Is your CS team growing as fast as your sales team?
If not, are you sure your have this right?
— Jason ✨BeKind✨ Lemkin ⚫️ (@jasonlk) November 29, 2021
If this is your first SaaS company, you may not have ever hired or built a Customer Success team. This one isn’t nearly as risky as a VP of Sales, or a VP of Marketing hire. If you hire a great, experienced Client Success leader as your first hire here, and you like him/her, and the experience is on point — my guess is you’ll be fine. You’ll make a good hire. Look for someone that really was a “Customer Success Manager” or “Client Success Manager” on their LinkedIn, that you believe in, and that worked somewhere < $10m ARR, and you’ll be in the zone.
So let’s talk more about this uber-critical position, what it is, when to hire for it, and what to expect and measure.
A modern SaaS Customer Success Manager is something more than an old school Account Manager that would on-board a new customer from sales and then fade away 90 days after implementation. Rather, Customer Success owns the customer from point of inception (sometimes pre-close) all the way through the entire life and lifecycle of the customer. Sales closes the customer, and Customer (or Client) Success takes it from there — for years. 3-10 or more years, if that’s your Customer Lifetime Value. So actually, Customer Success has a much longer, and ultimately deeper, relationship with the customer than sales or anyone else in your company, including you.
Customer Success is actually your secret sauce to success. Because in a typical SaaS company, even if you are growing 100% a year — well 50% of your revenue is existing revenue. And of that growth? Often as much as 50% of that growth is upsell / additional seats / more revenue from your existing customer base. So directly, or indirectly, Customer Success manages as much as 75% of the revenue of a typical SaaS company (see more math here).
The most important 2 things I think you can do with Client Success is (x) hire early, and (y) measure constantly. You’ll find that most SaaS companies at scale use a rough metric of 1 Customer Success Manager for every $2m in ARR. But goodness, don’t wait until you hit $2m in ARR to hire your first. And if you have enough funding, start with 1 CSM per $1m in ARR. Hire your first CSM as early as you can afford to, as soon as you have even 1 large customer, or even a handful of medium-sized customers. You can hack it until then with customer support, sales, and yourself. But your bigger customers are going to need more help than that, and more proactive (vs. reactive) help. So hire your first as soon as you can.
>> As a related rule, anticipate spending about 10% of your existing revenue base on Client Success + Support, once you are past Initial Traction, and more for a while if you can. At $2m in ARR, budget $200k in headcount for the CSM positions + support. At $4m, $400k, and so on. You may be able to pare this back a bit later, but probably not too much.
And then measure the results. A lot of people will talk about “Net Promoter Scores” and that’s a good start. But in a SaaS start-up you’ll feel much better when your revenue goes up, and when your existing customers buy more from you. So here’s the simple way to incent, grade and measure your CSM team:
- First, measure Client Success on gross renewal rates — and shoot to increase these rates on a rolling basis over every quarter. The absolute optimal renewal rates will vary a bit by customer size. The largest of enterprise customers should renew at a 95%+ rate for most SaaS apps. Very small businesses may only renew as low as 60 or 70% — they can go out of business, change models, etc. On average, most SaaS companies see renewal rates on base revenue and base customer #s of 80-90%. First measure it, establish a base. Then improve it.
- Second, measure Client Success on “net churn”, or total revenue from the customers under management by Client Success. Most SaaS businesses will see upsell and upgrades if you’re doing the right things. Not on day one, but over the course of the first 6-18 months, and thereafter. Medium and larger size customers will find new use cases for your app, expand the number of internal users, etc. Track all the revenue from your existing base, subtract the lost revenue from churn, and add in the new revenue from your existing customers, and you’ll get to “Net Churn”. Net Churn is a bit confusing though — as it should be negative for SaaS apps selling to SMEs and larger. It’s simpler just to measure the total revenue growth from your customer base. A typical target is 110-120% net annual revenue growth rate from your base, including both churn and upsells. It may be more or less for you, but baseline it, and try to grow it.
It’s really that simple. Measure both. Promote the results of both across the entire company, just like you do new sales. Tie bonuses and comp to success on both metrics (favor, in most cases, pure retention first, and additional revenue second).
And watch magic happen. Not overnight, but within 3-6 months.
In the end, what you are doing is promoting Attitudinal, rather than just Behavioral, loyalty. If your app is effective, many customers will stay with you no matter how poorly you treat them, out of habit. But the upsell is all in loyalty. In building a deep relationship of trust with your customers. Then, they’ll buy more, eventually at least. And this is where you’ll see the ROI on Customer Success. It’s not a cost center, as it will at first appear. It’s a revenue enhancer.
#4. NRR steady at 130% — for 11th straight quarter.
This is a great challenge to the thinking that high NRR can’t scale, or will oscillate, or accounts will max out.
Zoom’s has stayed at 130% almost irrespective of the customer mix and scale/ARR: pic.twitter.com/7V4jIgttnz
— Jason ✨BeKind✨ Lemkin ⚫️ (@jasonlk) March 3, 2021
(note: an updated SaaStr Classic post)