How to improve your Performance with the 80/20 Principle

Hi, Markus here. Welcome to a new episode of the Customer-Value-Led-Growth Newsletter.

I share strategies and guides to help you to become a proactive CSM delivering more value for your customers and revenue for your company every week.

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• 5 highly effective Tools every CS Team needs to use

• The not-so-Secret to high Product Adoption

• How to build a Customer Success Metric System that rocks

• Customer Onboarding that drives Growth

• How to build a dedicated Customer Success Plan

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If you’d do everything you could and should you’d be working 24/7/365 and still not be finished. But Customer Success Management is not a quantity game.

It does not matter how many activities you perform and tasks you complete. What matters is to make every single one count.

Effective prioritization is a cornerstone of successful CSM. In today’s post I’ll show you how to use the 80/20 principle to score the big points.

1. Customer Problems

Your customers are buying your product because they want to

• increase revenue

• reduce costs

• improve productivity

What keeps them from accomplishing their goals are the problems they are facing in marketing, sales, product development, accounting, etc. Typically there’s a big problem and complex problem your customers need to solve.

It consists of several smaller ones that accumulate into the performance gap they are experiencing. If customers e.g. miss their sales quota it’s not because they run poor demos. It’s a combination of low booking rates, poor discoveries, lack of urgency, etc.

But they are not contributing to the problem in the same magnitude. Applying the 80/20 principle means to focus on the problems with the largest negative impact on performance.

• Resource 1: Customer Problem Discovery

• Resource 2: CSM Operating System

• Resource 3: CVLG Community

2. Risk Management

Detecting churn risks as early as possible is important for successfully dealing with them. More often than not CSM teams are missing some of them because they are over-relying on superficial metrics that don’t tell them the truth (watermelon effect).

Once you’ve identified potential risks you need to evaluate their probability and severity. The likelihood of losing customers depends on the gap between their expectations and reality.

If your customers’ goal is to e.g. grow their revenue by 50% YoY (assuming it’s a realistic goal) and after 6 months they’ve only accomplished 10% the risk is substantial. Because it would mean they need to get 4x the results in the other 6 months.

If they are sitting at 20% the risks are moderate because they only need to get 1.5x the results in the second half of the year.

The severity of a risk depends on your customers profitability. The more profits they are generating, the harder you will be hit by the loss.

Following the 80/20 principle you need to follow on the 20% of churn risks that account for 80% of potential losses (proability x severity).

• Resource 1: How to effectively detect Churn Risks

• Resource 2: CSM Operating System

• Resource 3: CVLG Community

3. Customer Churn

There’s only a single reason why customers churn: They did not get enough value.The only exception are reasons not under your control like customers going out of business or getting acquired.

However, while there’s only a single reason there are 7 sources of churn:

• Product Capabilities - the product does not live up to its promises

• Product Usability - bugs, downtimes or poor design make customers leave before they can get value

• Customer Support - problems are not solved properly or take too much time and effort on the customers’ side

• Customer Expectations - what has been promised to customers has been unrealistic right from the beginning

• Customer-Product-Fit - the product is not the right solution for the customer or customers lack the means to become successful

• Customer Onboarding - customers don’t get value fast enough and decide they will not invest more time, effort and money

• Customer Enablement - customers don’t get the training and education they need to solve their problems

with literally an infinite amount of variations among them. That means there could be very well over 100 different causes of churn.

But not all of them have the same impact. Trying to eliminate all of them is not only impossible, it’s a waste of resources. What you need to eliminate is what I like to call “Systematic Churn”.

Churn that happens for the same reasons over and over. The 20% churn reasons that account for 80% of total churn.

These are the ones you need to identify and solve if they are under your control. If they are not, you need to pass the results of your analysis to the respective teams.

• Resource 1: How to sustainably eliminate Churn

• Resource 2: CSM Operating System

• Resource 3: CVLG Community

4. Resource Distribution

Customer Success Management is not an act of selfishness and altruism. Your job is to deliver value to your customers that at least earns their renewals. But not all of your customers are meant to become successful.

Typically, 80% of profits come from only 20% of customers. Do you spend 80% of your time with them? Most likely not. Most likely you are spending the lion’s share of your time “fixing” mediocre and bad-fit customers.

It’s a noble gesture but even your best plays become ineffective when performed on the wrong customers. You need to focus on your most successful customers and those with the highest success potential.

But does that not mean you will be losing customers? Yes, that’s very likely but you will lose them anyway. The gains from prioritizing the top 20% will vastly exceed any losses at the bottom end.

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