Why no one cares about CS (w/ Mallory Lee)

Most teams obsess over new business and ignore the people already paying them. That blind spot is killing retention, bloating acquisition costs, and making growth harder than it needs to be.

In this episode, Toni sits down with Mallory Lee, a three time VP of Revenue Operations, to unpack why Customer Success is still treated like an afterthought and why that mindset breaks companies over time.

• (00:00) - Introduction
• (02:35) - CS Teams are the Forgotten Child
• (08:18) - The Customer Journey and Handoffs
• (11:46) - Maintaining Customer Context
• (22:02) - Product Usage Data and Signals
• (26:30) - Building Trust Through Customer References
• (32:17) - Identifying and Leveraging Power Users
• (35:03) - Gamification and User Engagement
• (38:14) - Systematizing Customer Loyalty
• (42:38) - Financial Implications of Customer Retention
• (44:24) - The Vicious Cycle of Churn
• (51:31) - Final Thoughts

Creators and Guests

Host

Toni Hohlbein

2x exited CRO | 1x Founder | Podcast Host

Guest

Mallory Lee

VP of Operations at Nylas

What is The Revenue Formula?

This podcast is about scaling tech startups.

Hosted by Toni Hohlbein & Raul Porojan, together they look at the full funnel.

With a combined 20 years of experience in B2B SaaS and 3 exits, they discuss growing pains, challenges and opportunities they’ve faced. Whether you're working in RevOps, sales, operations, finance or marketing - if you care about revenue, you'll care about this podcast.

If there’s one thing they hate, it’s talk. We know, it’s a bit of an oxymoron. But execution and focus is the key - that’s why each episode is designed to give 1-2 very concrete takeaways.

TRF - Why no one cares about CS
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[00:00:00]

Introduction
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Toni: Hey everyone. I am Toni Holbein and you are listening to the Revenue Formula. In today's episode, I am joined by Mallory Lee. She is a three times VP of Rev Ops, and we are talking about why no one really cares about cs. And we explain in two chapters why that's a massive mistake. And now, enjoy.

Mallory: Keeping the customer is so much more profitable and you know, so much more efficient for us. If you plug it into that exact same model, five points better in retention versus breaking your neck to get 20% growth on new business every single month. It's a very different world when you are keeping happy customers.

It is a one year sales cycle. That's exactly what a renewal is. If you're on an annual contract, if you have the right stages that people need to walk through to. Develop that relationship over the course of a year and you see the dollars sitting in the pipeline starts to become much more real for people.

You can replicate darn near everything [00:01:00] that you have for this new business motion and funnel for the customer side. And you can make sure that people are walking down the path that you believe should be the path. But you have to have that hypothesis and like lay it out and test it and measure it, and then.

See if the people who follow that path are actually a stronger customer, a happier customer that are gonna renew. There's just so many things that sound so simple, but we don't do them

Toni: anyway. Mallory, nice to have you back here. This is, hello. I think the second time is a knot. It could be the third I.

Let's check, let's check, you know, we'll, we'll figure this out. Bart is gonna figure this out. I'm gonna, you know, pull in the, the other times we were here. Well, really nice to have you back. Um, I do know, I remember very clearly, you know, at least the first time when we had you on, we were talking about the pipeline council and

Toni: business and sales, all that stuff.

Mm-hmm. Um, we were just thinking like, maybe that's a boring topic by now. Maybe we should be focusing a little bit more on [00:02:00] something else. Mallory, what should be, what should we be focusing more on these days? And, and then maybe let's make that the topic for today.

Mallory: Yeah. What if we focused on all the people who are already paying you money?

Okay. Yeah.

Toni: Well, that's customers. Sounds like a novel idea right there, you know?

Mallory: Yeah. We forget about them sometimes, right?

Toni: So, I mean, this is one of the things I think I've been, uh, you know, I've been saying and people are pretty upset about it, which is usually a sign for me that like, oh, this is a good topic.

Let's talk more about it.

CS Teams are the Forgotten Child
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Toni: Basically, uh, the CS team is the forgotten, disregarded child of go to market. You put so much care and effort and lots of money, do a sales and marketing machine. So much money and we all know, hey, kick payback should be 12 maybe for enterprise, maybe 18. But we see a lot of teams that throw all of that out [00:03:00] of the window and have like kick paybacks of 24 months and 50 months.

And you know, we know it's not sustainable, but they still do it. What we very rarely see though. Is CS teams taking up more than 10% of revenue. Like it never happens. Right? Right. And sure there's like gross margins now with the whole AI boom and the tokens and like, that's a little bit of a different game, I think.

Mm-hmm. But the mechanics for CS teams are still the same 10% of revenue. That's what you get. Um, and sorry, that's your budget. It can't go, you know, above that. Right. Do, do you think. Do you think that kind of budget restriction is one of the reasons why it's such a, such an afterthought or, or are we, are we looking at it from the wrong angle?

Mallory: I don't know if every company is gonna be limited by just a 10% benchmark, but certainly in either case, I think it's just very tempting and lucrative to focus on that top [00:04:00] line because it's the story that people wanna tell and it feels urgent. Because when we don't have the customer yet, but we have a shot, everything feels very urgent.

We set new business goals for each quarter each month, and they are set to a timed schedule to help us get to a destination. Um, and granted, you know, maybe there are some assumptions about retention built into that exact same model, but it doesn't feel so urgent. It doesn't feel like, um. It's a fire until someone gives notice that they're leaving, you know, as a customer.

And so the attention tends to get turned toward new business because we haven't won yet. And we think that we need to do that as quickly as we can when in reality, keeping the customer is so much more profitable and, you know, so much more efficient for us. Um, if you plug it into that exact same model, five points better in [00:05:00] retention versus.

