Today we are going to explore one of the most common questions Customer Success teams grapple with: how many accounts should each Customer Success Manager own?
If you’ve done research on this question, the odds are decently high that you have come across the recommendation of “1 CSM per $2M in ARR.” While the original source and validity of this recommendation is much debated, the statement has stuck and become well-known, despite it being a rudimentary and arguably short-sighted way of determining the ideal account load for your CSMs.
In fact, by following this rule, different businesses have ended up with CSMs that look like this:
…or CSMs that look like this:
The problem is that the $-per-CSM model is a clear holdover from traditional Account Management and, as we recently discussed, CS isn’t just a feel-good name for Account Management. Account Management treats customers like numbers; a customer is as valuable as the revenue they give you, that is it. And while many of us segment our customer base on revenue for a variety of reporting reasons, if you are using revenue as a the main factor in how you structure your Customer Success approach, you need to rethink your strategy. Remember, CS is about helping your customers achieve their desired goals and outcomes and, simply put, revenue is not a reliable predictor of a customer’s goals.
So what’s the better way to answer this very important question?
In this thoughtful post, Customer Success thought leader Lincoln Murphy explores a new CSM coverage model formula, one that begins by acknowledging that each business and each CS team are 100% unique – and therefore a generic model will not work. As he succinctly puts it, “Trying to normalize [in a generic way] doesn’t take into consideration that you will have different types of Customer Success Practitioners (CSPs) working with different customer segments, not to mention the Customer Success Operations and Support team members you’ll need to have in place.”
We definitely recommend reading the entire post but here is an outline of Murphy’s new formula to get you started:
- Begin by segmenting on appropriate experiences: In addition to having specific goals and outcomes in mind, your customers will also have different ways they want to go about achieving those goals, which Murphy calls “appropriate experiences.” And whether or not a customer’s appropriate experiences are met is extremely critical; a customer could achieve their desired goals but if it didn’t happen in the way they expected/wanted, they will see their experience as not successful. So the first step in this new CSM coverage formula is to logically segment customers based on their appropriate experiences. Then for each of those segments you need to discover (not dictate!) what coverage level and type of coverage is required. And most importantly, this coverage level and type needs to be from your customer’s point of view, not based on what you can and/or want to deliver.
- In action, per Murphy: “Now, maybe you discover that one segment requires that you provide a high-touch, consultative experience. You need to figure out the details of that required coverage model and the characteristics of the CSPs that will cover these customers and from there you can see how many accounts each CSP at that level will be able to handle. If it’s 5 accounts per CSP, and you will have 100 accounts in this segment in 6-months, you’ll need to hire 20 CSPs. Over time, you’ll be able to optimize even the most high-touch coverage levels to eek out more efficiency, but not out of the gate.”
- But what happens when supporting a segment is not economically feasible? After you go through that discovery process, if you realize you can’t afford to deliver the desired level of coverage for a particular customer segment, Murphy says you have two choices: “1) Look at that spend as an investment in the process and try to get to a ratio – while delivering the appropriate customer experience – that makes economic sense at some point in the future, or 2) Don’t do business with customer segments for whom you can’t provide an appropriate experience in an economically viable way.” Murphy also warns that instead of doing one of these two things, many businesses choose to reduce the coverage level to a point that makes economic sense (for the company) but likely doesn’t provide the customer with an appropriate experience. This is a big no no.
- Be sure to calculate CS as a percentage of revenue: As you work to justify the funds needed to properly support your various segments of customers, Murphy recommends looking at Customer Success as a percentage of revenue, just like is done with Marketing and Sales. And what percentage of company revenue should CS take up? Industry surveys have shown that the “fully loaded” cost of Customer Success Management is anywhere between 15% and 25% of annual revenue. But Murphy dislikes this stat because “[when] industry surveys focus on newer and rapidly evolving areas of innovation (like Customer Success Management), those who are doing it best may not even be represented in the survey!” So he offers five considerations you should factor in when calculating the percentage of your revenue that CS comprises; check out the full post for more details.
Customer Success Around the Web
- NPS challenges for CS teams: Net Promoter Score (NPS) has been a long standing metric that many organizations rely on to determine the health of their customer base. Overall customer sentiment, which includes NPS, has everything to do with how a customer feels about your product or service and even how they work with their CSM. If customer sentiment is left out of the customer health equation, then your organization may be neglecting some of the most telling customer health signals available. But while the NPS score is a very valuable asset that all organizations – regardless of their size or industry – should measure and keep track of, it’s certainly not without its flaws and considerations. This post explores four challenges CS teams need to keep in mind when thinking about and reacting to NPS and offers strategies to successfully navigate those challenges. An important read for any business that currently captures – but wants to more intelligently leverage – NPS.
- 4 steps to build a QBR process for CS: For sales organizations of all sizes, establishing “checks and balances” to ensure new business growth is incredibly beneficial for executive management. As your SaaS business grows, you’ll need to establish processes to ensure existing customer revenue and growth are achieved. To ensure existing customer revenue, establish Quarterly Business Reviews (QBRs) with your Customer Success teams. This is a very common practice for new business teams focusing on new customer logos, but your Customer Success team can benefit just as much – if not more. This post dives into four key steps you should follow to build an effective QBR process for your CS team. A great read for any team that is still defining their processes (or thinks their processes could do with some improvement).
- Examples of CS convergence: Convergence, a term meaning “to come together,” is a common theme that has impacted various service lines within the technology industry – and Customer Success is no exception. As more technology suppliers pivot towards new XaaS offerings, they are finding themselves in a constant cycle to deliver against the promise of their technology solution, which is how we define Customer Success. In their efforts to ensure that their customers achieve specific business outcomes, these organizations are seeing traditional services capabilities and organizational boundaries beginning to blur, or “converge.” This post examines three areas within today’s organizations that are seeing the most convergence with Customer Success: sales costs, service portfolios and service organization structures. An interesting read for CS teams attempting to spread their influence and customer-centric approach to other areas of their company.
Word to the Wise
This week’s wisdom comes from Mathilde Collin, CEO and Co-Founder of Front, a shared inbox designed for teams, in a recent post about the metrics Front used to successfully raise $10M in their Series A. According to Collins, Front carefully selected the metrics they presented to potential investors, focusing on metrics that demonstrated their early customer validation and their sustainable strategy for growth. But as much as Collins wished they could have shared an exceptionally low churn rate (such a good indicator of growth!), Front didn’t have that. They had pretty standard monthly user churn of around 3%. So what did they focus on instead?
“The story of how Front could scale and take over the market was in our MRR retention and expansion numbers. Front customers are paying 50% more net of churn after one year than they were when they first signed up; this is from cross-sells and up-sells. To an investor, achieving 150% annual revenue expansion means that customers were increasingly engaged with Front. It demonstrates customer validation and good product-market fit. Numbers like these show that Front has the potential to become essential to teams’ workflows. Additionally, our across-the-board MRR expansion was greater than the MRR we were losing from our 3% monthly user churn. We had achieved net negative churn—our MRR from our existing customer base was expanding over time in spite of churn. From an investor’s perspective, by achieving growth independent of acquisition, we had tapped into a reliable and scalable growth machine.”