Nick Tarnoff on Finance's Role in Driving Customer Retention
In this episode of The Role Forward, Nick Tarnoff, the VP of Finance at SupportLogic, gets into the importance of customer retention and how to improve it. Nick and our host Joe Michalowski discuss the metrics for retention analysis and some of the challenges with retention.
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Nick Tarnoff on Finance's Role in Driving Customer Retention
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In times when a growth-at-all-costs mentality, companies funneled as much money as possible into customer acquisition. Retention was always important, but not the primary focus.
But now, as companies get more cautious with their capital, there’s a brighter spotlight on customer success and retention. Great customer retention is key to efficient, sustainable growth.
In this episode of The Role Forward, Nick Tarnoff, the VP of Finance at SupportLogic, gets into the importance of customer retention and how to improve it. Nick and our host Joe Michalowski discuss the metrics for retention analysis and some of the challenges with retention.
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Nick brings over 15 years of financial leadership experience across technology, e-commerce, and financial services industries, focusing on financial planning and analysis (FP&A), strategic planning, and capital allocation. Most recently, Nick led finance for SAP SuccessFactors, directly supporting C-Suite leaders. He brings a highly collaborative approach to SupportLogic, focusing on designing a streamlined and efficient finance function.
- Companies should view customer retention as equally important as customer acquisition. You need to be able to nurture customer relationships so they stay and become long-term contributors to your bottom line.
- Investors want to put their money into companies that have sticky products and services. This is why a metric like net dollar retention is always critical for SaaS businesses. Customer churn isn't just a loss of current revenue — it's the loss of potential future revenue.
- Finance leaders may not be directly responsible for customer retention, but they can play a key supporting role by providing financial resources, analysis, and guidance for teams that own these initiatives.
Episode Highlights from Nick Tarnoff
14:47— Metrics for Retention Analysis
“We primarily focus on the main ones: net dollar attention, gross dollar attention, CAC, LTV, LTV to CAC ratio, CAC payback, payback period’s a big one; making sure your ability to be profitable and to get deal level profitability is critical. One of the things that we’ve had to look at is customer retention — on a not just dollar basis but logo basis as well.
So, we look at the main things and then cohort it out a little bit by starting ARR size to be able to see our 100K customers, how are they expanding, how are they behaving against our 250K or 500K customers. One thing that we’ve had to do is we made a rotation from license-based and seat-based sales to adoption and consumption-based transacting this past year — middle of last year. And so, one of the things that we’ve been working on — working our way through — is, ‘How do we project LTV forward for variable revenue where we don’t have a hundred percent certainty on what that customer’s going to be spending 12, 18, 24 months from now? What are the data points that we need to collect so that we have a proxy for what that expansion looks like?’”
18:18 — Retention Analysis Challenges
Where you start to run into challenges is when a renewal gets delayed because sales is involved, or renewal gets delayed because there was late engagement from a renewal executive, whatever it may be, and you start to see lagging trends. At a bigger sample size, those things normalize. At smaller sample sizes, you’ll start to see NDR drop or gross dollar retention drop, and making sure that you’re aligned with the business and understand kind of the qualitative reasons behind it of, ‘Hey, we’re in the midst of a renewal discussion, but we’re trying to upsell, or we’re trying to do an expansion.’ Either pull them out of the NDR set or assume they’re going to renew at X percent. […]
The challenges are where the data doesn’t tell the whole story, and it forces that collaboration; it forces that asking the question. Go to the person or the team that owns renewals but also owns the expansion or upsell discussions. Use the data around you; you may have to join some data sets, but make sure to ask the questions so that you can create an informed narrative and an informed opinion.”
27:46 — Investing in Customer Support
“We had a number of folks in engineering who were being borrowed for their time; we had a number of CSMs in the organization, but we didn’t have a bug fix team, so our Chief Customer Officer, Judy, when she joined, that was one of the earlier things that she said, ‘Let’s add a customer support team that does all of the little technical bug fixes and can take a lot of things off the plate of some of our other more technical resources that we need in different places.’ So, she took a look at the holistic customer support or customer success organization, including some of the engineering folks; we built out a full onboarding team. So, she’s done a great job of sectioning out: what are the roles and responsibilities and what do we need in terms of building that customer life cycle. From like ink to live to adoption and usage, and thinking about, ‘For each customer that we land, what is the burden placed on her team or on the team and the different roles there?’ And then, being able to map that forward — if we acquire 15 customers a quarter, if we acquire 20, if we acquire 25, here’s what we need to ingest but also creating flexibility that if we either acquire more or less, we have the ability to adjust that.”
[00:00:00] Nick Tarnoff: Precision isn’t everything, especially when it comes to numbers and a lot of times, we, as finance and accounting folks, get hung up on making sure the number is, air quote, right and precise to a decimal point or precise to, you know, three decimals or, or this thing. And I would say that precision isn’t everything.
[00:00:20] Yes. You, you need it to be, generally, you know, the accuracy and integrity of data is critical and it’s important, it builds your credibility.
[00:00:52] Joe Michalowski: Hello, and welcome to another episode of the Role Forward podcast. My name is Joe Mike Michalowski, and this episode is brought to you by Mosaic, a strategic finance platform that transforms the way business gets done, and today my guest is Nick Tarnoff, VP of Finance at SupportLogic. Nick, thank you so much for joining me today.
[00:01:06] Nick Tarnoff: My pleasure. Happy Monday and happy following Easter weekend and Passover and, and other holidays occurred and beginning of the golf season with the, with the conclusion of the Masters yesterday.
[00:01:16] Joe Michalowski: Huge weekend, holidays, family, Masters. Gotta love it. It’s a great time. I think, right before we started, you mentioned, it’s kind of like the kickoff of spring, which is a welcome change from, you know, getting dark out at four o’clock and in Boston, me just freezing every day, hopefully in turn of the warmer weather,
[00:01:36] but yeah, really excited to have you here. Before, before we get going, get into our main topic, do you mind just giving everyone the quick background by yourself, the work you do at SupportLogic and all?
Nick Tarnoff Introduction
[00:01:44] Nick Tarnoff: Yeah, absolutely. My pleasure. So, I’ve been at SupportLogic for about a year and a half. I’m the VP of Finance, so I lead all finance and accounting activities here and like I said, been here about a year and a half, fully built out team from when I joined, lead all of our kind of strategic finance including the Mosaic relationship, budget, capital allocation
[00:02:02] and investments, and then also I joined SupportLogic after about six years at SAP, all focused on the success factors and Qualtrics employee experience businesses, supporting senior leadership for those teams as well. Have about 15 years of finance experience and joined after undergraduate from Boston College and a grad degree from Emory.
[00:02:24] Joe Michalowski: Nice, always happy to meet somebody from the Massachusetts area, so I was excited about that. We’ve, you and I have known each other for a little bit, so I knew that coming in, but you might, I think you’re the first person from my neck of the woods on the podcast, so nice to have you here. Also, you know, our big topic today is gonna be all things customer retention,
[00:02:42] and, you know, it’s, it’s a big part of what SupportLogic does, it is the definition of what SupportLogic does, but I didn’t realize that you were coming from that background at SAP as well, kind of that customer success side of their business. So, yeah, really excited to kind of dive into that. I think, what I wanna start with is just sort of setting the stage. I want to know, like, why should retention be top of mind for finance leaders all the time, and especially in this, like, current economic climate that we find ourselves in?
Why Retention Should be Top of Mind for Finance
[00:03:12] Nick Tarnoff: Retention’s a key, key metric and a key component of, you know, stepping back from the metrics, a key part of how you do business, especially in the subscription-based economy and, and SaaS businesses. You put a lot of time, effort, energy, and resources, all organizations do into acquiring customers and into acquiring revenue.
[00:03:33] You need to be able to nurture those customers and nurture that relationship so that they stay and become long-term contributors to your organization and to your overall bottom line. The long-term value of a customer, regardless of it’s a B2B or B2C customer, I spent two and a half years supporting Staples e-commerce business, which is much more B2C than B2B, but we’re still looking at what is the long-term contribution of that customer once acquired.
[00:04:02] So, the key is making sure, retention is so critical because, like I said, time, effort, energy into acquiring investment dollars, into acquiring those customers, you want them to be customers for a long term so that they pay back. And so, that they are, they hit a point in, in their lifecycle where they become profitable contributors to the overall bottom line of the organization,
[00:04:26] and in many respects, it’s much less expensive to nurture and to keep a customer than it is to initially acquire a customer. That’s one of the key reasons that retention is so valuable. They also become, there’s also qualitative reasons as well. Great customers, they become your largest advocates and one of your biggest selling points.
[00:04:49] One of the things that Mosaic does exceptionally well is, is they treat their customers very well. And so, we become some of their largest sellers and, and advocates in the marketplace. SaaS and technology and who you use for services can also be spread word of mouth. It doesn’t necessarily have to be marketing-driven, and so that’s another reason that retention and kind of providing a great customer experience is so valuable.
[00:05:16] Joe Michalowski: I think it’s, it’s a really great point. Hey, I’ll, I’ll take the, the knock against marketing as much as that is my job. I will appreciate any bit of word of mouth we can get. It’s okay if we don’t drive all of the, the marketing of the business.
[00:05:27] Nick Tarnoff: I would say it’s, I wouldn’t take it as a knock. It’s more of a, it’s free marketing. You know, when you put folks in a room who are using a certain solution or using a certain tool that they’re talking about. That’s, that’s free marketing, so it’s almost addon on top of all of the efforts that, that you and, and other marketing teams are putting out into, you know, into the environment.
[00:05:49] Joe Michalowski: Free marketing is the best kind, so we appreciate that, the business appreciates that. I think what, what you’re saying there, there’s this cliche statistic that I don’t, I think everyone’s realized is not actually proven, but the, the idea is sort of what you said, which is like costs five times more to acquire a new customer than to retain an old one for a finance podcast,
[00:06:10] I don’t think those numbers really necessarily are proven in a report somewhere, but generally, I think the spirit is what you were mentioning. What, what is interesting to me is that I think even though people know that, outside looking in, it feels like this, an area of investment kind of flies under the radar,
[00:06:29] it’s why we were talking about, it’s why we did that what we talked about in that webinar, with you a few weeks ago in SupportLogic and I can, I can link that in the show notes, but is that true? Do you, do you think that this kind of flies under the radar for finance leaders as an area of an investment?
[00:06:44] Nick Tarnoff: In terms of investing in retention or in terms of investing in, I guess the teams to support customers?
[00:06:50] Joe Michalowski: I guess all of the above, I mean, we’ll, we’ll kind of dive into it as we go, but I mean, it’s, if you’re thinking about kind of where to place the dollars in the business and where to put your money, yeah, just curious if it’s just something that’s kind of a secondary thought at the moment.
[00:07:04] Nick Tarnoff: I wouldn’t say it’s a secondary thought. I think, you know, net dollar retention and, and customer retention have always been key tenants. It’s looked at differently in different businesses, whether you’re a go-to-market sales-led or product-led, and you know whether you’re doing high volume, low ACV, low ARR deals or lower volume, higher ARR, high ACV deals, as long as your investment approach to acquire customers and
[00:07:33] your go-to-market approach are kind of a rowing in the same direction, you should be able to get those numbers to kind of coalesce together in terms of customer acquisition costs, customer acquisition costs payback, et cetera, and definitely I think, you know, investors have always looked at net-dollar retention customer, retention, those types of things because it speaks to the quality, this and the stickiness of your product
[00:07:57] and investors always want to invest in products that are sticky, challenging to rip out, but also where you have high customer satisfaction in terms of usage. So, I don’t think it’s a rotation there. I don’t think that’s, that’s anything new. I think it’s a kind of double down and hyper-focus on it because there’ve been numerous studies shown and a number of different kind of research that over the last kind of 12 months,
[00:08:24] sales cycles have slowed down. They’ve gotten more expensive. You’re having to put more resources towards acquiring a customer, but if you’ve already overcome that, that barrier to entry, then it is typically a lower cost to maintain service and support that customer. If I recall correctly, Ray Wright just put out his benchmarks and I think this was the first year where they split CAC into
[00:08:53] CAC kind of dollar-focused of net-new and expansion and the expansion was, like, 50% or 60% less on a dollar basis. So, it’s 40% to 50% more efficient to acquire a dollar from an existing customer than acquire a dollar from a new customer. So, those are the types of things that I think finance leaders are weighing that if you have a very happy customer base, it takes less dollars to invest, to expand them than it does to go find a new customer.
[00:09:26] Especially with the scrutiny that finance leaders are placing around new spend and where so many finance leaders, myself are included, are looking up and down our technology stack to reduce spend, focusing on those customers that are, that have been part of your base already is, is an easier place to go, it’s a, it’s a lower hurdle and a lower barrier to entry in terms of both protecting but also expanding revenue.
[00:09:53] Joe Michalowski: Love it, I think makes a ton of sense. It’s, it’s what we notice as well and, you know, as you said, a Mosaic company invests pretty heavily in success and support. So, personally love this topic. Excited to sort of keep diving deeper into it, and where I, where I wanna start sort of getting a little bit to the next level is, is where, where you even begin?
[00:10:16] So, you know, you listen to Nick, Nick’s explanation. Nick is saying, “Hey, this is a really important area of investment.” You already knew that, but it’s even more important now. Let, let’s say our, my, my retention numbers aren’t what I want them to be. Where do I start as a finance leader to sort of help impact those numbers, improve them in the business?
[00:10:35] What are some of the analyses I can run, where, you know, if I’m Nick, where am I starting? Where am I gonna put my, my thoughts at?
[00:10:43] Nick Tarnoff: Going back to the, the piece I mentioned it, it to some extent depends on your go-to-market motion. So, if you’re a business that’s PLG-high customer, you know, high volume of customers, run cohort analysis, you know, to see, do you start to see trends based on when a customer started, what size they started at?
[00:11:04] So, start to cohort and create kind of behavioral trends that you start to see. In my mind, I would do some of the analysis work ahead of time so that you’re going in with a perspective. So, cohort analysis. Then again, if you’re larger customers, enterprise-led, you can look maybe more customer base by customer to see, are you seeing,
[00:11:26] in the enterprise space, hey, I’m seeing this type of trend or enterprise customers are, are displaying this behavior or customers that started at a specific point and it took them, you know, twice as long to get implemented or, you know, struggling in terms of adoption and usage. It also depends on what type of model do you have.
[00:11:46] Do you have a license in, in ELA and had a seat license model or you have a consumption and adoption model. Those take different types of support as well. Then I would take the analysis and take kind of the data, talk to your head of sales, talk to your head of customer support. Talk to your chief customer officer and say, “Hey, here are the things that I’m seeing in the data.
