Technology Report
Why Software Companies’ Customer Success Is Failing
Why Software Companies’ Customer Success Is Failing
Spending on customer success is up, but customer retention is down. Post-sales teams must evolve.
Technology Report
Spending on customer success is up, but customer retention is down. Post-sales teams must evolve.
This article is part of Bain's 2024 Technology Report.
Software companies are grappling with a surprising disconnect: Despite significant investments in post-sales personnel since the pandemic, customer retention has suffered. Net revenue retention (NRR) rates, a measure of how well companies retain and expand revenue from existing customers over a certain period, decreased for 75% of software companies in a recent Bain survey, even as nearly 60% increased customer success spending (see Figure 1). Frustrated executives are questioning why these investments haven’t paid off and, worse yet, may have exacerbated the problem.
It turns out a huge disconnect exists between how customers want to be served and what vendors think they need. Additionally, many vendors silo the customer success function and miss the opportunity of a streamlined post-sales package with cohesion across tech support, customer success, and professional services.
Effective post-sales activities help buyers implement software, increase adoption, adapt their use as needed, and achieve ROI, all of which are more important than ever with the acceleration of software purchases during the pandemic and the increasing complexity of software-as-a-service (SaaS) products. Slowing post-pandemic sales and a shift from subscription- to customer usage-based pricing have further raised the stakes for retaining customers and enticing them to spend more.
Software vendors have largely relied on customer success teams to maximize product use. In addition to customer success practitioners’ increased spending, more software companies are creating a dedicated customer success team. The share of US enterprise software companies with a customer success team reached 60% this year, up from about 40% four years ago, according to Bain analysis of LinkedIn and other data.
To deepen customer relationships, vendors have also emphasized more proactive, specialized customer success roles, including customer success managers, technical account managers, and success architects. Meanwhile, they’ve reduced spending on reactive tech support roles through automation, which generative AI could further accelerate. Consequently, customer success roles now constitute a larger portion of the post-sales workforce (see Figure 2).
However, these investments haven’t delivered the desired results. Software vendors’ deteriorating NRR rates align with our customer success survey data: nearly two-thirds of software customers feel their post-sales needs are only being moderately addressed or worse (see Figure 3).
Why? Our research found a mismatch between how vendors provide support and what customers value. In our recent survey, software buyers ranked assistance with technical implementation or deployment as their highest priority for customer success, while practitioners ranked it sixth (see Figure 4). Vendors often provide general assistance but have abdicated too much technical implementation to systems integration partners. Clearly, customers see a role for vendors to provide architectural support and technical implementation best practices, even if systems integrators continue to do the heavy lifting.
Another disconnect is that customers prefer a technical role as their primary contact for customer success, while vendors often assign a non-technical customer success manager instead, according to our survey.
To be fair, customer success functions face intense pressure due to a broader push to reduce IT costs, increased scrutiny of internal budgets, and client procurement teams challenging add-on services such as paid, premium customer success offerings. These headwinds are compounding two long-standing challenges: It remains difficult to prove the return on customer success investments, and many of these teams are perceived as cost centers rather than revenue generators.
That said, many vendors have hired excessively in customer success without validating their post-sales model, missing opportunities to deploy all post-sales functions more efficiently.
Based on our work with software companies worldwide and analysis of companies with high NRR, we’ve found that the emerging leaders are focusing on the following key steps.
Going forward, the most effective post-sales organizations will nimbly adapt to customer needs and market trends. To identify the right strategy, customer success practitioners can start by asking themselves the following questions: