Unit Cost Conversations for Customer Success Teams

Anna Alley

Hi All,

As a newer leader of a medium-sized CS team, I'm being challenged to reduce unit cost as it relates to Customer Success. Right now, we are largely seen as a cost center rather than a revenue generator (which we are working to change, but not happening fast enough for 2021 budget conversations). I'm curious if this is something others have faced and how you've navigated? We have a fairly complex product and are B2B. As a relatively new function, we also face challenges with still getting pulled into customer escalations around support, despite having a separate support team (also working to correct). 

Ideally, I'd love to be able to add a few additional CSMs next year in order to achieve the experience we want to deliver. While we are working on additional technology/scalability initiatives, we don't have them yet, and thus the challenge of cost (primarily driven by headcount).

Would love any suggestions/ideas on how you may have navigated this in the past!

Ed Powers

Hi @Anna Alley--

The most difficult thing for CEO's, CFOs, and board members to visualize is time-delayed economic impacts. Intuitively, they can appreciate that cutting Development will eventually slow the rate of new feature introduction and bug fixes, but for some reason, the same intuition doesn't apply for Customer Success. The benefits that come from value realization, trust-building, and revenue expansion don't' appear for many months (and sometimes years) after Onboarding which puts us at a disadvantage. 

This is why I recommend you put together an economic model with your CFO that demonstrates both the cost and impact of Customer Success on unit economics as a function of time. At a minimum, you will need to show ARR, CLTV and CTS (Cost to Serve). It's also extremely helpful to reference churn & retention reasons data (assuming you have it), which can help quantify the economic impact of Customer Success. 

David Skok gives a helpful conceptual overview of the SaaS model and offers an downloadable spreadsheet template for monthly and annual contracts (https://www.forentrepreneurs.com/saas-metrics-2/). Be careful to note that his churn calculations are misleading--he computes an average churn based on the total number of contracts, not just on those up for renewal. While the model shows the general idea of how revenue accretion works, I strongly recommend against using his churn calculations for Customer Success KPIs. 

I do a lot of economic modeling, so if I can be oaf any assistance, shoot me an email: [email protected]. 

Ed

Russell Bourne

@Anna Alley, Gainsight has a chart which I'll paste below, relating the maturity of a CS org to net retention.  (Their full article: https://www.gainsight.com/blog/what-is-the-roi-of-gainsight/)

My own experience is that the chart is accurate and I'd love to hear from others on that.  Although the Gainsight article is there to help sell Gainsight, your headcount can mean the difference between reactive/informed/proactive stages even if you don't use a CS platform.  You just have to segment and plan in a way that serves you best.

As @Ed Powers wisely pointed out, even if these ROI numbers are accurate, it may take a few quarters to fully see the impacts of a cut or increase in your staffing.  An impatient CFO, especially in a public company, might only care about the current quarter.  GGR community: how have you seen this play out in your experience?  (Edit: specifically looking to hear success or failure stories of CS leaders getting CFO/CEO buy-in on investing in CS.)






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Russell Bourne
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Original Message:
Sent: 08-31-2020 09:23
From: Anna Alley
Subject: Unit Cost Conversations for Customer Success Teams

Hi All,

As a newer leader of a medium-sized CS team, I'm being challenged to reduce unit cost as it relates to Customer Success. Right now, we are largely seen as a cost center rather than a revenue generator (which we are working to change, but not happening fast enough for 2021 budget conversations). I'm curious if this is something others have faced and how you've navigated? We have a fairly complex product and are B2B. As a relatively new function, we also face challenges with still getting pulled into customer escalations around support, despite having a separate support team (also working to correct). 

Ideally, I'd love to be able to add a few additional CSMs next year in order to achieve the experience we want to deliver. While we are working on additional technology/scalability initiatives, we don't have them yet, and thus the challenge of cost (primarily driven by headcount).

Would love any suggestions/ideas on how you may have navigated this in the past!


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Anna Alley
Director of Customer Success & Advocacy
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