Breaking your neck to get 20% growth on new business every single month. You know, it's a very different world when you are keeping happy customers.

Toni: What would you say is the purpose of customer success? Like if you were to really break it down from a, you know, revenue, architecture, rev ops perspective, like what's, what's, what's that team's job?

Mallory: I think the job of customer success is to keep a pulse on customer satisfaction. Help customers find value in the product such that they renew and they stay and they become happy customers who are gonna be your best lead source ultimately for new business.

Toni: You know, taking a step back and kind of thinking about that role a little bit more, I mean, how do you, how do you square the circle here with, you know, the idea of.

Gross retention rate and defending the revenue is always like a, like a, uh, it's a defensive move. You're always on your back heels. [00:06:00] There's always this firefighting aspect to it. You're always only jumping on the account that's burning once it's burning. Right. Um, kind of how can you pair that with this proactiveness that we seem to feel to, to have in sales and marketing where you kind of go after account like, oh, you know, we have this a hundred account list and we're gonna, you know, convert 20 of those.

Like, you know, how, how do we, how do we get from one to the other, right? How can we make CS more interesting by them potentially becoming more proactive, more target, more understanding of how to, how to, you know, keep those customers happy. Do you have like a, a magic trick for this? Me? Well,

Mallory: I don't have any magic or else I would've solved everything by now.

Um, but you're exactly right. I think that on. The new business side, a lot of revenue technology is geared toward being as proactive as you can and almost catching the buying cycle before it begins, right? Because you wanna be the first one at the table [00:07:00] and you put in so much effort to monitoring signals and intent and every single buzzword, you know, that we see 80 times a day.

Um, and the fascinating thing is that with a customer. You're already at the table, like it is your table to lose. And by not looking at the same, you know, metrics or levels of intent or signals, you are kind of letting someone else chip away at your customer. And so I do think that applying the same exact sort of monitoring for signals is a really good way to try to keep a pulse on what's happening with the customer.

Not to mention the product usage that you hopefully are able to measure for the customer. That is like the number one way, in my opinion, to keep a pulse on, you know, if they're active in the product, if their usage has changed [00:08:00] significantly. That's a signal. We need to be responsive to that. And the sooner we catch it, um, the sooner we can understand why, if there's an issue and, and get in front of it.

Toni: Nothing that very much speaks to the. We need to figure out how we're gonna save this account. How are we gonna make this account happy? Right?

The Customer Journey and Handoffs
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Toni: Um, and, and I think maybe let's go through the customer journey a little bit and, and meaning really customer journey, once they make the jump from prospect to customer.

Right. I think the first issue we usually are seeing there is. The sales rep who closed the deal is already off to the next thing. Right? It's, it's usually, yeah. Yeah. Now, now these other guys take over. Um, I think already there there's a lot of frustration, there's a lot of dropping the ball that happens.

There's a lot of, um, basically starting the relationship that ideally should last three to four years. Right. We know, we know the math. Um. We're starting to see how that relationship goes [00:09:00] off, uh, in the wrong direction already. Do you have, like, um, how, how have you guys managed this previously? Maybe not only necessarily in phone burner, but also in some other organizations.

How do you make sure that that crucial moment of the customer journey really the beginning of it, um, is, is, is mentioned the best way possible?

Mallory: I think there are two big aspects to that first handoff that. I personally have tried to work on multiple times with multiple companies. The first one is new business sales team and onboarding or customer success team.

Both of them, they need to be speaking the same language, and that language needs to be as similar as possible to the customer and what they say and how their pain points are described. So imagine that you are. You know, you're selling a widget and your website talks about it one way your sales team talks about it another way.

The [00:10:00] customer kind of gets it, but they talk about it their way. And then you go to onboarding and you talk about it a whole different way. Mm. And none of the words are the same. And customer's, like, I, I thought I bought this thing, but now they're talking about this other thing. And, um. Having, you know, a common language that clearly describes the pain points where everybody understands this is my number one goal, this is the number one problem I'm trying to solve.

This is why I am making this purchase. Uh, is is kind of like the bare minimum to get people on the same page. From there, it's all about not making the customer explain everything twice, or rice. Mm-hmm. So I just spent, you know. Two weeks, two months, two years, telling my pain points to sales. And then on my kickoff call, they say, so what brings you in today?

You know, what, what's hurting? Where does it hurt? And you're like, oh my gosh, I just told this to, you know, 10 different people for two years, so you should know this by now. Um, and I think that anything we can [00:11:00] do to automate the collection of that information and. The summary of that information and the sharing of it across teams and the way that we dump it into the CRM and send it on to the next group, that is something that we should no longer have to manually tackle.

Yeah. There's so much technology that can help us with that, and so no one should ever walk into onboarding feeling like they don't know what this customer's main goal is and what, you know, what's the plan. Um. So getting on the same page, talking about things in the same language as customer, and then really not making them explain it all over again, I think is a really good way to kind of start off on the right foot.

Toni: I think they're even more kind of issues connected to this. I think there's.

Maintaining Customer Context
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Toni: Um, let's just say you have a hundred accounts, 150 accounts, whatever the number is, it's gonna be extremely difficult for you to keep all of these things in your head at any given point in time, right? And then, and this is the reality [00:12:00] many, many times on CS teams, um, you have turnover in the team, you know, maybe sometimes even positive something gets promoted and now they're either a team leader or they're joined the enterprise team or they join a different product line or whatever it might be.

So you actually have an, you know, fairly big amount of, um, handover that happens from CSM to CSM. Right? There's a lot of, there's a lot of that happening too. It's not only the lazy AE that doesn't write the handover notes, it's, it's across actually the portfolio management too. Right? Um, and then you have a customer that's with you two or three years.