[00:12:07] How does the data match up anecdotally with what customers are telling us?” At the end of the day, these are cu, we’re all customer-centric businesses. We have to listen to our customers and to listen to what they’re telling us. So, the data only tells part of the story, and it can help you formulate at least an opinion and an approach,
[00:12:26] but then it’s, it’s matched that up with a, with what’s happening in the real world and matched that up with what are the stories that the customers are telling our CSMs? What are they happy with? What are they not? Why are they using, why are they not? And, and match those two things together to create a strategy going forward of,
[00:12:45] do I need more CSMs? Do I need more focus on adoption? Is there something in the product that needs to be adjusted to maybe pull people in a little bit more? So, I would say it’s, it’s a mix of kind of, and finances this way, finance and accounting, it’s a mix of art and science. The sciences do the data, you know, use your tools, whether that’s Excel, Mosaic, you know, something like the Google Sheets,
[00:13:13] use your data and then talk to your, your leaders across cross-functionally. Talk to your product leader as well included in that kind of conversation mix and see what those, those things start to tell you and, and be able to drive strategy from there. There’s not a one-size-fits-all approach, but making sure that you have the informed, you know, that you have an informed opinion, is critical in terms of being able to drive anything forward.
[00:13:41] Joe Michalowski: Yeah. I love that, that so much of that explanation was rooted in the collaboration aspect of it because it’s what we hear so often from guests on this podcast. It’s what I’ve always heard from, you know, our founders as I try to create content. Everything about, like, modern finance is rooted in
[00:13:58] collaborating, partnering with those across the business. So, really, like that, you know, obviously it starts with those analyses, it starts with that cohort analysis or that, like, behavior trend, but, you know, it moves pretty quickly into make sure you have the perspective from everyone else. So yeah, really, really like how you explain that. I think, one thing that I want to get into and before we’re gonna talk more about the collaboration, things like that, but you mentioned that dollar retention, you mentioned gross dollar retention, logo, retention, you mentioned all of these metrics already. I don’t think those will come as, like, a huge surprise to anyone.
[00:14:29] I am curious if there are, so, I’m, like, less common metrics or things that you look at for SupportLogic or you’ve seen other companies look at in retention, or for retention analysis that maybe aren’t as typical in that list?
Metrics for Customer Retention
[00:14:47] Nick Tarnoff: Not really. We primarily focus on, on the main ones, net-dollar retention, gross-dollar retention, CAC, LTV, LTV to CAC ratio, CAC payback, payback period’s a big one, you know, making sure your, your ability to be profitable and to get, you know, deal-level profitability is, is critical. One of the things that we’ve had to look at customer retention on a, not just dollar basis but, but logo basis as well.
[00:15:16] Joe Michalowski: Yep.
[00:15:16] Nick Tarnoff: So, we look at the, we look at the main things and then kind of cohorting it out a little bit by starting, starting ARR size to be able to see, you know, our 100K customers, how are they expanding, how are they behaving against our 250K or, you know, 500 K customers. One thing that we’ve had to do is we made a rotation kind of from license-based and seat-based sales to
[00:15:42] adoption and consumption-based transacting this past year, kind of middle of last year. And so, one of the things that, that we’ve been working on is a kind of working our way through is how do we, how do we project LTV forward for, for variable revenue where we don’t have a hundred percent certainty on what that customer’s gonna be spending 12, 18, 24 months from now?
[00:16:06] What are the data points that we need to collect so that we have a proxy for what that expansion looks like? Whether it’s, “Hey, we sold into a large enterprise and we’re only at one of their,” so SAP, for example. SAP has kind of seven or eight portfolio companies, and we only sold into one of ’em. Okay, I can look at that and go, all right, if we sell into three of them, this is what revenue may look like.
[00:16:30] If we sell into six of them, it’s what it may look like. So, how do we, how do we kind of create those proxies? So, I think that’s what a lot of finance leaders are thinking about now. I think Ben Murray’s done some writing on it, thinking about LTV on a variable revenue basis. So, that’s probably the biggest one that we’ve had to make a rotation towards and, and adjust for is thinking about how do we look at LTV in concert with our new sales model and, I guess, post-land model
[00:16:58] so that those things match up because for a consumption-based model to work, the, the amount you sell your customer at on day one is ideally not where they’re at 6, 12, 18 months from now because if they, if they’ve stayed level, then there’s, then there’s other concerns that you’ll have in the business.
