Tiering And Segmenting Your Customer Base: Managing Your Second Funnel

The onset of recurring revenue models have necessitated a change in approach toward servicing customers. Customers have never been less loyal than they are today. It has never been easier for clients to research competitive technologies and/or services and quickly select a new vendor. The foot race to reach time to value has never been faster. The competition has never been stiffer. To win in today’s cloud economy, vendors are required to secure a solid relationship with their entire customer base that drives adoption, retention, and advocacy.

Efforts to meet the needs of these demands have resulted in the emergence of Customer Success and a shift in focus to the client relationship. Interestingly, the entrance of Customer Success effectively transforms the vendor’s business in many ways, one of which is the arrival of a second customer funnel.

The first funnel is the traditional sales and marketing funnel. The sales and marketing funnel has been wonderfully mastered. Sales funnels are generally predictable in nature, where there is a natural investment in systems, people, and process. The outcome of the investment is top-line revenue. Sales and marketing funnel management has matured to support and track each phase of the funnel.

The second funnel is the Customer Success Funnel. Given the nascent nature of Customer Success in the Subscription Economy®, this second funnel remains immature. The outcome of this funnel is designed to produce client adoption, retention and advocacy. Unlike the first funnel, the Customer Success Funnel lacks adequate funding, process, people, and tooling which results in an inability to track and control each phase of the funnel.

A comparison of the two funnels might look like the below:

 

The Customer Success Funnel continues to be immature because Customer Success teams face a lack of unified data. They are left piecing critical client information together to tell accurate stories about their clients’ health. Additionally, success teams are consistently needing to perform heroic acts to save client accounts. Many times acts of heroism are representative of the absence of formal processes and defined services to be provided to each customer. A Customer Success Manager risks engaging with the wrong clients at the wrong levels leading to many other issues for the company. These issues and others result in an unpredictable Customer Success Funnel.

Customer Success leadership faces many challenges without the same level of resources as their Sales and Marketing counterparts. Employing customer segmentation and clearly defining the services of a Customer Success team is a means of protecting client revenue in the second funnel. Coupling client segmentation with the 11 Pillars of Customer Success serves as the best possible preemptive measure for churn and revenue protection at scale that there is.

Here’s why:

• Most SaaS companies cannot afford to provide the same level of service to each and every customer in the same way
• Attempting to do so will cause implications around scalability, costs and resource constraints
• Providing the same level of services to an account with a lower ARR as an account with a premium level ARR does not produce the same level of satisfaction/retention/evangelical results
• Planning out the level of investment for every customer will support ROI targets on your service delivery
• Assessing cost and a marketable value for the services that you will provide can generate additional revenue
• Properly identifying services to be provided by tier will produce scalability for the team
  • Scaling the team also reduces cost
• Servicing the right accounts at the right time will promote adoption and retention
• Defining service strategy to lower tiered accounts will aid to produce a path to turn lower tiered accounts into higher tiered accounts (upsell)

Segmentation (aka “tiering”) of a customer base involves classifying each account into a tier to aid in the definition of the services that will be provided to each tier. Performing the tiering process will enable you to define the level of investment per client segment and scale your team with out spending precious capital in overhead.

Before getting started with service definitions and the act of tiering, determine the number of segments (or tiers) that are needed for your company. Consider the landscape of the entire customer base and define the number of tiers that is appropriate for your company.  When determining the appropriate number of tiers for your company, give consideration to:

• Who are your most successful customers?
  • Can you duplicate that success, easily?
• Who are your least successful customers?
  • What makes them unsuccessful?
  • Can you make necessary changes as to not replicate?
• What makes each of your customers alike?
  • How can you get each of them to success?
• Who are your most difficult customers
  • What makes them difficult?
  • How do their needs vary from your moderate customers?
  • Do they adopt differently than other customers (if yes, how?)?
• Who are your easiest customers to support?
  • What makes them easy?
  • How do their needs vary from your moderate customers?
  • What makes the low barrier to entry for adoption?

After reviewing this information, give one final bit of consideration to how these accounts were sold. Do you find that your answers vary based upon channel, industry, revenue band, geographic location, or product/service entitlements?

You may find that your company will only need two tiers, or you may find that your company might need as many as 5 tiers. The answers to these questions may also start to frame the basis by which you tier your customers.

 

“Subscription Economy”® is the registered trademark of Zuora, Inc.