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Box’s S-1: The Customer Success Perspective

Since Box filed its S-1, there has been a lot of debate online about the health and viability of its business. Last week, Tien Tzuo of Zuora penned a strong defense of Box’s founder Aaron Levie, which I think is worth commenting on.

A lot of the discussion online has centered around Box’s heavy sales and marketing spend — as much as 137% of revenue. When you look at sales and marketing spend compared to growth in ARR, the numbers are even more striking. As per Tien’s analysis, in the quarter ended Oct 31, 2013, Box spent over $2 in sales and marketing to acquire $1 of ARR growth.

Though these numbers are very high even by SaaS industry standards, I would argue that high sales and marketing spend is not a problem in itself. Tien raises an excellent point that in our industry, sales and marketing acts more like “capital expenditure” that should be amortized over the life of the customer. The SaaS business model is designed to recover customer acquisition costs over a longer time horizon.

So I think the real issue that hasn’t been surfaced as much is how successful Box is in retaining and growing customers over time. The true numbers test over the long term will be the ratio of customer lifetime value (LTV) to customer acquisition cost (CAC).

And this is a direct function of driving customer value, delivering on customers’ expectations — and in doing so, making sure customers renew and buy more. In short, everything that Customer Success teams are chartered to do.

If Box is successful at driving recurring customer value, it will be able to build a viable business. With that said, what does/should a subscription SaaS company like Box do in order to ensure maximize customer lifetime value?

We recently came up with the 6 Guiding Principles of Great Customer Success (a.k.a The Customer Success Manifesto) which basically provides a high-level framework for executives and customer success professionals to think about Customer Success.

In this post I just want to reiterate the first and most important one — Customer Value over Customer Management. A successful recurring revenue business is one that is able to deliver recurring value to customers. Instead of focusing on customer management, churn management and renewal management, subscription businesses should focus on driving recurring value to their customers. Ultimately, this is the real driver of customer success.

Guy Nirpaz

Guy Nirpaz is a Silicon Valley-based Israeli entrepreneur and CEO of Totango, a Customer Success software platform. A pioneer in the Customer Success field, Guy established the Customer Success Summit and is a well-regarded industry speaker and community contributor. Guy loves people and technology and has dedicated his career to improving the way in which business is done through innovation. Fun Facts: Guy moonlights as the lead guitarist in a rock band based out of his garage in Palo Alto and used to command a tank battalion...as well as having grown oranges.

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