[00:17:20] Joe Michalowski: Makes sense. I think, you know, what I wanna, the next sort of batch of questions or sort of topic I wanna cover is challenges and what I, what I like is that right at the start of that you were like, okay, well, like, the fundamentals are kind of all the same. Like, a lot of these companies, like, it’s not, there’s not some
[00:17:37] out-of-left-field metric that you’re gonna tell people like, “Hey, if you’re not tracking this, like, you’re not gonna have the right idea about it.” And so, the fundamentals are there. Everybody knows what they are, and this still isn’t easy. So, what are some of the challenges we face in doing this? It sounds like, you know, aligning it with your sales model is one of them and I’d love to hear
[00:17:59] about how you’ve solved for some of those challenges and what you’ve done moving forward, but curious, just on a high level, what, what challenges we face if we’re sitting down, we’re running these analyses to see where we can improve retention, what roadblocks am I gonna hit? What am I gonna struggle with and, you know, what do I do about it?
Challenges of Customer Retention and Analysis
[00:18:18] Nick Tarnoff: Some of the challenges in, in roadblocks and retention, one of the ones that I saw both at SAP and, and I’ve seen a little bit smaller sample size is when you have delayed renewals. So, when I was at SAP, I spent three and a half years supporting a dedicated renewals team focused on a, call it, 1.5 billion Book of Business,
[00:18:37] it’s success factors where roughly 300 to 500 million came up, was expiring contracts in a given year, and where you start to run into, into challenges is when a renewal gets delayed because sales is involved, or renewal gets delayed because there was late engagement from a renewal executive, whatever it may be, and you start to see lagging trends, you see, you know, at a bigger sample size, those things kind of normalize smaller sample sizes.
[00:19:12] You’ll start to see NDR drop or gross-dollar retention drop and making sure that you’re aligned with the business and understand kind of the, the qualitative reasons behind it of, hey, we’re in the midst of a renewal discussion, but we’re trying to upsell, or we’re trying to do an expansion, you know, either pull them out of the NDR set or assume they’re gonna renew at X percent.
[00:19:35] So, again, it goes back to the art and science of not just taking the numbers at face value but taking the numbers and then saying to and being able to ask questions. Having visibility to those numbers for not just yourself, but for your sales team, for your customer success teams, and those leaders to say, “All right, here’s the things I’m seeing in the numbers.
[00:19:56] There’s something that doesn’t look right. Can you tell me the story behind it?” And even if you’re not gonna fix the number or kind of stale it, you at least have the bullet points behind it to explain the why, and in a lot of cases, the why and the narrative is almost more important than the number. So, I think those are the challenges is, like, where, where numbers don’t tell the whole story and where you have to take that and know your business,
[00:20:26] and if, you know, you can start to see it. If you start to see trends, I was able to see it with, you know, when I was at SAP, all right. I’ve got these 20 customers, they’re all a hundred percent, a hundred in CSAT, they’re gonna renew or NPS, but they’re, they’re dragging their feet because they’re slow and procurement or, I know, oh, here I have the expansion forecast and I can match the two of ’em.
[00:20:52] And I go, okay, I know there’s expansion opportunities. I’ll either pull them out of the data set or I’ll just basically assume at a hundred percent I’ll highlight it in my forecast so that I can have that conversation with somebody and say, “Hey, is this the right assumption?” And then be able to carry that forward.
[00:21:09] So, the challenges is, I think in my, in my mind, are where the data doesn’t tell the whole story. And what it forces, again, to your point earlier or to the point we were discussing before, is it forces that collaboration, it forces that asking the question, go to the person, you know, or the team that owns, owns renewals, but also owns the expansion or upsell discussions,
[00:21:34] use the data around you, you may have to join some data sets, but making sure to ask the questions so that you have an, can create an informed narrative and an informed opinion.
[00:21:46] Joe Michalowski: Yeah, I, I, you know, once again, love, love that it all ties back to, to that collaboration theme and I think that that challenge is a, is a really good one to highlight. And I, there’s, there’s two others that I want to sort of follow up with, and one of them just comes from what you mentioned before about the shift to consumption-based and, you know, a lot of the people that listen to this, a lot of people that we, we talk to as a Mosaic or high-growth startups, like, there’s a lot of change in the business models.
[00:22:14] So, like, the examples you have from SAP are really cool for, like, the scale, but I’d imagine there’s probably a, a handful of people listening to this that might change that their pricing at some point. And so, I’m curious, what are some of the challenges you face with, like, historical data? Like, how do you, I know what you were talking about mapping, moving forward?
[00:22:35] How are you gonna figure out LTV on a variable basis, but how do you look backward at your existing customers? Like, if you’re trying to transfer them to the new pricing model, how do you think about retention for where they were before their lifetime value for what they had previously as you make that shift?
[00:22:56] Nick Tarnoff: No, those are terrific questions. So, we look at it kind of, we looked at kind of three different segments of, of our business and of our existing base when we made that rotation. So, let’s take out new customers and new customer acquisition because that was a different challenge in terms of CAC payback and how we invested in acquiring net-new,
[00:23:16] but we did an analysis of our existing base and we said, there’s a portion of those that won’t change. They will be seat-license based, or they will be ELA-based, unlimited credits for the large, you know, called Fortune-100 companies, or, you know, our largest customers. There won’t be a change there.
