When and How to Make Your First Customer Success Hire
In the early days of a startup everyone from the CEO to the Content Marketer is a defacto member of the Customer Success team. Being removed from customers isn’t a concern because you interact with them daily through support tickets, live trainings, and sales demos. As the company grows, it becomes less clear who owns Customer Success. Customers start complaining that they’re not getting the service they need to see value. Churn increases and expansion revenue evaporates. At this point (or sooner) it’s time to make your first Customer Success hire.
Why You Need a Dedicated Customer Success Team
A high churn rate is often the catalyst behind creating a Customer Success team. From day one, companies are focused on building their user base and increasing revenue by acquiring new customers. But what happens after a customer signs up? Companies rarely give enough thought to how they will help customers meet their goals and provide enough value to convince them to stick around.
“Today, getting tons of new users isn’t hard. What’s hard is keeping them.”
– Hiten Shah, Co-Founder of Crazy Egg
Addressing churn isn’t enough, companies should also see growth across their existing customer base. Expansion revenue is a measurement of the the value you’re providing customers. Customer Success Managers (CSMs) reduce churn and increase expansion revenue by driving product usage and adoption, building strong customer relationships, and translating user feedback into product direction.
How many CSMs should you hire?
Ask five Customer Success leaders how to determine the appropriate number of CSMs to hire and you’ll likely receive five different responses. The correct answer depends on two key factors – ARR per CSM and the level of service the company provides.
Establishing a ARR to CSM ratio is a common framework for allocating Customer Success headcount. The ratio popularized by Jason Lemkin is one CSM for every $2MM in ARR. However, this doesn’t make sense for every company, especially when it comes to your first Customer Success hire. Let’s assume your Annual Contract Value (ACV) is close to the median figure of $21k. Each CSM would need to manage 95 accounts to meet the $2MM quota. This ratio might seem reasonable, or it might seem laughable – it all depends on what kind of attention your CSMs are expected to give each customer.
Companies need to identify what level of service they need to provide to enable customers to meet their goals. Ideally, customers will be paying enough to sustain this level of investment. If not, companies can be in the difficult position of trying to offer a high level of service to an unreasonably high volume of customers. CSMs should leverage opportunities to scale their efforts in order to prevent them from diluting their services. The proper number of accounts per CSM is a balance between the type of service you expect CSMs to deliver and a sustainable ARR per CSM ratio.
Who to Hire
First, let’s talk about who you shouldn’t hire. Don’t immediately hire a VP of Customer Success. Someone with 10+ years of experience is unlikely to want to get in the weeds, which is exactly what you need. Over-hiring can stall the progress of your Customer Success team before it’s even started.
“When you’re still in that stage of being a lean, mean, product-building machine, too much structure can hinder communication and slow you down. In those early days, you usually can’t afford to have dedicated managers.”
– David Cancel, CEO of Drift
CSMs come from a lot of different backgrounds, but the majority lack direct experience in Customer Success. People working in Customer Success often come from Sales or Account Management backgrounds, and only 24% have previous experience in Customer Success.
With this in mind, companies should consider how much of a tradeoff they are willing to make between someone with experience in Customer Success versus industry knowledge. To determine where to place the appropriate emphasis for your company, revisit your service expectations. Decide if your CSM will need specialized knowledge or skills to accomplish their day to day tasks. If they will be troubleshooting issues with customers or making technical suggestions, they need an underlying understanding of specific technologies. Next, consider how past experience in Customer Success will impact their ability to be effective in this role. If they will be working with C-Level executives who have a ten thousand foot view of their business, then being able to deftly manage those relationships will be more important than a technical background.
Remember, CSMs need to be able to help customers meet their goals and deliver value by increasing product usage and adoption, building relationships, and translating feedback into product direction. As a result, non-negotiable skills for any CSM are the ability to communicate effectively and persuasively, train and educate users, and collaborate across multiple teams.
Making the right Customer Success hire can decrease churn and increase expansion revenue. To determine how many CSMs you need to hire, balance the level of service you need to provide your customers with a sustainable ARR per CSM ratio. When looking for the right candidate, weigh how much emphasis you want to place on experience in Customer Success versus industry knowledge. The good news is that even if you need to make some tweaks down the road, investing in a Customer Success team will improve the success of your customers, and your company.
UserIQ surveyed 400+ SaaS leaders and found that one of the greatest opportunities for companies today is a stronger alignment between their customer success and product management teams. Learn why here.
As healthy companies continue to grow it becomes harder to do so at the same rate through new logo acquisition. Companies spend an inordinate amount of effort on labor-intensive adoption and reactive, renewal processes with little or no regard to creating a disciplined expansion strategy. It’s time to change your strategy. It’s time for Customer Success 2.0.
Catch up on the latest Summer Slump Series: Customer Success edition. We compiled the top CS content to help you get ahead and make you and your team as successful as possible.