Investment Considerations for Customer Success

If you are a SaaS company looking to invest in Customer Success, one of the most important considerations is the customer per Customer Success Manager (CSM) ratio – the number of customers a CSM can support while still remaining effective.

This is often a delicate balance that will need to be baselined and readjusted over the first few years that your Customer Success team is in operation. It will mostly depend on the complexity of your deployment offering. Experience shows that we often overestimate the time customers can afford to spend on a platform and underestimate the complexity of deployment and operations in the customer’s environment. Initially, startup sales and customer support organizations usually spend a great deal of time to achieve this balance to make a customer happy.

Ultimately, you need to pick a model that enables you to justify the cost of the Customer Success team, and demonstrate success by revenue renewal and existing client revenue growth (and not by your % of customer coverage). You do not want CSMs to be measured on whether they are covering 100% of your customers – this model does not lead to success, as you will sacrifice quality, focus and actions. MRR retention, revenue growth, customer retention, customer wallet share and satisfaction should be a reflection of your team and company’s true success.

First, start by examining how sales has prioritized and segmented customers. You might be able to align with their strategy. If not, you will need to develop one.

Customer Segmentation/Categorization Considerations

Strategic Customers: These customers meet your highest current revenue thresholds, have a high potential future revenue value, or have a strategic relationship value. Although your strategic customers will be the fewest, they will require the most focus, time, and resources. Your most senior and experienced CSMs should be assigned to your strategic customers.

High Priority Customers: These customers meet a certain minimum revenue criteria. This revenue band is very important to the company, and will likely have a high growth potential. CSMs will have a higher number of customers to support in this band.

Foundational Customers: These customers are smaller in revenue and strategic value. Very often, these represent the largest number of customers in your company. There are several options to provide support to these customers. In the initial development stage of a company, this band of customers is referred to the customer support center and the self-service tools you have to offer them. Typically, there is no CSM is assigned to them. Over time, you might increase the self-serve program to include a health check team that may or may not include CSMs.

Another categorization approach could be: Strategic, Enterprise, Corporate, and Small and Medium Business (SMB). This aligns with the type of business as opposed to their size of revenue. When possible, aligning with Sales (if they have an established model), can greatly help in future communication and account team alignment.

When you first invest in the team, plan to completely cover all your customers as long as there are less than 75. Hire 1 or 2 CSMs – they will be quickly saturated but this will at least get you started.

As the number of your customers grows, start aligning them to the categorization and start defining the type of service level each category will receive. Consider the amount of time each CSM will spend per customer. This will then help you validate your first assumptions of customer per CSM.

If your offering is relatively complex with an involved deployment, your ratio could look something like this:

  • Strategic Customers will have a ratio between 1 to 25 customers per CSM
  • High Priority Customers will have a ratio between 30 to 50 customers per CSM
  • Foundational Customers will have a ratio between 50 to 150 customers per CSM

Location Considerations

Can your CSM team be centralized, or will they be in the field? Are you covering one continent, several time zones, or maybe the entire world? Your CSM ratio might be different depending on where your customer concentration is located. You might be able to cover a remote customer with a CSM for a period of time. Eventually, your Strategic Customers will likely need localized support. Make sure to question your management team about plans to scale and expand markets.

Additional Headcount Considerations

Management overhead in a Customer Success team is pretty straightforward. If you have the budget to do so, hire a hands-on VP or Senior Director right away. Establishing your leadership from day one will go a long way in making sure you have the right model and operational efficiency. When the timing is right, you will want to introduce team leads, managers or directors either by customer category or geographic region.

Depending on the stage of your company, you might want to introduce a Service Program Manager to help in the definition and introduction of customer programs. Experience shows that the work involved in defining your Customer Success journey requires a good amount of effort. As your business matures, consider formalizing this effort with a dedicated role. This will provide tools to the CSM to draw from as they help customers. The more equipped the CSMs are, the less time it takes to manage customers, the more quality they can deliver and even possibly help to increase the CSM per customer ratio.

Compensation Model Considerations

Based on the CSM skills you are hiring, a CSM compensation plan might be required and can be a great tool to direct results. There are a few options to consider: a compensation plan linked to revenue growth and customer retention; a bonus system tied to company and personal goal performance. This first model enables you to measure your retention rates against your Customer Success investment.

Infrastructure Considerations

There will be infrastructure costs so plan to at least budget for the following:

  • Standard IT costs: Computer/tablet, phone, system accounts (CRM, email, audio/video conference)
  • Process and tool support: Customer Success management platform, team and sales meetings, performance contests, Customer Case studies, customer forums
  • Travel

If you are working to convince stakeholders and decision makers to invest in Customer Success, be sure to address the fact that your ratio estimate is a baseline that will need to be revisited the following year — when you have a better understanding of what it takes to make a customer successful.