[00:23:36] There may be an unlimited, you know, credit model, but for the most part, that isn’t gonna be adjusted. Then there’s a middle segment where we said, we think these customers are, you know, they’re kind of two segments of, okay, if we rotate these customers towards consumption-based, some of them will use more than they’re currently provisioned for.
[00:24:00] So, that’ll be an interesting conversation, and some of them will use less and some will, you know, some of ’em, the, the ones who are using less may be like, “Hey, why? Why were you charging me too much before?” So, then there’s a managing of that customer relationship. The ones who are using probably more, there’s a, how do we ease them into the new model or do we just kind of leave it alone until they come up for renewal,
[00:24:26] until we, until and until we’re less of a hybrid and more of a, everybody’s on consumption-based. The other thing is being able to, you know, for those customers, show them the data, show them what they’re using, show them how they’re using the tool, the solution, and make them feel like the value they’re getting from it, that at this point they’re getting a deal, that they’re getting way more value from it than we’re actually charging them for.
[00:24:54] And so, then, you know, go in and manage that. And then, there’s the customers who we were having some challenges with, and this became a save mechanism for us, that, “Hey, we know you’re, you know, challenged in this. You got up and running late for whatever reason, implementation dragged. You know, you haven’t fully utilized all the modules.
[00:25:16] You didn’t have them all turned on in your selection. Let’s just rotate you, and now you’re on consumption-based,” And maybe we open the eyes for those folks to something that they weren’t using because they didn’t provision it initially. And so, then it becomes, you know, our customer success team going in, working with those customers and helping them, you know, take advantage of their, of the new parts of the solution and driving adoption and driving consumption.
[00:25:45] So, we had to kind of look at all parts of our business and, and all segments of our customer set and figure out kind of where everybody would fit and, and then be able to drive strategically, kind of drive the narrative and drive the playbook for each of those different segments. So, it’s been, it’s been a fair amount of, it’s been interesting, but it’s been also a fair amount of work and it’s put a lot of stress on, you know, the chief customer officer and our customer success teams and those, those folks have done an amazing job.
[00:26:12] Like, they have a ton of ton thrown at them and in a, and in a usage-based model, you know, they are equally, if not more critical to the success of, you know, revenue and success of the business than our customer acquisition. And even more so in an, in an environment where sales cycles are expanding, you know, our sales cycles are lengthening in customer acquisition is even more challenged than it has been previously.
[00:26:39] Joe Michalowski: I love that we, we got a chance to dig into this because, you know, I think that shift in pricing model is a huge challenge for a lot of companies. And, you know, I didn’t realize going in that we would go there, but, really, really enjoyed that explanation of how you all have handled the transition.
[00:26:55] So, really love the explanation of, of, you know, all the challenges you face in consumption-based pricing, making that shift. Love the spotlight being on chief customer officer, head of support, things like that. The, the other challenge I wanted to ask you about, and this is less about the pricing shift and more just in general and for any company is thinking about investments in headcount in CS.
[00:27:18] So, for something like sales, like, you can do capacity planning and maybe you have assumptions built in for, if we have this many new customers, we need this many new reps, but it, it’s still, you know, still a challenge to figure out what the ROI of those headcount investments are, and so, I’m curious how you think about, or you think others should think about setting that assumption and how it scales as the business grows because I’m sure it changes over time.
[00:27:46] Nick Tarnoff: Absolutely no, it definitely does. When I joined, we didn’t have a dedicated kind of support team. We had a number of folks in engineering who were being borrowed for their time. We had a number of CSMs in the organization, but we didn’t have kind of a bug fix team. So, our chief customer officer, Judy, when she joined, that was one of the earlier things that she said,
[00:28:08] “Let’s add a customer support team that does all of the kind of little technical bug fixes and can take a lot of things off the plate of some of our other more technical resources that we need in different places.” So, she took a look at the holistic customer support or customer success organization, including some of the engineering folks.
[00:28:28] We built out a full onboarding team, so she’s really done a great job of, like, sectioning what are the roles and responsibilities and, and what do we need in terms of building that customer lifecycle, really, from kinda the way I describe it is ink to live to adopt adoption and usage and thinking about for each customer that we land, what is the burden placed on her team or on the team and the different roles there
[00:28:57] and then being able to map that forward and say, if we acquire 15 customers a quarter, if we acquire 20, if we acquire 25, here’s what we need to adjust, but also creating a flexibility that if we either acquire more or less, we have the ability to adjust that. So, one of the things we’ve looked at is what is our CSM ratio.
[00:29:17] How many customers do we think each CSM should be able to manage? But then we have to normalize for a smaller customer versus an enterprise customer. You know, a small startup joining, you know, an SMB who joins is not the same as when we signed Salesforce. So, we also have to normalize for size and, and, and time burden of a giving customer, appropriately.
[00:29:44] So, there’s a lot that goes into it. And then, the CS folks, it’s, you know, how do we measure the Roi? It’s customers-retained, revenue-retained, we’re now gonna start to adoption. So, credits consumed versus credits purchased, and being able to see kind of credit usage patterns. A lot of those will be, a lot of that data will be things that we can pass along to the, the customer organization and say, hey, these customers are doing a great job using this solution.