And no one in the organization can remember why the customer actually joined. Like you just don't know anymore. And it then becomes extremely difficult to figure out, well, is this a happy customer? Right? Because, um, product usage and product signals is just one part of the story, right? There's, there's, there's a qualitative side to that story, and then there's a quantitative side.

Um, [00:13:00] and, and sometimes really difficult for kind of to put those two things together. And I have. Not yet seen A-A-Q-B-R that kind of happened two years into it. And it's like, well, can you actually, can you just recap for us once again, you know, why, why, why did you buy this thing in the first place? But at some point it becomes awkward, you know, I can see that happening in the kickoff call, but at some point it's kind of weird.

Right. Um, and I mean there's all kinds of like friction in that thing, you know, already. Right. So it's like, um, uh, going back to your previous point. Um, there, there's a lot of magic that we apply on the sales and marketing side, but there's very little, there's very little of that magic that, that makes it to the, to the CS team.

Right. Kind of, um, do you have, do you have other similar examples where you see cracks in how the CS teams functions usually?

Mallory: Well, I think those cracks that you're mentioning, they do tend to gravitate toward personnel changes. I think that's a big one, and it can [00:14:00] happen on either side. So the CSM to CSM, like you're talking about, is very prevalent, especially if it's territory driven.

And even though you were my CSM the year, I might not get you next year. Um, but then there's also turnover at the customer's company, right? Mm-hmm. And the best combination is when you're a new point of contact with a new CSM and it's the blind leading the blind. It's like, yeah, none of us know why we're here.

So, yeah. Of course you're on the chopping block, right? It's like, we need to figure out why we even pay for this thing. And I've been in that situation multiple times and I just try to be very honest with my vendor, like, Hey, I'm brand new. I don't have the context for this. I'm gonna meet with a team. I'm gonna figure it out.

Like I, maybe some people in the organization still know, maybe they don't. But in that situation, wouldn't it be nice to be the vendor that says. Oh, don't you worry. Here's the business case that we used to, [00:15:00] you know, make this decision. Here are the top pain points your team was looking to solve, like having that stuff documented and available.

Imagine if you could hand that to a new POC. Yeah, I think that that would be fascinating. Uh, but most of the time we can't. So the team changes are one of the biggest examples and. You know, let's flip this around to maybe a more positive scenario. Um, on the new business side, we are constantly monitoring job postings and promotions and, you know, stakeholders that have moved on to a new company because maybe they'll purchase again, or maybe they need more seats or maybe they need.

A new vendor. Um, and once that happens on the new business side, we're all over it. You know, you get a new job, you post it on LinkedIn, and then you have unending messages for months. People who are trying to get on your calendar. Well, that's the exact same thing that we can look at for our customers and just keep an eye on what's happening in their business.

[00:16:00] So if I see that my customer is a vp, they, you know, they're hiring, they post on LinkedIn about how they're hiring more BDRs or, or whatever. I can use that signal in the exact same way and prompt a check-in from my CS team that says, Hey, we noticed you're growing. That's fantastic. Um, is there anything we can do to support you?

Right? Maybe it means that they can grow with your product, maybe it doesn't, but either way, you're good. CSM who pays attention, who checks in, who understands what's happening in their business, and that stuff is not difficult to do. So why don't we just apply the exact same formula that we do on the new business end.

To the customer end. I think that's a good place to start to look for ways to get more proactive.

Toni: Yeah, I was, I was recently chatting with someone about, you know, they're kind of running an enterprise sales cycle. Um, and there's so much, so much effort put in from the company itself, from different vendors around this, how do you highly optimize this thing?

Right? How do you really make sure this works out [00:17:00] and let's just say an enterprise sales cycle. Maybe it's nine months, maybe 12 months can certainly be longer. Right? But it's pretty long. Um. Then, you know, as we had the conversation, you know, it kind of dawned on both of us that, wait a minute, even an SMB relationship that you have as a CSM could be multiple years long, but the amount of care and, and level of detail and, um, I might champion is leave more leaving or something is changing.

None of that matters in that world, all that. I mean, it does matter, but it's just not being cared for, I want to say. Right. So I think it might actually help for some people to realize that your CSM relationship disregarding the ticket size, let's forget about that. It actually resembles really well, a very long, complex sales cycle, so to speak.

That you would otherwise hyper, hyper focus on in the new BS world. Right. And it's, it's so funny how those two paradigms are just not connecting, [00:18:00] right. I think, I think to a degree, and this is probably one of the issues, whether it's driving this whole thing. Um, a customer renewing is kind of the expectation.

You know, it's being taken for granted. Mm-hmm. Everyone wants to be taken for granted. By the way, that's already a good starting point. Relationships, customers, this is the same thing. Um, but it's, it's really, um, I think that is actually the starting point, right? Like, ah, yeah. You know, out of the a hundred percent, maybe we lose, you know, 5% of stuff.

Um, so we kind of, we kind of have it in the pocket already so we can kind of focus on something else, right. Um, but taking that out, I think that is some of the gears that need to be starting to kind of turn and change also, in order to put more spotlight on, on trying to figure out how to, you know, not only keep, but also develop those customers.

And I think we're gonna get there in a, in maybe a second, but it was just kind of run of the reflections I had on, um. You know, how, how poorly we are thinking about, uh, the, the customer process versus, [00:19:00] you know, complex new bids process, so to speak. Right. I'm not sure if you have additional thoughts on, on that tangent.

