When to Build a Customer Success Department (and How We Did it)
Selling to large companies? Support isn’t enough, you need to invest in customer success — for their own good as well as yours.
Over the last decade, customer success (CS) has grown to the point where it is now considered a pillar of SaaS businesses, equally as important as product, engineering, marketing and sales.
In this article, part one of a two-part series on CS, I’ll explain the history of how we built a CS team at Proposify (a team I came to lead for a little while I recruited a VP), how to implement CS strategies in your own SaaS business, and the metrics to keep an eye on to track the success of customer success.
To start, let’s be clear on what customer success actually is.
You just mean support, right?
Customer success has an unfortunate name because it’s often used interchangeably with customer support, but the two are different.
Customer support is technical and reactive.
Customer success is strategic and proactive.
Support is important — customers need to get fast and friendly help when they’re confused or running into problems — but customer success is different. It’s focused on the business results your software achieves.
Customer success understands each customer’s desired outcome and sets personalized benchmarks for success. They monitor for issues with their accounts, like improper usage of a feature, or declining usage overall, and reaches out to offer guidance. They onboard each new account and help them get value out of the product as soon as possible. They review the software with each of their accounts on a regular basis throughout the year to demonstrate the business value it’s been delivering.
At Proposify, we began to see the need for customer success in 2017 as we began moving up-market to sell to mid-market and enterprise businesses that had large sales teams. Up until that point we just had a customer support department who helped our entire customer base, but our larger customers were running into problems inherent to their level of usage and needed more proactive outreach.
Over the last year and a half, with a lot of learning and a few stumbles along the way, I’m happy to say we have an amazing customer success team of 3 customer success managers (CSMs), an implementation specialist, and a VP, Conor, running the department.
Generally, when you’re hiring salespeople, you want hunters. You want people who are all about getting out there in the wild, stalking leads, and closing deals.
The mentality for customer success managers is completely the opposite. CSMs are like farmers; they’re the kind of people who look at a relationship and develop a plan to nurture that opportunity to maximize the long-term potential. CS preps the soil, sows the seed, and nurtures the seedling into a strong, healthy tree.
They know it requires building a successful relationship over time. That long-term foresight is critical to the CS mindset. It’s a marathon, not a sprint.
Alongside expertise in customer success, it’s hugely beneficial to attract CSMs that have some expertise in the category or the market that you serve. For instance, Cribcut, a company I invested in, serves hairstylists. So their CSMs are — you guessed it — hairstylists themselves. At Proposify we’re selling to salespeople and sales managers, so most on our CS team have done sales in previous roles.
To be effective, our CSM’s needs to know the right questions to ask, like, “How long are your sales cycles typically? What’s your close rate look like? At what stage of your sales funnel do you send a proposal?” Having that insider knowledge helps your CSM establish themselves as a trusted advisor to the customer. It can’t just be about how to use your software, it’s about how the software solves their business problems.
How big do your customers need to be to warrant a CS manager?
Say you’re B2C like Netflix, selling to consumers — you might have millions of customers, but they’re each only bringing in $12 per month. And, obviously, none of us have ever talked to a customer success manager at Netflix to make sure we’re happy with the movies we’re watching.
However, if we paid Netflix $50,000 per year, they’re going to really make sure they keep us as customers. They might implement strategies to ensure our happiness and satisfaction with the service. (Jeez, for that price we should be able to hang out on the set of Stranger Things)
The example above ($12 vs $50K) is a gross oversimplification. The reality is a lot messier. You probably shouldn’t give $1,000/year customers a dedicated customer success manager, but the line in the sand isn’t always clear. It depends a lot on how successful you can make your customers without CS. Some customers may happily pay six figures each year and not require a CSM. However, some smaller customers may need a higher touch process to get fully on-boarded. The cost of not offering that service to those $1K customers may be more expensive in the long run if you can’t retain them without it.
So the answer is, it depends. A general rule to stick to is to invest 10% of the total contract value into customer success.
