What is the optimal number of accounts per Customer Success Manager (CSM)?
30 Accounts? 100 Accounts? 10,000 Accounts? How about using the CSM per million dollar metric? Well, that’s not still accurate. Yes, it’s a popular method, but that’s not how Customer Success works. Keep reading as we unravel the principles for determining the number of accounts per CSM.
"Customer success is not limited to SaaS"
The thought process of using the revenue per ARR attributes the customer success to be SaaS-specific, which is not true. Besides, the fundamentals of CSM apply to non-SaaS businesses too. It holds for transactional, non-tech establishments without a smooth relationship with the client.
Customer success management is different from the replica of account management. There is some difference. Besides, the dollar per CSM metric was wrong because it depicts the customers as accounts. Or better say numbers! It is a business model that values customers for their revenue and nothing else. While that might seem logical, it is a pitfall for good customer success relationships. The next section elaborately explains why you should value customers only based on what they pay. That also includes discarding the $ per CSM metric.
The correct CSM formula
Understand that there needs to be a correct indicator of how many CSMs should be attached to customer accounts. That is because customer success is not a SaaS-specific one. Your CSMs are different, and there are varying customer traits too. Therefore, a better approach is segmenting customers based on similar experiences and behavioral traits. You should then determine the required coverage using the client's POV. That also includes observing the characteristics of the recommended coverage model and how it covers the customer. It helps identify how many accounts a CSM should manage. For example, it could be 5 accounts for each customer success rep. Having 200 accounts will then imply getting 40 CSRs. You can start with that and gradually improve the numbers with time. Eventually, you can start optimizing for more effective coverage levels and better accounts to CSRs ratio. Repeat that for the other segments and consider bringing all the CSRs and analysts to level terms on shared information. That is necessary since some customer success reps have been involved before others. So, there is a need for a level-working ground to monitor the cost of managing CSRs.
What do you do when the optimized CSR-to-account ratio is not economically feasible? The first thing is to try viewing the hiring cost as an investment. Check if there is a possibility to manage the cost while purposely working towards getting a cost-effective ratio. Another solution is managing only the customer accounts so that you can offer a better customer success experience. There is one more option: decreasing the coverage level ratio until it tallies with what is economically favorable at that point. That is a straightforward solution but does not improve the customer experience. That is not customer success!
Evaluating customer success management using revenue percentile
Like Marketing and Sales, Customer Success can be measured as a percentage of revenue. Industry assessments place the CSM full-loaded cost percentage at about 15% to 25% per anum sales. The fact that those doing it best might not even be represented in the poll is my biggest issue with industry surveys centered on newer and constantly growing areas of innovation (like Customer Success Management). And if they are, either their results are disregarded as outliers, or the poor outcomes of everyone else make up for them. Therefore, the “fully loaded” customer success management cost models of 15% to 25% revenue percentage have a few guiding principles.
"It is impossible to agree on what “fully loaded” implies"
Does it mean salaries? Running costs? It could mean anything here, and the more you try and figure it out, the clearer it gets. We can assume the wide 15% - 25% is partly due to the lack of precision of what “fully loaded” implies. Sort out the “fully loaded” customer success costs. Items like support or customer service costs should be excluded or placed under operating costs. The running cost of fee-based customer success, like onboarding and consultation costs, should depend on whether they contribute to the overall customer success management process. Since most customer success management costs are heavy “front-loaded” ones - the trend is that the first year revenue is of higher percentage than the following years. The explanation is that the businesses have not optimized their operations over the expected sales lifecycle. Companies that fully utilize customer success growth templates establish better customer relationships with time. The result is evident in higher upsell value and customer purchases with a corresponding percentage decrease in customer success management cost. New companies just trying out proven customer success management models should consider over-investing.
Investing in learning rather than limiting yourself to profitable economics is advised. % revenues around 15% should be higher for such businesses. However, something between 15% to 25% is fine, but there should still be efforts to grow. There is always the possibility for more as the industry keeps evolving. One more thing - be ready to experiment and observe the resulting metrics. These rules may not apply to your business.