I just went down on,

Mallory: I do actually, I do. One great way to at least try to combat that is get those renewals onto opportunities. And make it a real cycle. Mm-hmm. And it is a one year sales cycle. That's exactly what a renewal is. If you're on an annual contract and you know, if you have the right stages that people need to walk through to develop that relationship over the course of a year and you see the dollars sitting in the pipeline, it starts to become much more real for people.

And that's what we did at Terminus. Um. We were using CL and we were doing all the forecasting and all of the management with the deals on new business. And then we ultimately did the exact same thing for renewals. So we had, you know, these massive numbers and you finally start to look at it and it's like, [00:20:00] we have a million dollars to renew this quarter or this month, or whatever.

Yeah. Here's the pipeline, like what's the status of it? You tell me Cs. And so you start to do the forecast and you start to put more attention on it. And when you do that, you get, uh, you get more needs out there, right? You get to see what the CS team is needing or lacking, or the deals that are dead quiet because.

You look at your chart and there's no dots for interaction for that customer. Yeah. And you see this a hundred thousand dollars opportunity with no dots, um, CROs start paying attention to that really quickly. So that is a way for rev ops to directly plug in and start giving visibility to people on what's happening with customers.

Toni: Did you guys use some kind of, um. You know, in, in, in sales you have all of this mad and MedPAC and all that craziness. Mm-hmm. Super useful. By the way, I'm not, I'm, I'm not saying disregarding this at all, but did you have some, some similar methodology used for, for [00:21:00] the CS side?

Mallory: Great question. I don't think so.

I don't think we had a methodology. Um, there was a measurement of activity 'cause it was still not very mature. You know, how many check-ins are they willing to meet with us? Those things tend to be measurable. Uh, and then even at Terminus, unfortunately, back in the day, there was not a great concept of measuring product usage, so that was difficult to get to, but it would've been.

Very helpful. So I think that when you're measuring health, it can be highly subjective, especially with the old school CS tools. Um, they all wanted to get you to this like, lead scoring formula that was gonna help you understand what was going on. I've never really seen that come true yet. I'm sure some businesses have figured it out, but it was never that easy for me personally.

Toni: So I also know from back in the day, you know, we, we always wanted to have. Product signals, product insights. Mm-hmm. And wanna make it [00:22:00] available for the CS team.

Product Usage Data and Signals
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Toni: And you just kind of touched on the same SOAR point to a degree from, from your perspective, how many, for how many teams, is this a standard that they have product signals available for the CS M team?

Is that, is that the standard by now? Is it still only a fraction? Kind of, what's your, what's your sense?

Mallory: I think that it is somewhat standard, but the difference between product usage data. And product signals. There's a big chasm there, right? Because if I have a screen within my product that I can go log into to look at my customer's usage, that gives me a place to get some understanding of what's happening.

But if I'm only doing that 10 minutes before my check-in call and I don't look at it any other time, then it's still not proactive. It's just enough to get by. Get through that meeting, have a. Conversation about what's going on, it's still helpful. And I've been in businesses where the [00:23:00] product usage data didn't exist.

You know, this is back in the day. It was really hard. So having the data is step one, but then developing it into something that can actually become a signal is quite different because you have to codify it. You have to find what is the norm, what's the deviation from the norm, how do I tell somebody that there's a deviation?

How do I know which things to notify people about? Um, you know, huge opportunity there, I think for people to dive in and really see. What kind of signals can we automatically send to our team? And it's, it's very difficult. I, you know, I think there are some tools out there that I've heard of in the past that, that try to get you there.

Um, and even those can be really hard to use if your own infrastructure isn't set up in a way to play along nicely with the tool that you're trying to buy. O

Toni: once you call something a funnel, suddenly all the commercial people are like, oh, now I get it. Um, and frankly, frankly, product usage, I think you can [00:24:00] build it and set it up like a very imperfect, but still it can be a funnel of mm-hmm.

Hey, you know, you want that organization to reach stage one, um

Mallory: mm-hmm.

Toni: And then you want them to reach stage two and what have you. Um mm-hmm. And the further they're down that they're basically the, the deeper into product usage they are. Right. Because I think you're right, just someone logging in or. You know, clicking a button, that's product data.

It's not a product signal, right? Mm-hmm. Right there. Right. Kind of, there's an interpretation that needs to happen on top. Um, and I think where it then becomes really powerful is if those signals are almost staged, right? And then you have this, yeah. Pipeline. You have a funnel. You have, you have all of these things that you're loving already, but apply to your customer base and you have the renewal opportunities with their forecastability.

And, and there, there you have it. You basically have a new base set up on the CS side. I think, you know what Mary, I think we kind of solved it. I think we kind of solved it today.

Mallory: Do you wanna hear something funny,

Toni: please?

Mallory: I've [00:25:00] been, I've worked with businesses or I've been in them not gonna confirm, which, um.

That have a product led motion, and on the new business side, in the free trial, there is a funnel. Mm-hmm. So step one, I sign up and log in. Step two, I tell you something about myself. Step three, I use the product. Step four, I use it X number of times, step, whatever. I add a feature or I use a silver bullet feature.

I do something interesting that shows my sophistication, right? We score these people and we say, ah, PQL. Ready to buy. This person's great. We have a funnel. That exact same concept is out the window for customers. All we looked, all we look at is like, are they using it? Yes. Great.

Yeah.

And it's silly. It's so silly.

You can replicate darn near everything that you have for this new business motion and funnel for the customer [00:26:00] side. And you can make sure that people are walking down the path that you believe should be the path. Now, sometimes we're probably wrong about what that path is, and you're not gonna know that unless you talk to the customers because they'll tell you, um.

But you have to have that hypothesis and like lay it out and test it and measure it, and then see if the people who follow that path are actually a stronger customer, a happier customer that are gonna renew. There's just so many things that sound so simple, but we don't do them.