[00:30:12] These customers are using this other part of the solution. What do we need to either understand that, say, hey, some of these don’t really care about the other parts of the solution, or they don’t realize that there’s untapped potential? So, also being able to start to kind of cohort out based on customer type and then customer usage patterns and being able to put those things together to instruct whether we’re developing training manuals or what is the playbook for usage,
[00:30:43] being able to work with the CS team on that to be able to bring that anecdotal data back to the hard quantitative data and match that together. So, there’s a lot of ways you can, you can think about the ROI on CS. At the end of the day, it’s, it’s NPS, CSAT, happy customers, revenue retained, customers retained, ’cause those are the tenants that, and, and in our case, NDR is probably
[00:31:11] as much a gross-dollar retention and net-dollar retention as much CS metrics as they are sales metrics, especially where we’re thinking about adoption and consumption, being able to expand that is probably gonna live more, it will live more with our customer success teams than it actually will with the AEs and the, and the sales teams.
[00:31:30] Joe Michalowski: Makes a ton of sense. I think some, something that I’ve heard it in every answer and I’m excited because it’s sort of planted all these seeds for the next question I have, which is all about collaboration. I want to hear your tips for effectively working from finance with leaders in customer success and support.
[00:31:48] I think there’s been a lot that you’ve mentioned that can speak to that already, but I would love to focus specifically on how you build those relationships because what I’ve always heard is that, like, finance and sales, they’re in lockstep. Like, those, those two leaders are always the right hand.
[00:32:05] As finance leader, you’re, like, the right hand of the CEO. And so, those are kind of the hallmark relationships, but I wanna put a spotlight on the finance CS relationship. So, I’m curious what, what tips do you have for people to sort of build a better bond there and work together more effectively?
Building a Relationship Between CS and Finance
[00:32:22] Nick Tarnoff: I think it’s a couple things. It’s come in, you know, many of us, myself included, I come from a go-to-market sales, FPA background. So, that sales forecasting, those types of things, I understand it, but I also do in my tool set, have that renewals background. I understood having spent, having done it for three years at SAP, what it meant to provide a great experience for a customer when, what it meant to not provide a great experience, and then how that trickled down into the financials.
[00:32:51] So, I think for me, the way I was able to build that relationship was take some data, come in with a, an opinion, but then be vulnerable and ask questions ’cause I don’t know everything about customer success. I can’t talk to, and I don’t, you know, we, at SAP, I couldn’t talk to the, the 2,500 customers. I could talk to a handful of them.
[00:33:11] So, it’s also come in with, you know, humble and with a perspective, but humble and asking questions to say, “Here’s what the data is showing me. How does the data match up with what customers are telling you?” So, bring a perspective, bring an informed perspective, but also do it in a way where you’re saying, “Hey, I, I value what you as a CCO or the customer success team is bringing to the table and the information that you are hearing from customers on a daily basis.”
[00:33:41] How does the qualitative narrative match up with the quantitative narrative and, and be able to marry those two pieces together? So, it’s, you know, come in with some information, but come in humble and be willing to ask questions and be willing to learn.
[00:33:57] Joe Michalowski: I love that. I think it really resonates with me because, you know, as somebody I, I work in marketing, I don’t have a finance background, so I come in and I have to talk to people like, like you and learn about finance, and I’ve, I’ve always had more success just, you know, any time I go right, talk to an SME of any, any kind, it’s just, kind of admitting what I do and I do not know and leaning on the expertise of the other person because I, I would totally agree, is that if you’re not humble in those conversations, if you’re coming in trying to be the expert, it just, it kind of hurts that relationship.
[00:34:29] So, I think it’s probably good advice for any, any relationship in the business, but I, I like it in this context of the CS side as well. Nick, we are, we are coming up on time quickly, so I, I’ve got two higher-level questions that I want to get to and then, then we can kind of wrap things up here. The first very much in SupportLogic’s wheelhouse, I wanna talk about tech just for a minute or two,
[00:34:50] and so, we’ve talked, like, headcount, we’ve talked relationships with people in, in the, between finance and CS and support and I’m curious how you think finance leaders should think about investments in technology to help support those teams. Where, how do you think about the ROI of new tech, new platforms, new software that can help drive some of the stuff you’ve talked about so far?
Tech Investments and Career Lessons
[00:35:15] Nick Tarnoff: Absolutely. I mean, as a finance leader, the same thing when I’m evaluating technology from the finance space, there’s really two, two elements that I go to in terms of for my team thinking about it, especially where we’re not kind of revenue-focused. For me it’s, it’s time and it’s expense. And so, what technology
[00:35:35] can I invest in that will either save me more time that I can use to do other, you know, more strategic things and what’s the value of that? Or if I’m making an investment in software, does that replace needing to add additional headcount or additional hours for whether it’s full-time headcount or contingent headcount?
