Aug 5, 2022

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Mythbuster monthly: Customer Success Manager coverage ratio

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When times change, Customer Success changes with them. Most Customer Success myths stem from the early days when our industry was in its infancy. Many of the practices that used to work no longer do—in fact, they could even be hurting your business.

Mythbuster monthly is a ChurnZero series dedicated to laying those common Customer Success misconceptions to rest. This installment’s myth is brought to you by ChurnZero Customer Success Manager (CSM) Allison Mortens and covers the widely held but false belief that there’s a universal standard for the number of accounts or amount of annual recurring revenue (ARR) that each CSM can manage. After reading that sentence, I bet a figure popped into your head. Does it have any merit? Let’s find out.

Myth: One CSM to $1M ARR is the ideal ratio in CSM portfolio allocation

If you’ve been in Customer Success for some time, you’ve likely worked on a team where the measure of one CSM for every $1 million ARR was a defining metric to build a CSM’s book.

The exact dollar figure isn’t what’s problematic about this rule. You could debate whether it should be $1 million, $2 million, or $5 million until you’re blue in the face and still not have addressed the real issue.

The ubiquitous million-dollar rule is troublesome for two reasons:

  1. It doesn’t factor in your customer journey. What customer touchpoints (interactions) occur within your journey? How often does each touchpoint occur? How much time does it take to facilitate each touchpoint? The answers to these questions will be different for every company, as will the amount of effort it takes their CSMs to deliver value along the journey.
  2. It assumes all customers are of equal value to the business. They’re not. You need to know the makeup of your customer base to determine appropriate engagement levels for different cohorts. Without segmenting customers to understand where the revenue or value thresholds exist, you can’t effectively build engagement programs or a manageable book for CSMs.

It’s the simplicity of benchmarks that makes them so appealing, but it’s also the very thing that can lead some astray when they are not applied within a proper context. Always consider your company’s size, industry, maturity, mission, customer base, and workplace culture when deciding if a benchmark is fit for use.

Use a bottom-up approach to establish CSM book size and coverage ratio

Finding your magic number for CSM book size ultimately comes down to CSM capacity. We recommend conducting a bottom-up analysis that looks at the expected workload of your CSMs to determine the number of customers per CSM. Your customer journey, which dictates capacity, will form the basis of the analysis. We walk through a step-by-step process on how to do this—with working examples—in “Customer Success capacity planning and budget guide.” But if you’re looking for the Cliff Notes, here’s the gist.

Start by adding the time required to deliver monthly customer touchpoints, such as success plan reviews, business reviews, and product announcements. Factor in their frequency and duration.

Then, add the time required to deliver one-time customer touchpoints like kick-off meetings. The math gets trickier here because you need to smooth the time out across the customer base (more on that in the Customer Success capacity planning guide).

Next, add the time required to complete inbound activities each month, and total all the above.

Then, subtract the time spent on monthly internal activities such as company meetings, email catchup, and one-on-ones. A rule of thumb is to reserve two-thirds of a CSM’s time for customer-related tasks and one-third for company work.

Take the available hours per CSM per month and divide it by your adjusted workload total to arrive at the number of customers each CSM can realistically support. Voilà. You have a made-to-order CSM coverage ratio.

After performing this analysis, you’ll have the leverage you need to talk with your CFO and leadership about the resources it takes to deliver the desired customer experience.

Build a CSM coverage ratio for every customer segment

By now you know, there’s no standard number of customers per CSM. It’s unique to every company—but also to every customer segment.

Don’t stop short of applying the bottom-up analysis to each of your individual segments. Customers’ profiles and needs can widely vary within a single company based on their strategic value, spend (ARR), product use case, and more. Engagement practices and programs that correlate with these cohorts require distinct levels of CSM resources. Consider the level of effort required to deliver every version of your customer experience and ensure that’s reflected in your CSM book size.

As we mentioned, segments form the basis for your bottom-up analysis, but they also serve as the foundation for effective Customer Success. Differentiating customers is the first step of any Customer Success strategy. Learn how to build segmentation models based on influential factors such as customer attributes, lifecycle stage, customer behavior, potential value, and customer needs in our “Smart segmentation guide.” It outlines questions to ask when creating your customer lists and example segment criteria.

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