Building Trust Through Customer References
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Toni: Tapping on this one a little bit further, because I think this is almost getting us to the second chapter, right?

I think on the mm-hmm. First chapter here in our conversation, it's really much about. Hey folks, need to start seeing the C side a little bit differently. Give it, give it, mm-hmm. Similar kinds of love that you give to the newbies side, and here's some tools to maybe achieve that. I think chapter two is potentially helping folks to understand what the other potential is in your customer base.

And I think the other [00:27:00] potential there can be, um, number one, a source of trust. And maybe I'm going on a ran here now, but I feel. I feel we are starting to be in a post trusts world, um, in buying software right now. Mm-hmm. Everyone can do everything, right? Every tool is capable of doing all kinds of different things.

Yeah. Uh, you know, the, uh, testimonials are handpicked influences are paid and bought, um, all kinds of, you know, there's, it's very difficult to believe what's out there right now. Right. Um,

Mallory: oh yeah. So I

Toni: think one of the bull walks still. Being extremely trustworthy is, um, is customer references. Uh, so I've, I've seen this more and more, especially in, in larger ticket deals, uh, people asking for, okay, can I talk to two or even three customers of yours?

Yeah. And check if the stuff that you're telling you is actually true, right? Mm-hmm. And to even, you know, [00:28:00] to get to the point where you can even, you know, support a request like that, right? I mean. You need to have a bunch of customers that are really, really happy and are also in this funnel available to talk.

And then you need two or three of them for some of those BU opportunities, right? Kind of getting, getting your customer organization, uh, or org rather organizing your customers to, uh, to a level. Where they're ready to talk to other folks. I haven't seen that done extremely well, but I have seen the friction that the new beside is causing by buyers simply not accepting whatever the salespeople are telling them anymore, which I think is super healthy, by the way, but it's putting a new pressure on the Sears folks.

Have. Have you, have you run into something like that? I, I'm not sure me, but like, have, have you seen, have you seen pressure like this forming

Mallory: a little bit? Definitely. It's funny, just this morning I was [00:29:00] reading about a startup that, you know, was an AI note taker and pretty soon everybody realized that it was not ai.

It was some guys listening to the call and taking notes and uh, sending them out as if it was an automated system and they were faking it. And so those types of stories, especially with everybody who's added. This AI feature and that agent, and this agent, there is some skepticism. Definitely. Uh, can't even watch a video on, you know, whatever Instagram anymore.

Yeah. Because it feels like it's all fake, even if it's not. I assume every funny video is made by ai. Yeah. So all that said, I agree that we're in this like post trust situation where you can't take anything at anybody's word. Even for reference calls, you know, it's not a straightforward conversation. They say, oh, I love it. And you say, oh, do you use [00:30:00] Salesforce? And they're like, well, no, I use HubSpot. And they're like, oh, okay. Um, are you in the enterprise space? I'm like, no. But we love it. It's great, you know, and they're not even a fit for you. They're not even a match to your business. They're just a happy person.

And happy customers are really important, but. Also pattern matching prospects and customers to similarities that are important to the way that you use the product is like a whole different chapter three probably. Um, but I agree with what you're saying. I think that face-to-face conversation with someone who is gonna be honest with you, that they've used this thing.

Is one of the only ways, you know, to try to see the look on someone's face. I'm just like, okay, level with me here. You know, how, how is the CS team? How is the support? You know? Mm-hmm. Those are some of the questions that people will have and, and it's hard to come by. Um, but none of it happens without a customer that's willing to take a conversation. And don't get me wrong, I know people who [00:31:00] incentivize customers to do reference calls. Um. So there is still a little bit of, you know, encouragement that needs to happen and you wanna compensate that customer for their time, especially if you go back to them again and again. And that's what the smart salespeople do.

They avoid the standard process that their rev ops team created to request a reference, and they just text their buddy who bought from them last month and say, would you be willing to hop on a call with someone that I'm talking to right now? And the customer will do the rep a favor and And they'll do it.

Toni: Yeah. And I think that works really well if there's a good relationship that's established there. Right. Um, yeah. I also think some, I mean, I'm not a big fan of the rev offs process either. Um,

Mallory: no, me either. And I've built them. I think

Toni: no one, no one used it. Um, no, but you have the, you need to have the CS capability in place to do that sometimes.

Right. So I think, I think there, there's a, there's a big, [00:32:00] big amount of work that's not falling to the wayside right now. Uh, because I think everyone is so. Um, so much on the heels already. It's like, you know, that would be a crazy additional task to even kind of consider taking on, right? Mm-hmm.

Mallory: And then the,

Identifying and Leveraging Power Users
---

Toni: the other thing here, and this is really the new business side, is let's just say you have, you roll out to 10, 20, maybe a hundred users.

Um mm-hmm. You will have some folks there that barely log in and use this at all. And then you will have some folks that use it a lot. Um mm-hmm. And then actually those power users, you wanna find ways to elevate them to a degree. Um, those would be the people that maybe happily take those calls, right?

Mm-hmm. It doesn't need to be the decision maker of VP who kind of signed in the end and who you're buddy buddy with. Am I true, be just a manager further down the line, but actually who's doing the work and [00:33:00] kind of can really give some feedback. But ultimately those are also folks I think you can invite onto your, uh, webinar or podcast or invite to speak an event for you.

Mm-hmm. Um, and, and I'm wondering if you have some, some ideas or some input on how can you. First of all, I don't, I don't think everyone knows their power users, by the way. I think that's number one. Agree. People just don't know.

Mallory: Okay.

Toni: And then number two, well, let's just say that's a technical challenge you could fix in a quarter.

