Which customers should Customer Success focus on?
Customer Success teams are often understaffed and bandwidth is stretched thin; in Preact’s Customer Success Priorities Report the median ratio of accounts to Customer Success Manager (CSM) was 90:1. I have seen this ratio as high as 300:1 (most commonly these SaaS companies have a considerable number of lower-value customers). With so many accounts to manage, how can CSMs ever feel like they’re delivering value to their customers? The first step is to make sure they are focusing their efforts on accounts that matter most to the company’s long-term success. Which differentiators can help you determine which accounts Customer Success focus on?
ARR
Why: It’s pretty obvious that you should spend your time on customers that generate more revenue for your company. For that reason, this is usually the first (and sometimes only) metric companies take into consideration when creating internal “service tiers”. The most commonly cited metric for determining an appropriate CSM to customer ratio is also tied to ARR with $2MM in managed ARR per CSM established as something of a gold standard.
Shortcomings: What mix of customers does it take to achieve that $2MM ARR number? Do you have one large customer at the $500k mark, two at $25ok, a handful at $100k, and the remaining $500k made up of 20+ companies? Assuming your ACV is close to the industry median of $25k, each of your CSMs will be managing 80 accounts to get to that magic $2MM in ARR figure. If your CSMs were to speak to each of their accounts once a quarter, they would need to reach an average of 1.25 customers every day- that’s a lot of calls.
Additionally, if your Sales team is doing a good job, the Customer Success team will only have more customers as time goes on. Without additional investments in the Customer Success team, the increase in customer volume is likely to result in the revenue barrier for each service tier to rise. As a result, customers that are spending a decent amount of money on your service will likely be neglected.
Expansion or upsell potential
Why: Focusing on current ARR ignores the fact that some customers present a disproportionate revenue expansion opportunity than others. Especially if your company is employing a bottoms-up sales model, there should be huge expansion opportunities within your current customer base. This article discusses how to evaluate a customer’s expansion potential.
Shortcomings: CSMs are (usually) not salespeople, and having them prioritize expansion opportunities can distract them from providing value to their customers in the immediate term. I’ve found that the best way to upsell or cross-sell a current customer is to ensure their users are successful. Operating under an ulterior motive can poison the potential success of an initial limited roll-out.
Accounts at risk of churn
Why: Churn can slowly leech away at the lifeblood of a SaaS startup- reoccurring revenue. For that reason, Customer Success should be committed to preventing and getting out ahead of churn.
Shortcomings: It can be hard to identify which customers might be at rick of churn short of speaking with each customer on a regular basis- and even that’s not a guarantee. A customer health score allows Customer Success teams to keep a pulse on the success and challenges of their customer base and proactively identify red flags that indicate a customer might be at risk of canceling. Creating a CHS requires resource allocation from Engineering, Product, and potentially an investment in a new Customer Success tool.
Personal relationships
Why: We are all naturally drawn to certain people and to expect CSMs to disregard the personal component of a business relationship is impossible. CSMs will be inclined to favor accounts that present an opportunity to work with a point of contact they like. These accounts usually present a great opportunity to really get to know the customer and their business. A personal relationship is also invaluable when Product asks for suggestions for suggestions for who to conduct user research with, Marketing needs testimonials, etc.
Shortcomings: Not scalable or necessarily in the best interest of the company.
As the Customer Success team grows and the number of customers hits triple digits, it becomes useful to have a way of determining which accounts warrant more attention than others. Leaving it to your gut feelings only gets you so far. One final word of warning: don’t let your customers feel like they’re in your lowest “service tier”. This requires some creativity if the Customer Success team is strapped for bandwidth, but determining which accounts should Customer Success focus on prevents your CSMs from spending all their time attending to the customer equivalent of the squeakiest wheel. All your customers want to feel valued; no one wants to feel like the last person picked last in gym class. Scaling your Customer Success team shouldn’t come at the expense of your customers.
