It’s a simple formula:
If Customer Success = CLV, and
CLV = Valuation, then
Customer Success is Valuation
A high-profile metric for us tech folks is our company’s valuation. To some, it’s merely a vanity metric with extra hyperbole upon unicorn status. For others, it’s a very real measurement and a silent partner within the team.
A common tech company’s valuation is calculated from a firm’s ability to own and drive the value of four things:
- ARR under contract,
- Proprietary intellectual property,
- Brand value, and
- Market momentum.
Each of these being owned by the Sales, Product & Legal, Marketing, and Executive teams respectfully.
To be clear, if you are on any one of these teams, you know all about your silent partner. For example, all salespeople know the expectations upon them in every task and in every meeting regarding ARR, and its ultimate role in valuation. So it is for other teams, Marketing will drive brand value, while Product will innovate, and Legal will ensure the ownership of unique IP, and so on.
Enter CLV. Did you notice how I don’t have to spell out the acronym for the customer success crowd? Customer Lifetime Value has become an unshakable specter following you in every work function. Here’s what happened… investors refined their measurements to include the lifetime value of the entire customer base as an important ingredient in determining the prowess and valuation of a tech company. And what investors and executives are discovering is that CLV has an outsized impact on valuation.
Mathematically speaking there are two interesting multipliers at play here:
- Customer retention percentages have a multiplying effect on CLV. So every 1% increase in retention rates can result in 3%-5% or more on topline CLV amounts.
- CLV has a multiplying effect on Valuation. So every 1% increase in CLV can result in 5% or more impact on a company’s Valuation.
Suddenly Retention is… really important! And CLV has become even more important! Anxious attention is now cast upon customer success departments to deliver results, specifically upholding the line as high as possible on retention rates, so that CLV can drive up valuation.
All things remaining equal, it is now understood that ROI towards a higher valuation can best be spent in the customer success department. Sure a firm can invest in sales and bump the ARR up a few percentage points. But the same effort and investment in customer success will have an even greater impact on affecting valuation.
For Customer Success Leaders. Your time is now! Your voice is getting much louder and more influential in the boardroom than ever before. While your best strategies and thinking towards the most optimal running department are in high demand, your data-driven insights justifying change or investment is even higher. If you can show exactly how to increase CLV by say 10% in the next year, that investment would be the single most important initiative towards valuation of that year. That’s how CS = Valuation.
I hear all too often from customer success executives the challenges of collaborating with their data. The common barriers to true insights like disparate systems, unrefined data, not enough time to review, etc. all of these and more are unfortunately still hindering customer success ambitions and efficacy. Ideally there should be no hurdles or delay in an executive’s access to data-driven insights, in turn driving the authenticity of their vision. In today’s competitive environment, speed matters, so does accuracy. Customer success departments should have all the tools needed to do their best efforts, and be revered for their impact on valuation.
Cami.AI was designed and built to give CS leaders and teams unprecedented insights and power to drive the CS mission. New machine learning technology integrates across your entire CS tech stack to deliver data-driven strategic initiatives that extend and broaden their customers’ lifetime value.