Um, well, once, once you as a CSM know that now, how can you, how can you leverage them and try and turn them into. Folks that maybe even provide you leads or give you credibility or whatever it might be. Do you, some, do you some ideas, you know, on that front or have you, have you seen folks that, that have been doing this extremely well?

Mallory: There's so many layers here, right? Um, layer one is being able to see [00:34:00] who a power user is, like you said, and there are a lot of companies that can't see that. It's a technical challenge. Then level two is, oh, let's say you can fix it with the dev team and it takes a quarter and they can solve it. I think that's another common scenario where you start to see a level of prioritization for something like that versus a new feature that's gonna get you new customers.

Which one wins nine times out of 10. It's the new feature that the big new customer needs by X date to become a customer. Um, and so we battle that we, we know there are some sharp edges in our product that makes it tough for the customer, and we have a really long list of 'em. They're in the backlog.

You're battling to try to get those to the forefront of the dev schedule because there are, uh, so many priorities, right? So many different things that we could do in any given quarter. But like you said, let's [00:35:00] pretend we get it prioritized and pretend that we can start to see it.

Gamification and User Engagement
---

Mallory: Um, I think it's a good place to start to introduce some of that gamification, you know, where you're telling people you're rewarding them, that you know they are a power user.

They're doing a great job. I see this a lot with superhuman. I use Superhuman for my email, and every time that I clear an inbox, it will, you know, throw me a little party and tell me how many weeks in a row that I've gotten to inbox zero. Um, every milestone you hit of number of messages sent, it tells you that, and it says, oh, you've sent more emails than X percent of users on our platform, and you've done this thing and that thing.

And it's very persistent on the sidebar, you know. Share Superhuman with this person. Oh, I'm emailing Toni. There's a button that says Share Superhuman with Toni. And I don't know if there's a rewards program involved there. My guess is that there could be, I haven't even looked into it, [00:36:00] but I've noticed the button and it's there and it's prevalent.

Right. And I know that they have it in the footer as well, like sent via superhuman. So I imagine that that is a, is a good lead source for them. I, I would hope so. And I really like a lot of the things that they do in their platform. And this is definitely a tangent, but one of the boys was seeing me go through my email and, you know, they have a lot of shortcuts and you don't have to, um, use your mouse very much if you're good at it.

And he said, mommy, are you playing a game? Are you playing a computer game? And I just thought like, man, what a win for them. You know, they, they celebrate when you are using it correctly and when you are using it correctly and you're in the flow and you're pushing the buttons, you know, it's like you're playing a game.

And I think that's probably exactly what they want. That's like the experience they want. And so I just thought, you know, what a cool thing for them. But maybe that's a good example of someone [00:37:00] that you can go talk to, figure out how they've done it.

Toni: I recently saw OpenAI sending out. In the m and a community, it would be called tombstones actually.

Um, they're basically sending tombstones to, uh, to their power users.

Mallory: Yeah. The plaques. And it said, you know,

Toni: one, 1 billion tokens used or 5 billion tokens used, and Yeah. And what, what is, what is. You know, what is every single nerd doing that's receiving this thing? Taking a picture like it's on their desk and putting on immediately.

Right. I mean, yeah, those are, those are great ways to. Um, to basically nudge your power users to, to go public with that, right? I mean, these guys are absolutely proud of having, you know, 5 billion open AI to, I mean, basically the idea is that that thing was hand wrapped by Sam Altman, right? Kind of That was the idea.

Yeah. Um, and, uh, and knows my name exactly. I'm, I'm in his WhatsApp group [00:38:00] honestly. Um, and, um, uh, and, and basically I, I think. That tender loving care, um, with the bragging rights, with the, oh wow. I'm special. I think that's, I think that's extremely powerful. Right?

Systematizing Customer Loyalty
---

Toni: And I think, um, that, that kind of, if, if you can try and incite something similar, you need to find something that's meaningful, obviously.

Um, and, and there I think there are different aspects where it can do it, either in the app or, um, you know, with a, with a, you know. A physical token like this. Mm-hmm. Or by saying, Hey, we want to make you part of a. A better release. Mm-hmm. We want to have your input, uh, we want to have you criticize our product, like find ways to put them on the pedestal and which, which don't even need to cost you a lot of money, right?

Mm-hmm. And that then in return, sure you will have some loyalty going your way. Um, but I think they will be more prone to talk about it, not necessarily on LinkedIn. I don't [00:39:00] think everyone is like a LinkedIn kind of guy. Um, but they might just mention it. Passing to someone or like, Hey, I'm doing this thing.

Absolutely. These guys and they're doing, you know, and, and basically kind of the more you can make them part of your team, then instead of the team of your, of, of the customer, you know, basically I think the better. Right? Um, and I think that's, if you do this well, I think as you grow, as you add more users, as you add more power users and as you as enabling them, as you are, enabling them, um.

Those, those interactions, those, those brand interactions almost, they will probably trigger someone investigating and discovering you and, and, and maybe inbounding based on it. Right? And, and really thinking, you know, how can we systemize that? And maybe that's a, it's not a rev ops task that's gonna be clear about this, but, you know, how can you, how can you build this into a system basically that happens and still feels genuine?

Um, I think it's super difficult, but I think it's a superpower that, [00:40:00] that that teams. Should, should build out and superhuman is a great example.

Mallory: Yeah, it is. And you know, there's, there's something to it to try to systematize anything and keep, keep the genuine nature that is hard. Um, because the moment that you roll out, you know, your ambassador program and you're giving people points for referring friends or whatever it is, um.