[00:35:57] So, that’s the other thing is, what are the efficiencies I can gain from a technology investment. I think the same can be said for customer support and customer success. There’s a revenue element to it that, you know, I invest in this technology, and it will drive CSAT by 10 percentage points what’s likely, which likely means protecting X amount of revenue, or,
[00:36:25] hey, if, if this solution yield’s providing a better end customer experience, customers see 10%, you know, an additional 10 percentage points in gross-dollar retention or net-dollar retention or renewal rates. Okay, let me take that. Let me take that against the customer’s basket of customers. Here’s my revenue potential saved by, you know, an investment in this solution.
[00:36:49] So, it’s understanding the solution and understanding the lane it plays, but it’s either going to be revenue protection or revenue expansion or cost component and then time and efficiency component. So, those are the elements that, that I like to think about when I’m investing in technology and then when others are investing in technology, those are the pieces that I say, hey, focus on these in terms of building your business case to make a stronger business case for a technology investment, whether it’s budgeted or not.
[00:37:20] Joe Michalowski: Love that. And I think we could probably talk all day about that. We could definitely talk for an hour because I know that, because we already did it a few weeks ago. SupportLogic had a great webinar. Our co-founder was on it. I will link that if there’s non-demand version in the show notes. So, if people wanna think about making the business case for CS investments and tools, I will definitely give you the tools to do that.
[00:37:39] So, like I said, last question I have for you, very much zoomed out. I ask everyone that comes on, if you’ve ever listened to, people might be sick of hearing me ask it, but it’s my favorite question, so I’m gonna keep doing it. I’m curious, what is one thing that you know now that you wish you knew at the start of your finance career?
[00:37:55] That’s how we’ll round things out here.
[00:37:57] Nick Tarnoff: I think one of the things is that precision isn’t everything, especially when it comes to numbers, and a lot of times we, as finance and accounting folks get hung up on making sure the number is, air quote, right, and precise to a decimal point or precise to, you know, three decimals or, or this thing, and I would say that precision isn’t everything.
[00:38:18] Yes. You, you need it to be generally, you know, the accuracy and integrity of data is critical and it’s important, it builds your credibility, but if there’s a, hey, let me spend about 15, 20 minutes less on, on the extra piece of the formula, but I can then take that time to being able to take the, understand that, create the narrative, and understand the why behind it,
[00:38:42] being able to understand the why and explain the magnitude of the number or what the number is telling you and, and build that story and do the analysis is equally, if not more critical and more valuable to executive leaders and, you know, heads of department. Then the specific number and the five extra decimal points.
[00:39:07] I would almost say it, like, I don’t wanna say accuracy is, is the enemy of, of complete, but if you can figure a way to balance time and that finding that balance between precision and narrative and telling the story, make sure that those things are a little more in balance. I think early in people’s career and finance and accounting, it’s so focused on the number has to be precise and has to be correct, and you lose
[00:39:34] the bigger picture and you lose the scope of taking the investment of time to understand the why and tell the story.
[00:39:43] Joe Michalowski: Love that. I think we talk about the why behind the numbers a lot, that precision versus accuracy conversation, I will steal that, will probably clip that up because I think that’s a good sort of juxtaposition to, to talk about, and it’s a critical one ’cause if you’re wasting all your time on the precision and
[00:39:59] not getting those strategic insights out, you’re not really helping anybody. So, I think it’s a good way to put it, and it’s a good way to wrap us up. So, Nick, I just wanna say thank you so much for being on. I want to turn the floor over to you. Where can people go to connect with you to learn more about SupportLogic and all the great things you guys do?
[00:40:15] Whatever you wanna promote. The floor is yours.
[00:40:18] Nick Tarnoff: Yeah, absolutely. No, I’m, you can find me on LinkedIn. Nicholas Tarnoff on, on LinkedIn. SupportLogic, SupportLogic.com. We are also running a number of road shows, SX Live Roadshows across a range of different cities. I think last week we were in Seattle and Austin and have another dozen cities coming up.
[00:40:35] We also have our SX live conference, virtual webinar conference coming up in mid-June. Joe, I’ll send you a link for that as well to promote. All finance leaders or all leaders across support and customer organizations talking about the value of customer support and how focusing on providing an, an amazing end customer experience is critical to the metrics we just talked about, like gross-dollar retention and net-dollar retention and, and customer satisfaction.
[00:41:03] Joe Michalowski: Love that. And, for, you know, for finance leaders listening, we talked a lot about collaborating with that side of the business and understanding what they do. It sounds like a great series to be a part of, if you want to sort of ingratiate yourself in the language of CS and support. So, I will definitely put that in the notes.
[00:41:18] But, Nick, again, thank you for taking the time. I know it’s a busy life as a finance leader for, for any company, especially one like SupportLogic. So, thank you for being on the Role Forward and hope we can do it again sometime.
[00:41:30] Nick Tarnoff: Awesome. Appreciate the time, and have a great rest of your day.
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