Say you have an expensive enterprise product (six or seven figures) and it took 18 months for your sales rep to close the deal. That’s not an account you want churning, so you need to invest a significant amount to ensure the success of that customer. That might mean flying the CSM down to meet in person every quarter, and a dedicated onboarding team rolling out the product to set up with a complex implementation.
But for an account with a much smaller contract value, let’s say $10k a year, that customer success playbook will look much different. In that scenario, that might be as simple as having a CSM jump on a kickoff call, maybe do a training session and check in by phone every year for the renewal — or more often if there’s a noticeable problem with the account. It’s really whatever is needed to onboard, retain, and expand that account, but within reason.
What are the key performance indicators for CS?
The ultimate goal of customer success is to onboard, retain, and expand accounts.
In a subscription-based business, your basic metric for success is growing monthly recurring revenue, MRR. The enemy of growth is churn — the recurring revenue you lose due to cancellations (aka net MRR churn). Churn really takes hold as SaaS businesses grow past $5M ARR. Customers cancelling or downgrading their accounts eats into MRR growth very quickly.
If churn is minimized, and more customers are upgrading rather than downgrading or cancelling, essentially you can achieve negative churn. Negative churn is the holy grail of SaaS because it means exponential growth.
Positive churn kills growth. Negative churn accelerates it.
So the CS team should primarily be responsible for churn, which includes expansion MRR (how much existing customers upgraded) and contraction MRR (revenue lost due to downgrades).
It gets better: If negative churn increases revenue exponentially, account expansion compounds that exponential growth. I’ll dig into why CS should be involved in upselling accounts and when is the best time to do so in part 2, next week.
Customer Success’ relationship with the product team
Some SaaS businesses assign net promoter score (NPS) to the CS team instead of the product team. It’s not how we do it at Proposify, because they don’t really have any control over what actually gets built in your product.
But, on the other hand, making CS responsible for the NPS score does give them some influence when it comes to deciding what gets built. (In case you missed it, I talked about how the Proposify team decides which features to build in a previous post.)
Regardless of who owns the number, customer success is the voice of the customer, and it’s essential they relay where users are getting stuck, what’s causing the most trouble, and even when they’re losing accounts because the product lacks a certain feature. It’s extremely important for there to be a good partnership and constant communication between your customer success team and your product team.
Our CS team meets regularly with Ricky Ferris, our chief product officer, to share their learning, and a few will act as stakeholders on certain projects so they can provide the voice of the customer for the designers and engineers building new features.
What does comp look like?
There are a lot of different ideas on how best to compensate customer success managers.
Unlike a sales commission, which is entirely dependent on the deals they close and therefore very straightforward, CS is about the long game. Therefore, compensation looks a lot different. I’ve designed a model that we’ve begun implementing at Proposify.
Every quarter, we look at each CSM’s churn rate for the accounts they own. The higher their churn, the lower their bonus. The lower the churn the higher their bonus. If their churn is above zero they get little to nothing. If their churn is in the negative, it means they’ve been expanding their accounts and the bonuses become the kind on which Clark Griswold based his in-ground pool dreams.
Even if your sales reps didn’t close a single new deal, your revenue is still growing thanks to your CS team. That’s how powerful negative MRR churn is.
I think this model makes a lot of sense. It’s at least something worth trying. There are a lot of different models out there for comping customer success, but this is one that most closely aligns with negative churn, the key performance indicator of the CS department. It works in theory, but I’ll check back in a future episode about how it does. Conor may end up changing that too.
In next week’s post, I’ll cover exactly how customer success lowers churn and increases lifetime value.
What kind of CS strategies have you implemented in your business? Does what we do at Proposify resonate with you? If so, let me know in the comments!
Enjoyed this article? I’d appreciate you giving it some claps. Also if you’re an entrepreneur, check out my book, Free Trials (& Tribulations): How To Build A Business While Getting Punched In The Mouth available on Amazon