You add this layer of incentive to it, which, you know, maybe people are turned off by that or maybe they're not. You know, it's, it's probably a tossup, but you know, it's akin to the whole dark social world. Um. I don't trust the advertising. I see. I don't trust the case studies I see. Or the references that I get from the company.

I wanna back channel it. Same thing looking for an employer. Like I'm gonna go try to [00:41:00] find someone who's worked at that company who I trust. I don't want the party line from their About US website. And it is still, I mean, the number of times per week that I will get a private message or a text message or a WhatsApp message or a Slack message from somebody who's shopping for this, that, or the other and they say, Hey, do you have a recommendation for a data provider?

You know, I know a lot of things have changed. What's the best data provider? Um. They wanna have those conversations totally offline, and that's okay. If you have a happy customer that uses your tool and feels genuinely, you know, safe or um, confident to recommend it to somebody else, they will. They just.

That is something that is very hard to measure, very hard to systematize, but it is this like [00:42:00] halo effect that you get from having good customer practices, good CS practices, um, strong brand equity. You know, it all plays a part.

Toni: It's a big lift, let's be honest. I think it's a big lift and mm-hmm. And I think you made a, you made a good comparison here with this PLG company that basically was completely nerding out around the new user acquisition channel, but then dropping the ball once the user was in.

Mm-hmm. Um, I think that is the first step here in, in trying to change this and, and to a degree, and I'm, I'm not, you know, I do believe there's some budget restriction here with a 10% off. Um.

Financial Implications of Customer Retention
---

Toni: But I also think there needs to be a way for organizations, um, to take a step back and realize that we probably to invest more into the CS team in order to enable them to.

Do the things you and I just chatted about. I mean, those are Yeah. Multi-year projects, if you really wanna land them and nail them mm-hmm. And how you're gonna do, and who's, [00:43:00] who's actually going to do that, right. It's not gonna be the VP of sales, of VP marketing. It's gonna be the, uh, you know, doesn't sleep anyway.

VP of Cs, right. That's stressed out with top, you know, high, high percentile anxiety already. Um, how are, how are they gonna execute, uh, something like this in the organization without additional backing? Right. Yeah, there's something that needs to, you know, almost change. And I think it probably has to do with how the p and l is constructed.

Um, I, I, it really does actually. Um, and, uh, and then you can give those guys some more, some more resources, right. And, um, I. I mean, right now everyone is having shitty gross margins anyway because of tokens, like, you know,

Mallory: out the window. Why not?

Toni: Why not give another five points, you know? And, uh, and help help the extra humans helping you to execute this whole thing.

Um, but I think there's something here that people are mixing up or missing out.

Mallory: Well, imagine you're, you know, a second line CS leader. In the trenches you [00:44:00] might not really understand the entire 10% of revenue goes to Cs. Yeah. Math problem, right? All you know is that the bugs you found are like way down on the list and the tool you need, yes.

That they bought it for you, but it doesn't really work. Right. And you know, you're just kind of putting up with it and you know what your pain points are.

The Vicious Cycle of Churn
---

Mallory: It's such a vicious cycle and it does deserve this top tier of executive attention because there are just these big implications for the p and l itself, right?

So. Let's pretend that we do have this 10% model and it's not enough, and our retention continues to decline and our, um, average customer lifetime continues to decline. Well, that's directly related to the customer acquisition cost compared to the lifetime value formula, right? C to [00:45:00] LTV, it's directly related.

So. You know, you have all these new business assumptions that we're gonna spend a thousand dollars to acquire a customer and it's gonna take us x number of months to get that paid back. Well, what if they don't even stay that many months? Then you're in even bigger trouble. Then you have even worse revenue efficiency, and then you have less revenue to put in everywhere.

You have less to put into new business. You have less to put into cs, um, and you're declining and you're trying to bring in all of these customers to make up for all the ones you're losing. And it's just the least efficient thing that you can do. And I've seen it, uh, unfortunately a couple times, and it's a very vicious cycle.

And what also happens in this scenario is that you think, oh, I need to really ramp up my, my budget here so that I can buy, you know. A CS platform that's gonna save the day, and there are some out there that you can spend a [00:46:00] ton of money on, but the things you and I have talked about today don't require any additional tooling.

It can be done with the tool that you're using on new business side. You don't need a separate platform, and this is a totally different soapbox, but you know, at Phone burner specifically, I said, we don't need a separate tool for cs. We need to just apply all the same principles and all the same plays that we are using on HubSpot for the new business side.

Apply them to the customer side. So you don't need to to use that precious 10% for some fancy platform, in my opinion. I think it should be things like. The tombstones that you send out, or you know, an anniversary present that you send out to the customer. We used to do that for years at ExactTarget. We sent them, uh, ExactTarget anniversary presents and people loved it.

It was an orange mug. It was so simple. Everyone, everyone ate it up. So I think it's the way you spend that [00:47:00] money and the way that that retention ends up impacting the entire p and l is just something that, um, executives have to really dig in to understand.

Toni: I really like this point of, well, you have, you know, I think in this, in this sense, c payback is too simplistic, right?

And let's see if, you know, we kind of keep this nerd talk here in the end, in the episode, but c payback is kind of too simplistic. And then you, you really wanna look at C to LTV, which is basically, um, the, the true ri kind of, how much money are you gonna make from any single given customer? And in the LTV you obviously have churn and upsell in there.

Well, mostly churn actually. Um, so to a degree you're right. It's almost, um, shouldn't you, wouldn't you, wouldn't you be happier to, you know, spend another dollar from a sales and marketing? So from a quote unquote cac, um mm-hmm to preserve customer dollars. And the [00:48:00] answer is probably, yeah, you totally would.

