While attending a holiday party filled with Michael Bubble cheer and red wine, enduring small talk and multiple rounds of group selfies, I was happy to find myself in a discussion with several SaaS colleagues over the merits and future of Customer Success.
The crux of the debate centered around if Customer Success was a rebranding of existing functions (account management, sales, support, training, etc.) or if it truly had a revolutionary impact. It’s hard to tell if my wine-enhanced argument held any weight at the party, but perhaps I can help clarify it here.
1. The Customer Success Revolution
Customer Success is not just a rebranding of the old way of doing business, nor is it an end-all-be-all for the remainder of time. It is a radical departure from the past and an integral part of the profitability and longevity of today’s subscription business models. To treat it any other way is a good way to look for a career change.
2. Membership Economy
The emergence of Customer Success is necessarily tied to the emergence of the membership economy. This codependency is formed around the continual needs of cyclical renewals, product cross/upsells, service upsells, new product/capability releases, adoption and usage management and social media management. The traditional “sell once” organizational structure no longer applies.
3. Organizational Structure
Customer Success organizational structure is not one size fits all. A number of factors will have a major impact on the structure of the Customer Success department. We agreed the discussion should start around the following:
High Touch vs Low Touch
High complexity products are typically paired with high touch CSM models. Consequently, this structure lends itself to higher priced products to support the lower client-to-CSM ratio. While no magic number exists, a good rule of thumb is 1 CSM to $1.5 – $2MM ARR. It is imperative that high touch CSM models are divorced from any Sales objectives to maintain client advocacy and their perception of client value drivers.
For products with low complexity, it is easier to take advantage of scalable technologies and processes to better serve these clients while keeping an eye on the costs associated with lower margin clients. A good rule of thumb is 1 CSM to $2-$4MM ARR. CSMs in low touch models have much more ability to promote upsell and crossell value driving products without violating their clients trust.
Client Sophistication and Expectations
Client size and sophistication will have a large impact on how the CSMs deliver and drive value. Beyond the high/low-touch segmentation, CSMs must develop each client according to an explicit account plan that is customized to the unique needs of each client.
Constraint optimization is one area that many Customer Success departments overlook. It is easy to get bogged down into the day-to-day fires and not take a step back and see where the constraints are to any process. By explicitly tasking one or more CSMs to continually review all processes to identify and fix constraints, happier clients, happier CSMs and higher profits will be found.
4. Customer Acquisition Cost (CAC) vs Customer Retention Cost (CRC)
Gone are the days when CAC was the primary driver of profitability. The right CRC investment is critical to SaaS success, but that “right” investment depends upon the charter of your Customer Success department. CRC is complicated by the desired mix of adoption, retention, expansion, training and support to be performed by the CSMs.
As the CSM roles and responsibilities increase, their target client ratio will necessarily go down and your CRC will go up. As a good starting point, you should look at spending roughly 3 – 4.5% of your revenue for each of the functional areas you expect your CSMs to handle. Keep in mind it may be better to split off Support and Training into their own functional area that reports into the Customer Success organization rather than burden your CSMs with too many hats.
E.g. A $10MM revenue SaaS company should have a budget of around $300k-$450k for each functional area desired.
5. Compensation Structure
Correctly aligning CSM pay structure to their desired impact on adoption, retention, expansion, training and support functions will make or break your Customer Success goals. The temptation is to have a complicated variable pay system that is based upon a myriad of levers for each of the desired functional areas. To me, the KISS (Keep It Simple, Stupid) method always reigns supreme.
The main goal of CSMs is customer retention. All other aspects of health scoring, satisfaction, renewals, product adoption and product expansion are moot if you don’t retain the customer in the first place. I recommend starting quite simple: Align the CSM variable comp on gross margin of their accounts’ revenue. Furthermore, structure this comp to increase on set longevity milestones. This encourages high adoption, expansion, support and retention all in one measure.
6. Data Driven Success
Retention really comes down to delivering and exceeding the value as originally promised during the sales cycle. That value must be objectively defensible and have a meaningful impact on the customer’s bottom line. No where is this more important than during the onboarding process.
Highly successful onboarding processes start during the sales cycle. By having the CSM take part of the sales process, they can ensure a smooth post-sale transition and quick onboarding and launch for your customer. Your CSM has 30 days to build a good relationship based on hard data and start to deliver real value. When this trust is established during this initial honeymoon period, you will find further expansion and retention become a much simpler task.
7. Dual Track Communication
Delivered value has an expiration. This typically occurs after the honeymoon period when the novelty of the chosen solution falls of the executive radar. Your CSM may be doing a great job being an advocate and value driver for the day-to-day contact, but this can be moot when the executive is looking for cost cutting and “can’t imagine why we are spending so much money on” X product.
Customer Success can drive full spectrum success to your customers by maintaining relationships with both the day-to-day contacts as well as the executive contact. The executive communications should be well composed and concise communications that highlight the successes and value delivered during the specified period. The main goal should be to keep apprised with trending and/or progress data, but avoid a detailed deluge.
John F. Kennedy once said, “Change is the law of life. And those who look only to the past or present are certain to miss the future.”
Join me in the Customer Success Revolution. (If not, I could be persuaded to have more wine and listen to Michael Bubble too.)