Your Cloud Practice Is Not a Rotisserie Chicken
Far from a set-it-and-forget-it arrangement, recurring-revenue cloud accounts need nurturing and support throughout the life of the contract to maximize profit and value.
By Chris Gonsalves
Few things are as tempting – in business or in life – as the prospect of doing as little as possible. Has there ever been more appealing kitchen advice than the immortal words of TV rotisserie pitchman Ron Popeil telling us that all we needed to do to cook a fabulous meal was to “set it and forget it”?
As it turns out, that approach works pretty well for roast chicken and standing rib roast; for cloud services sales, not so much.
B2B customers are a demanding lot, and there’s ample evidence that they reward frequent, positive interactions with vendors and suppliers by voting with their wallets and dismissing price sensitivity. Sales research firm InsightSquared recently found that 62 percent of B2B customers spend more after a positive customer experience. And seven of 10 are willing to spend more with vendors they feel provide great service.
Earlier this year, The 2112 Group started digging into the dynamics of recurring-revenue cloud relationships. Our State of the U.S. Cloud Channel research report, developed in collaboration with Ingram Micro Cloud and Microsoft, gave us equally telling insights into the effect of things such as customer service and customer experience (or CX) on the success of cloud service providers.
Since the release of that report, we’ve continued to gather supporting data through our 2112 Cloud Altimeter, a light-lift diagnostic tool that gives solution providers a comparative assessment of their cloud capabilities and practices. What we see is a wide disparity in the amount of contact and post-sales care offered to cloud clients, ranging from always-on to weekly, monthly, quarterly, and, at the far Popeil-like extreme, set and mostly forgotten (see FIGURE 1: Frequency of Cloud Customer Contact).
Mapping frequency of cloud client contact to the profitability of cloud practices helps us visualize the benefits of customer care and nurturing (see Figure 2: Frequency of Cloud Customer Contact & Cloud Profitability). Nearly half of service providers that make contact with cloud clients quarterly are mired in subpar cloud profitability (6 to 10 percent). It takes at least monthly contact to realize top-tier margin of better than 40 percent.
While the frequency of customer service interactions varies widely across the solution providers studied, Altimeter feedback to date shows that reaching out monthly might have optimal influence on cloud profitability, as noted by the Mean line in FIGURE 2. By weighting the responses in the nine profitability brackets on a nine-point scale and taking the average in each contact cluster, we see that too little contact leaves partners at or below the overall channel average for profitability, while too much contact (weekly or ad hoc) also tends to drag down cloud profits. While the monthly contact regimen rises to the top, it’s notable, however, that too much contact is still better than too little.
Getting at the reasons behind the improved performance of responsive partners in cloud relationships demands a bit of both art and science. The pull on profitability that comes from great customer service and CX efforts in the recurring-revenue model bubbles up from several sources.
Satisfied customers are easier to keep and upsell. Again, a well-tended client will spend more and quibble less with a trusted supplier. The same InsightSquared data cited above also shows that it requires six times less effort to retain these happy clients and ten times less effort to upsell them than it does to acquire new customers. That makes diligent customer service efforts a powerful tool for growing a cloud business.
Satisfied customers offer higher long-term value. Because nearly three out of four happy clients will renew after their first subscription year, keeping close tabs on cloud clients pays major dividends in the lifetime value (LTV) of the relationship. Current estimates put the LTV of a satisfied account between five and six times higher than that of a dissatisfied or neutral account.
Happy customers will assist you in new account acquisition. Yes, retention is important, but the cloud’s recurring-revenue model also demands a steady stream of new business to achieve real growth. As it turns out, a well-satisfied existing customer makes a terrific ally when it comes to referrals. Industry research shows that more than one in five new subscription clients is the result of a referral and 83 percent of satisfied B2B customers are willing to refer friends and associates
So, while it’s enticing to think of a cloud services relationship like a Crock-Pot or a Ronco Showtime oven, where things can be left to simmer, stew, and spin on their own with fabulous results, the reality is that running a successful cloud practice is more like whipping up a soufflé. A fair bit of diligent, steady whisking and a careful touch throughout the process make the difference between an enviable, rising delight and a flat, lifeless mess.
Our complimentary 2112 Group Cloud Altimeter is available to all solution providers interested in improving their cloud practices. The intelligence we gather from the Altimeter provides data to support research and programs vendors – and partners – need to drive increased productivity from the cloud and the channel. To learn more, email us at: [email protected].