I’m always impressed at how Google Trends is a great representation of human desires and key trends. If you work in the tech world, you might have heard of something called customer success. It’s kind of a big deal these days as evidenced by the number of people searching for the term. The chart below shows the massive interest for the category.
Customer success is not showing any signs of slowing down
Customer success it essentially two things, 1) ensure that the customer is getting the most out of the product she purchased, 2) maximize the value that can be derived from customers.
In the tech space, companies like Gainsight among other have sprout up to serve this massive segment. Customer success is an area that I’ve spent a lot of time thinking especially when it comes to service firms.
What I want to tackle in this post is how we as a firm look at customer success. We’re a consulting firm that helps companies with their corporate strategy. As such, we’re often responsible for major changes that can result in radical change & massive growth. The challenge is how we match our compensation to this potential and more importantly ensure that mutual interests are aligned in the best way?
The past models won’t work moving forward
Most consulting firms have a very typical remuneration model, hourly or fixed rate pricing. We believe that focusing only on hourly or fixed based pricing particularly for service based firms needs to evolve.
We’ve struggled with this specific issue for a while. Both have made sense from time to time on certain client projects but are still not ideal for the type of work that we do. Sure, bringing in more revenue is great, but we always need to balance the long term benefit for the client. How can we maximize the client’s return on investment? It’s not an easy question to answer particularly since there is no proven model in the market.
Performance is the ultimate expression of client value
The best solution that we’ve found so far is to align interests with performance based pricing. Our firm takes on risk at the same level as the client. This is no easy feat particularly when measurement is opaque. Over time, this is improving especially with more robust analytics in place.
A few examples of performance based pricing include sharing of revenues. For instance, if said plan achieves an increase of revenue, compensation can be made in the form of a percentage of revenue. The ultimate expression of performance is an equity arrangement. Our firm has taken equity in two businesses as a result of our work. This evidently happens when there is a close relationship and aligned values. In certain instances however, performance models can’t apply and that’s fine too. You need to know when to apply it in the right situation.
The largest benefit with performance models in general is trust; the client deeply trusts that we are aligned and working for her best interest. There’s still a lot of room for improvement in the current in this model but the value so far is clear; when our customer wins, we win.
Results that speak for themselves
We let the numbers speak for themselves: since starting to work with PNR, our clients have increased revenue by an average of 190% (where trackable of course). It’s still early days for this new kind of measurement and it’s imperative that we continue to evolve and test. The best way to win & retain our customers to ensure that their success is deeply intertwined with ours. Now, that’s a trend worth betting on.