How many customer success managers you really need
A rule of thumb I’ve encountered frequently was that you should hire 1 CSM per $ 2-M ARR. I’ve no idea how this has been determined but this is not only overly simplistic, but it could possibly cause a lot of harm if you follow it blindly.
At a 1-CSM-per-$2-M-ARR ratio, the quality and scope of customer success services might be too low for your customers’ expectations and if they don’t achieve their desired outcomes churn is the logical consequence.
Before you follow me any further on this, I’d like to point out that you won’t find a definitive answer for an ideal ratio in this post because it’s 100% individual for any SaaS business. Even for two companies that virtually sell the same product for the same prices.
The wrong angle
It’s not hard for me to see where the whole idea comes from – the misguided view that customer success is a cost center and needs to be optimized for efficiency. But customer success is a growth function.
The purpose of customer success is to help customers grow their value and achieve their desired outcomes, and in return, grow their ACV and LTV with renewals and expansions. Customer success managers are also the driving force behind value-based price increases, identifying the ideal customer for higher conversions and initial ACVs and new product features customers are willing to pay for.
It’s really ridiculous. SaaS companies spend on marketing and sales to acquire new customers like there’s no tomorrow. Despite it being the worst of the 5 growth levers by far. And yet, customer success teams have to justify any cent in their (small) budget.
The only thing that’s clear is that any some point the costs of customer services (Support and Success) have to be lower than the recurring revenue assigned. Otherwise you won’t generate positive margins to repay the customer acquisition costs and eventually make a profit.
An alternative way
Forget about ratios completely. What you need to optimize is the customer portfolio for every customer success manager because every customer is different – even those who deliver the same revenue. Of course, they are different in many more ways but that’s a story for another time.
Think about it:
- Customer success manager A owns a portfolio of mainly highly mature companies who require “low maintenance”. As a consequence the CSM may hold a portfolio value that goes far beyond $2-M-ARR.
- Customer success manager B owns a portfolio that consists of a significant amount of fast growing startups backed with 8-figure venture capital. The scope and intensity of services will be much higher. And the corresponding portfolio value may only be 500k. But it will likely be 10x as much in 2-3 years.
Would it make sense to add more customers to the second portfolio? Not if it will lead to a lower engagement with the high-growth customers.
In reality every CSM will have a mixed portfolio of customers. A practical tool to segment the customers in your portfolio is the BCG-Matrix.
Conclusion
With the segmentation of your customers in terms by profitability and growth potential you can optimize the distribution of your resources:
- Hold the Cash-Cows and improve profitability with “lean” services (if possible)
- Get rid of the Poor Dogs or reduce services to turn them into cash cows (low probability)
- Carefully invest into Question Marks
- Generously invest into your Stars
And as for your whole company, you need as many customer success managers as it takes to maximize the value for all your customers and their ACV and LTV in return. Customer success is a growth function, not a cost center.