In SaaS, there are a lot of great “rules” that do make sense overall but can be confusing or borderline misleading at times. E.g., Sales +Marketing Expenses < First Year ACV = Success? I.e., keeping the Magic Number at or above 1.0. Great rule — if you have the capital to fund it. But maybe not while you are scaling, you can often afford to invest more if you have funding. And you may not be able to afford this if you are bootstrapped or running lean.
E.e.g., if Churn > 2% = Bad, Just Terrible. Well — Maybe. Especially if you are mid-market or enterprise. But with very small businesses in the early days, it may be OK. And even in the enterprise, losing one big customer can swamp you here in the early days. What most matters is that churn is going down, rather than the core absolute value, IMHO.
One you may not have heard but it’s a good one — is Hire One Customer Success Manager for every $2m in ARR. This is pretty much where most of us end up at, at scale. But it’s not necessarily where you want to be in the earlier days, especially if you’ve been fortunate enough to raise some extra capital. Most of us these days are anchoring about $1m per CSM as they scale (see the survey above).
If you haven’t hired a Customer (or Client – same thing ) Success Team before, it can be confusing to start. It will feel like a cost center. After all, I’m not really losing any of my Big Customers at the beginning — why spend $100k or so, all-in, to hire someone to proactively manage them and nothing else? And can’t customer support just do some of this at least?
Let’s step back because the $2m Rule is a Good One it Turns Out, at least to skate to at scale. Let’s look at the spectrum of deal sizes, and assuming $2m per Customer Success Manager, figure out what one can do at different deal sizes. You’ll see once you divide the average deal size per customer by $2m, you get a quick sense of how proactive your Customer Success Managers can be, and where the likely dividing line between Customer Success and Support will be:
What we can see from the above chart may be obvious if you’ve managed a true proactive Customer Success Team before — but it wasn’t initially obvious to me.
As the deal size goes up, the CSM can be more proactive. And you’ll find it’s critical to segment the team based on deal sizes, so they can specialize in what they do:
- For $100k+ deals, it’s so few customers per CSM, you need to get on a jet to visit those customers, at least twice a year. Even if you closed them on the phone. The CSM should know everything there it is possible to know about these customers.
- For $20k+ deals, the dedicated CSM should know most of them reasonably well and their business processes cold. Visit all of them if they are local, some if they are remote (if practical on roadtrips to). Map out the org and who owns and is responsible for what at the end customer at a very granular level.
- For $5k+ deals, you need to bond in the onboard process or first interaction, and then follow up in an automated but informed fashion. You can’t know everything about 400 customers. But you can try to learn the key facts, and at, say, 200 workdays a year, you can afford to talk to all of them proactively, 3-5 per day. You can. Even this segment doesn’t need to be reactive. There are enough hours in the day to talk to all of them, check in with them, and solve their problems and address their needs before they ever have to create a ticket. Or get angry. Or leave.
- For $1k+ deals, you need strong systems and automation. But you should still identify issues and proactively reach out when you see them. Some will say you can’t be proactive here. But much as we discussed that you can use salespeople at a $99 price point … if you can sell at $99 … you can manage that $99 customer to success, one way or another.
- Below that, it’s going to probably have to be all reactive and ticket-based.
OK, with that, we get a sense of how many accounts Customer Success Managers can handle, and how to segment them in the early and middle days.
>> Beyond that, my learning and suggestion i,s as soon as you have just a large enough cohort in each segment — if you have the cash — hire a Customer Success Manager well ahead of $2m per segment.
>> In fact, hire one for the large accounts (say $50-$100k+ ARR) as soon as you have Just Two Big Customers.
>> And hire one for the middle accounts as soon as that resource can just pay for itself (e.g., say $300-$500k in customer revenue per segment).
Why? Well, as we’ve discussed before, Second Order Revenue — and Attitudinal (vs. mere Behavioral) Loyalty are the Real “Secret” Keys to SaaS Growth and Success. The sales team only brings in a minority of the lifetime revenue per customer. In fact, what the sales team really does in SaaS at a more existential level is not just get the contract EchoSigned, but really, introduce the customer to an entire program of lifetime success. You’ll get as much as 6x the initial deal size out of many of your customers after the initial deal is closed. (See our deep analysis of this math here).
So when you view Customer Success that way, you’ll want to be proactive, segment, and manage to success as early as possible.
However you do it, $2m ARR per Customer Success Manager — but hired in advance, not arrears — is a solid model to scale with. In fact, if you can afford it, you may even want to take the hiring in advance to the next level, and hire one CSM per $1m per ARR or so, if you are growing reasonably quickly. Even at one per $1m ARR, up to $10m ARR or more, it’s a great investment. The best maybe you’ll ever make.