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7 Steps to Outcome Generating Customer Education

by | Jun 14, 2019

What if I said to you there is one customer success function that can help you deliver scalable customer success, drive product adoption, increase renewals, improve conversion rates from your free product to your paid product, increase the size of your marketing funnel, and contribute direct revenue and higher margins to your business? Would you want to know what the function is and how to build it?

Obviously, I am going to tell you the answer is: customer education.

It’s not that customer education is a magic pill. Far from it. There are so many ways to implement training for your customers, that how one software company addresses education might fail in your case.

And vice versa.

This dichotomy is also the beauty of customer education. It is flexible. Adaptable. It can solve a lot of problems (OK, opportunities). The trick is to select the right problem to address and implement education to specifically address that problem. In order to help you do that, I’d like to discuss six reasons why you should invest in customer education in the hopes that at least one of these reasons inspired you to build a business case.

These are the six reasons we will discuss:

  1. Customer education is scalable
  2. Customer education drives adoption
  3. Customer education drives renewals
  4. Customer education drives freemium conversions
  5. Customer education is customer success (and marketing)
  6. Customer education makes money (and at higher margins than professional services)

Some of these ideas are obvious. Some, I bet you’ve never thought of. But after you go through each of these six ideas, you will be better equipped to select the right problem to address and design the right education solution to address it.

Customer Education is Scalable

Scaling customer success is hard. Few of us have figured it out. To be honest, most of us have grown by throwing a team of talented, smart customer success managers at the problem. This is fine for low-volume, high-value customers. Perhaps necessary. Even better, the economics support it. For most of our businesses, the 80/20 rule, well…rules. Most of our revenue comes from a small number of large customers, which continues to perpetuate this high-touch approach.

The customer success stars shine because they have successfully implemented scalable customer success to handle high volume, lower value customer segments without throwing an army of CSMs at it.

This is difficult to do. It requires a scalable approach to customer success.

Enter the customer education approach because it is scalable in two ways.

First, education helps customers be more self-sufficient with your product, so they need less support over time. In a well-designed, hands-on training intervention, you can help customers become self-sufficient (See TSIA stats below).

Second, training courses can be delivered quite well with a one-to-many approach that is simply not possible with a traditional customer success manager model. Customer success teams are limited by a reasonable ratio of customers to CSMs. One CSM can only handle so many customers while offering a reasonable quality of service. Trainers can handle dozens, even scores of customers every day in virtual instructor-led training (and even with in-person, public training).

We can make education even more scalable if we offer properly-designed, self-paced online training. And since the marginal cost to deliver online training is almost zero, you could help every single one of your customers learn to use your product with virtually no incremental cost.

The very definition of scale is to grow costs/investments at a lower rate than revenue growth.

Customer Education Drives Adoption

Customers who complete effective training from a software vendor use the product more, use more product features and work more independently. Simple as that.

The Technology Services Industry Association has some evidence to support this claim. In its research, TSIA found that 68% of customers who completed training use the product more, 56% say they use more of the product, and 87% say they work more independently after having completed training.

Can I interest you in a customer who works more independently?

This stands to reason, doesn’t it? If we take the time to proactively help our customers learn how to use our products, in the pursuit of the outcomes they want to achieve, customers will have the competence with your product necessary to pursue their goals more effectively.

Education Drives Renewals

In mid-2018, I worked with a software company whose product helps companies create the equivalent of content/help file tutorials; a cross between a knowledge base article and a tutorial. Creating content is hard, and this company wanted to figure out a customer education strategy to help its customers build more content. It found out that customers that created 33 pieces of content using its product renewed at five times the rate of customers who didn’t.

The data showed a very clear correlation.

With that kind of clarity, this company created a customer education strategy focused primarily on increasing the number of customers who would create at least 33 pieces of content.

That is the kind of tangible, specific goal clarity you need when making a business case for customer education. You can use it to convince your management team to invest a reasonable amount of resources in education if it can increase the number of customers that renew.

Education Drives Renewals

Just a few months ago, as of this writing, I worked with a software company that has a free and a paid product. Naturally, the business model is to give away the core features of the product to grow a large user base, then convert a portion of those customers to the paid product with premium features. You can imagine that this company is maniacal about monitoring the conversion rate from free to paid.

After running a major data analysis project, it found that free customers who used the share feature to share a diagram with a colleague (using the same domain name) had three times the conversion rate to a paid account.

