk” cost, it is vital to recognize this effort when CS gets involved. Depending on the deal size and complexity of the process, CS may have to engage individuals or teams with certain expectations or questions before onboarding starts. At this point, CSMs can act as trusted mediators to navigate the first steps and set the stage for a successful engagement.

Deployment and Data migration cost

Even a full SaaS deployment is not 100% “effortless” ?in an enterprise environment. Once a new solution is onboarded, the deployment process will require approvals and may even have to change to comply with IT and security policies. ?The approval and execution of any deployment will require input and effort from IT and possibly other teams. This will lead to questions and inquiries sent to the vendor during the change management process.

Additional complexity comes with data migration and keeping the integrity of the data to allow smooth operations. Customers will likely spend significant effort with related overheads even if the vendor has a well-defined migration process.

Moreover, failed data migration requires extra effort to perform root cause analysis, conclude the needed changes, re-plan, and re-execute the process. All of these translate to costs associated with people and technology. On top of that, data migration introduces risks for operational and business operations that will have a direct impact on cost and revenue.

The CSM perspective:

The customer’s effort and resources can be effectively planned based on solid onboarding and deployment playbooks describing the exact prerequisites and requirements.

In addition, CS can ensure appropriate support to minimize unnecessary effort and typical “backward and forwards” when technical deployment matters are not resolved promptly.

How can this effort be measured?

By comparing the actual vs. planned actions. CSMs may not always have complete visibility of the actual effort, but they can support a smooth process to ensure it does not deviate much from the initial plan.

For the data migration part, presenting trialed and tested procedures coupled with lessons learned will instill confidence in technical teams. CSMs can facilitate this part, ensuring the appropriate experts are engaged and solid communication is in place to identify and mitigate data migration “hazards.”

Integration Costs into Existing Systems & Processes

A new solution does not operate in silo and will integrate with other solutions in the client IT echo system. ?Integrations require proper design, planning, execution, and quality processes, leading to additional efforts for vendor and client teams. ?

?The CSM perspective:

?While the integration aspects should be clear to both parties when the deal is finalized, more detailed specifications are needed when the engagement starts. CSMs can present this integration in the KO meeting and encourage the customer to finalize the technical design and specification in an earlier stage. While it may not reduce costs immediately, it can save time and effort later and allow the customer to prepare other teams, partners, and vendors who will be involved.

Training and Internal acceptance costs

Deployment, integrations, and data migrations can be huge successes, but the engagement will not live up to expectations due to poor adoption. Hence, the client, guided by the vendor, will spend time and effort multiplied by the number of users to train and enable the teams. The ultimate goal is to make them comfortable and ready to interact with the new product. ?The way to get there should be as smooth and effortless as possible. The CSM (and a good training setup) will be instrumental in achieving it.

The CSM perspective:

While CSMs may not deliver training sessions, they should promote up-to-date knowledge repositories, automation, and self-paced training. Shorter and more effective training sessions will promote usage and adoption, eventually saving time and effort when end-users struggle to operate a new product. Moreover, CSM can identify the champions and key users who drive internal acceptance and support them in “selling” it to their teams.

The cost of risk

Risk management is a standard practice and a critical project management process. Not all organizations follow the process diligently. However, they all encounter risks when selecting a new technology. This decision will trigger changes in existing tools, teams, methods, and expectations. ?These changes do not come without risks, and while risks may not be easy to quantify, they cannot be overlooked and have a “cost tag.” ?

Here are a few examples of explicit and implicit costs associated with risks:

???? PMO/Project management effort to keep risks up-to-date with mitigation plans.

???? Overhead of risk management. Meetings, emails, and action items add more load on individuals and teams.

???? The cost of technology modifications, such as code or configuration changes in existing systems, to bridge integration issues.

???? Cost of operational risks such as bad customer service or system uptime.

???? In addition, the champions and budget owners take a risk by changing or introducing new vendors. They will be held accountable for the budget and effort spent and for delivering the expected outcomes. ?This is a risk for them and their organization. Sometimes, their job may be online if the vendor they support fails.

?

The CSM perspective:

There is no silver bullet for CSMs to handle all risks associated with product onboarding and adoption. ?However, there are a few steps to consider

?? Maintaining a cross-team lessons learned register, which can be leveraged in future engagements and mitigate risks from the outset

?? Assess stakeholders' risk “appetite” and act accordingly, providing additional guidance and support.

?? Asking questions earlier to confirm and verify assumptions and prerequisites expected to be handled by the customer.

?? Establishing formal and informal communication channels to manage risks and their impact.

?? Sharing best practices that worked well in other engagements and proved to reduce risks.

CSMs should drive cost reduction.

The CSM role is changing. Value was the key buzzword a few years back, and now revenue and business impact dominate the CS landscape. It’s time to create more rounded CS teams that strive to be more effective by influencing the cost side of the equation. This is the opportunity to proactively provide input about pricing and help customers reduce their buying costs.

Value, Revenue, and Cost reduction – the three pillars that make CSM’s contribution meaningful and measurable internally and externally.