It’s the Relationship, Stupid


In the 1992 presidential campaign, James Carville famously hung a sign in Bill Clinton’s campaign headquarters reading “The economy, stupid,” in an attempt to keep the campaign message focused.  We all know how that election turned out, and Carville’s message has become an iconic statement in American politics.

I’m beginning to wonder if a similar message might take on a life of its own at some point in recurring revenue circles.  The message is, “It’s the relationship, stupid.”  If it does, that message will cause us to rethink how we use CRM and customer facing systems like Billing.

Most businesses have some sort of CRM system.  What does the acronym CRM stand for?  Class?  Yes, CRM stands for customer relationship management.  But think about how we actually use those systems.

A sales or marketing person identifies a potential future client, and enters that client into the CRM system as a prospect or a lead.  A sales person matches that client up with products and creates an opportunity.  That opportunity goes into the sales pipeline.  Sales managers manage against the pipeline opportunities and sales team members are evaluated at least partially on their performance against pipeline.  When a deal is closed, the opportunity becomes a sale.  In many cases, that’s where the process ends for a client record in CRM, until another opportunity is identified and the client is back in the pipeline again.  We may track customer contacts over time after the sale, but we rarely act on that information.

So what’s wrong with this picture?  Well, to start with, we’re using CRM to mange the sales pipeline, not the customer relationship.  In the traditional sales cycle, we tend to view the sale as the climactic event.  But in the recurring revenue world, the sale is just the beginning.  To be successful in recurring revenue, you need a different mindset for two very important reasons. 

First, in a traditional sale, the value of a customer relationship is equal to the value of the items they buy.  In recurring revenue, the value of the relationship is also directly dependent on the length of the relationship, not just the value of the item or service.  The initial sale or sign-up is the starting point, but revenue is dependent on keeping that client relationship intact over time.  Each day a client is on your service is another day of revenue for you.

Secondly, research is showing that the fastest growing recurring revenue businesses see a significant portion of their growth come from up-selling existing customers.  There is a reason why so many online businesses offer the equivalent of bronze, silver, gold and platinum plans.  Your industry may vary, but for the most successful companies in the SaaS industry we’re talking about upwards of 30% of annual revenue growth coming from up-sell.

In recurring revenue, it’s all about maintaining a relationship with a client over time to maintain a revenue stream, and growing that relationship to increase revenue (up-sell and cross-sell).  So, you need more from your client management systems (CRM and Billing) than just tracking the pipeline and generating invoices to go out with orders.

The customer relationship is ongoing and you need to be on top of that to be successful.  Your customer purchases your services.  They visit your web site.  They log on to their account.  They use your service.  They ask questions of customer service.  They order upgrades.  They experience service interruptions.  They ask for refunds or credits.  Chances are that you have systems and logs that handle and record all of these events.  But are you getting the most from that data?  Are you actively using the data to manage your customer relationship?  Can you even match up the data from all these systems to get an accurate view of the full relationship?

If a client logged on to your web site 10 times last month and only twice this month, it could mean they are losing interest in your service and planning to leave.  It might be a good time to offer an incentive to stay, like a discount coupon or even a reduced price upgrade giving access to additional services.  If a customer is over-using their current service level and about to incur additional charges, it might be time to offer an upgrade to a higher-level service plan.  If a customer has experienced service interruptions, you might want to offer a rebate or credit on future services.

But in order to do this, you need to be able to capture and organize these customer events.  And you need systems that will allow you to generate automated workflows based on events or patterns of events.  This tracking and responding pro-actively to client events is where traditional solutions tend to break down.  Our CRM and Billing systems are generally not configured to do this.

This is where the right recurring revenue management solution can help.  You see, Billing is not just about billing any more.  It’s about managing recurring revenue.  And managing recurring revenue is about managing a series of customer events and interactions over time, and orchestrating the correct response to each of those events.  It’s about creating workflows that support activities like provisioning new customers, generating recurring charges, offering rebates or credits, automating up-sell opportunities, and responding to potential churn scenarios before the customer leaves.  It’s about ensuring that today the customer has reasons to stay, and not reasons to leave.

Successful recurring revenue businesses are actively managing their customer relationships, responding to a wide variety of customer events in ways that make their customers want to stay.  In short, when talking about success in recurring revenue, “It’s the relationship, stupid.”

-Bob Harden

Recurring revenue businesses need management solutions that can handle what is required to support long-term, ongoing customer relationships. This e-paper covers the specific components that are necessary to effectively manage customer experiences, which is critical for growth and profitability.

Customer Relationships e-Paper

  • Good article-like the point about measuring customer engagement and being able to create rule sets to trigger efforts to ensure customer stays a customer

  • There’s still a lot of confusion to the layman IT crowd who literally think CRM’s are not for them because they are directly for building relationships with clients 🙂 True isnt it? Until they really dabble hands on full stack then they can see the true power and value of CRM’s, how different modules talk to another and how their productivity and reporting can skyrocket.