You totally would. Hell yeah. It probably would be the cheapest. Customer acquisition cost dollar you can spend, frankly. And in that sense, it's almost, you know, dear CFOs that are listening, get creative on how to put CS into sales and marketing. People are doing this, by the way. This is not completely crazy.

People are doing this. Um, and you just need to, I think, shift this around a little bit to, to give your team a little more breathing room. And why would you do that in your company? Well, some of the, you know, access sales and marketing dollars probably. Can help you on the renewal side and that's gonna make the whole equation work out for you.

Um,

Mallory: yep,

Toni: that's it. That's a solution. Some financial engineering, uh, uh, Mallory, and then we're done. You know?

Mallory: Yeah. Rob Peter. To pay Paul and Peter's life will also be better. Peter wins too. Think about when you're making your model for next year. You know, you're at 10 million now. You wanna go to 20 million next [00:49:00] year, you wanna double and you have to build in your 10% churn assumption on top of that.

Yeah. So you have to overcome that churn, which makes your new business goals even higher. If you wanna get to the same end result, well retention if you can make it a little bit better. That is points that you're earning back off of the top line growth that you need, and you end up in the same place and you spend less money to go acquire fewer customers to end up in the exact same spot while you're increasing your lifetime value or your tenure of these customers and making them happier.

So they're gonna bring you leads anyway. Right. Like it's, it's impossible to find a way to look at math and say, oh, it's not worth it to focus on the customer base. It makes everything better, but, you know, it's hard. And so people are like, Ugh,

Toni: that's hard. It's, it is hard. But to this, to this point, so this was, we were [00:50:00] already acquired by practically a PE firm at this point.

Mm-hmm. And I think we're at 40 or 50 million in ar. And basically the, the voices became louder to turn a profit. Like, Hey guys. Mm-hmm. It's time, it's time to end the party and actually make money. Okay. Right. Yeah, yeah. Like, that's, that's what happens. And um, and I was sitting there with a spreadsheet and kind of mulling it over and, you know, trying to find money somewhere.

And, and in the end it is, it's, it's really silly revelation, but basically the realization is, um, every single dollar. Um, that you lose on the churn side really costs you 12 additional dollars in our case, like we had a good kick payback, 12 additional dollars to pay back. If you lose 10 million in ar you will have to spend 10 million to win that back.

Like, there's, there's no way around that. Right? Um, spend it again and if you, if, if you wanna be profitable. It's gonna be really, really difficult [00:51:00] to keep on doing that, you know, again, and again and again. Right. And I think that that realization, um, should maybe kick in with some folks here listening here and then taking some of the sales, marketing, you know, you know, d dvia up differently.

Okay. Maybe we butcher at the end a little bit. Mallory, uh, also butcher. Okay. Have one more may in between, like, uh, terrible. But, uh, you have one more? No, go ahead.

Mallory: You? Yeah. You did good. I have one more analogy. Okay. And I think it might help people. To get outside of the p and l part of their brain.

Final Thoughts
---

Mallory: So let's pretend that I have a grocery budget and I have an eating out budget.

Okay? And you know, they might be equal, they might not, who cares? But every week I go to the store and I buy groceries. Some of them I eat when I think I'm going to eat them and I finish them and I do a good job. Some of them I forget to eat, right? So now I have this [00:52:00] zucchini in my fridge and before I know it, it went bad.

I have to throw it away. Darn. I didn't use it. It went bad. I threw it away. That is like a customer churning. Your grocery budget got spent. You bought the groceries. You had the groceries. You didn't use them, you wasted them. They go in the trash. Now I have to go buy more groceries to replace the one that I lost, or I go eat out instead because I don't feel like making dinner.

Right. That's the challenge, is not feeling like making the dinner, in my opinion, is the same as like, oh, it just feels really hard to figure out Cs. I don't feel like it. I know how to go buy groceries. I can just go buy some new ones. Right. And then to top it all off, like. Let's say you do start using your groceries correctly and you stop losing them every single week.

You stop replacing the same zucchini that you throw away every single week and you start eating it, well then you eat out less and maybe you're also healthier. Maybe you're also making better food choices by eating at home, using your groceries. You're not throwing so many of them away. [00:53:00] Don't have to eat out so often.

I mean, it's just like the way to improve your budget for food.

Toni: Lingering on this, so I obviously love the analogy here, but lingering on this for a little bit. Um. I think it also has to do with how much easier it feels, and sometimes this is just action bias, how much easier it feels to acquire a new customer.

And I think that easiness is dropping away more and more. I think it's getting harder and harder for folks to acquire a new customer, and as that comparatively gets harder and harder, I think the focus on, you know what, why don't we just not lose them in the first place? That goes up a bit, seen it a hundred times.

Yeah, yeah,

Mallory: yeah. Think about during, um. What was it, 20 22, 20 23 when? When everything started to get really, really difficult and mm-hmm. Everyone was saying, oh, retention is the new hotness and keeping your customers, you know, we should have been [00:54:00] focused on this 100% all along, and for like six months it becomes very popular and then it just fades away again.

For some reason. And when times get tough, people realize, oh, I need to really put my arms around the customer. You hear people say that and they don't keep it there. They don't keep it that way. So, yeah. That's fascinating.

Toni: They go, they go out and have dinner somewhere else, you know? That's what it is. Um, yeah.

Mallory: Mallory,

Toni: awesome to have you on the show. Um, thank you for the second or third time. Let's see. I think we've been talking about maybe we're making this. Like a thing, like in a recurring thing going forward. Let's see. Everyone should see It's a tryout. I'm trying out Exactly. It's a ramp up, you know. Um, and, um, yeah.

Mallory, thank you so much.

Mallory: Yeah, it's been fun. Thank you.

Toni: Cheers.