Three times.

When this company developed its customer education strategy, it focused on creating learning experiences to help free customers share what they built.

Sharing is caring.

In another example, Intercom recognized the power of freemium conversions. So much so that it reorganized its product education team so that half the team focused all of its resources to build learning experiences that encouraged free customers to upgrade to the paid product.

Imagine designing a business strategy specifically to address a core business growth driver.

Customer Education is Customer Success (and Marketing)

Cloudera was founded in 2008, went public in March 2017, and today has about 3,000 employees and a market capitalization of $3.6 billion. Cloudera provides a software platform for data engineering, data warehousing, machine learning, and analytics, also known as big data. In 2008 big data was new, and Cloudera understood it was creating a new market. So what did Cloudera do? It hired someone to lead customer education as employee number twenty.

Twenty.

Education was hired before customer success. Before marketing. According to Sarah Sproehnle, then head of customer education at Cloudera, “Education was customer success for us. It was also our marketing.”

When Cloudera finally built a customer success team, Sproehnle was promoted to VP of Customer Success to run both education and customer success.

When you are creating new markets, especially with a technology few understand, consider building an education function before both customer success and marketing, because education addresses both needs.

Customer Education Makes Money (and at higher margins than professional services)

Redhat’s education business grew to as high as $60 million per year. You might not have aspirations that high, but there is no doubt you have customers willing to pay you to train their teams on your solution. The larger the size of customers you land, the more likely they will expect to pay for training. If you know that to be the case, why wouldn’t you offer both free and paid training options? If for no other reason than to give options to customers. Options that customers want.

Selling training is smart for three reasons:

  1. Monetizing training helps you pay for more training.
  2. Customers who pay for training are more committed to learning. Think about how many times you signed up for free training or bookmarked a video that you never went back to.
  3. Training has higher margins than professional services. Here’s how. You are lucky if you can get $2,000 per day ($250 per hour x 8 hour day) and a 50% gross margin on a professional services engagement. With training, you could easily 5X that.

Let’s compare that $2,000 per day professional services engagement to private onsite training.

For private onsite training, it is not unusual to charge between $6,000 to $12,000 per day (plus travel expenses). That’s 3X to 6X more revenue, and you still send only one trainer who you pay roughly the same cost (likely less) than a technical consultant, giving you higher margins.

You might think charging $12,000 per day for training is a lot. But if you put your customer shoes on for once, you might see things differently. If the private onsite training is for an entire team of 20 customers, the price per person is $600 and no one has to travel. This starts to look very inexpensive to your customer.

Revenue for the education team, higher margins for the CFO, and a huge value for the customer seems like a win-win-win to me.

7 Steps to Launching an Outcome Generating Customer Education Function

When you build your business case for customer education, don’t start with the premise that you need to address each of the opportunities above. Do just the opposite. Select one challenge. Select the most concrete and smallest opportunity and build a training intervention to address it.

I would follow a process that might look something like this:

  1. Formulate a hypothesis: I think if we developed a course on a specific sticky feature, we could increase the number of customers who use that feature once-per-week from 150 customers to 225 customers in the next 3 months.
  2. Build the course: Make sure the learning objectives are designed so it is clear to your customers what the outcome of your course is.
  3. Pilot the course: Deliver an early version of the course to 10 or 20 customers who do not use the feature.
  4. Measure the pilot results: Measure how many pilot customers used the new feature after completing your course.
  5. Create a financial model: If you can attach a dollar value to the increase in feature use, do so. Multiply that across your entire customer base to get the total possible return you could achieve. Then compare that to the total cost of creating and delivering the new training course. Use the ROI formula.
  6. Make a decision to roll out: If the results are positive, roll it out to the remainder of your customers.
  7. Measure the results: Monitor the number of customers who complete the training and then start using the feature.

Customer education is a tool to help customers achieve outcomes and deliver results to your organization. If you select the right opportunity to address and design a training intervention to address that problem specifically, you can improve customer success results.

If you apply anything from this article, I’d love to hear about your experience. Other readers would too. Please share it on the comments.

There’s a Meetup Coming. There’s One Every Month.

I am a member of the Customer Success Leadership Network Governing Council. We run monthly events around the bay area for customer success executives. Our next event is on March 21 at Autodesk in San Francisco. The topic: “Are you on top of the fast changing Customer Experience (CX) / Customer Success (CS) Landscape?”

You should come.