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Scaling: How Do I Grow Customer Success without Throwing People at It?

The end of the calendar year for many businesspeople means three things:

  1. Holiday fun
  2. Closing Q4

and . . .

  1. Microsoft Excel!

What we mean is budgeting season! Who's fired up? Anyone?

Thousands of Customer Success leaders around the world enter “fun” discussions with their CFOs. They debate ratios, cost structures, and scaling models. They are asked for the thousandth time, “How can you prove your team is having an impact?” (We've heard a rumor about some CFOs having “amnesia”—forgot where we heard it, though!)

Schematic illustration of laughing with tongue out emoji.

But most notably, CS leaders and CFOs are annually faced with an almost impossible challenge. How do they scale their businesses and continue to get the benefits of CSM without breaking the bank?

Customer Success and the Rule of 40

This problem is particularly acute for companies trying to hit the “Rule of 40.” As context, the Rule of 40 is a financial concept in SaaS that's all about balancing growth and profitability. Simplistically, the Rule of 40 is a calculation of your revenue growth minus your loss as a percentage of revenue, the idea being that number should be greater than 40.

So if you grow 100%, you can lose 60% of revenue (100 – 60 = 40). If you grow 40%, you should be breakeven. If you grow 20%, you should make 20% margin on your business. As companies mature and their growth goes from 100% or more to 20–40%, the math starts getting intense.

How Do You Get Your Company to Break Even or More?

If you assume a normal SaaS gross margin of 70–80%, that leaves 70 to 80 cents on the dollar for all Operating Expenses—just to break even! But let's assume 70% margins for this simple exercise.

Most companies spend 10–15% (or more) on G&A (general and administrative) and 15–25% on R&D (research and development). Let's assume 35% combined. That means you have 70% – 35% = 35% left over for Sales, Marketing, and Customer Success. That's not a lot.

If you're like most scaling SaaS businesses and you spend 5–15% of your revenue on Customer Success, you end up with very little money left over for Sales and Marketing. So how can you get the benefits of CS in terms of retention, growth, and advocacy without making it a linear scaling problem?

We are seeing more and more CFO and CS leaders digging into this very problem, which at its core is an efficiency problem.

Ten Ways Innovative Leaders Are Scaling Customer Success

Across the thousands of leaders we've met, we are seeing many methods for scaling, including:

  1. Improve the product and leverage it for virtual customer success: Work with the Product team to ensure that the roadmap (especially in the short-term and at the beginning of next year) includes certain enhancements that will reduce the amount of effort that it takes for clients to get value from the product. In addition, make sure the Product team is giving you the data around product usage and adoption that your team needs to understand client health. Finally, consider using the product as an extension of your Customer Success team through in-application guides and walkthroughs. We spoke in Chapter 9 about ways to work more closely with your Product team. Those are important to do on an ongoing basis, but especially during the budgeting process, so that the degree of product complexity is aligned with the CS investment next year.
  2. Build a community: Could your successful clients answer at least some of the questions that others are asking your CSMs? That's usually true. Build an online community where clients can help each other out.
  3. Centralize content: The CSMs at most companies, particularly ones in growth stage, find themselves reinventing the wheel that their peers already built. Two CSMs may have each separately created a deck to address the same use case, and they don't even know it. Want a more efficient solution? Have someone on your CS Operations team own content, soliciting input from the CSMs and formalizing your team's methodology in its materials. You may find when doing this that you don't really have a methodology for how to help clients get value—in which case, you should build one!
  4. Re-segment your customers: Focus your CSMs upmarket while ensuring that you're covering your bases for small clients (see the next tip). In addition, many companies are taking this further by incorporating potential spend and client need into the segmentation model.
  5. Expand your tech-touch strategy: Are you already orchestrating thoughtful journeys for your clients that include a deliberate sequence of in-app walkthroughs, human interactions, emails, and surveys—all catered uniquely to each user? If not, now's the time. This approach can drive success for your long-tail clients as well as automate some of the work that your overburdened CSMs are currently doing.
  6. Expand your support team: If your CSMs are overworked in part because they're spending time resolving technical issues, hire in Support instead. The compensation for Support reps is typically less than that for CSM, and Support teams can also be located in lower-cost locations, because they don't need to be in the same place as clients.
  7. Hire in a low-cost location: Let's say you haven't been able to automate away a lot of work involved in serving your clients. It's still there, waiting for you. As you promote CSMs to management positions and others move on to other roles at the company (or outside your company), backfill their positions in lower-cost locations. Those new locations could be in the same geographical market as your clients or they could be somewhere else. When we built our CSM team in India several years ago, we found maybe one or two examples of other companies that had done this. Today, it's commonplace. To set up this new location for success, consider ways to minimize the time zone difference, find team members who don't feel strongly about working during typical working hours, and create training sessions to ensure that knowledge is transferred from the old location to the new one. You'll also want to make sure you first hire a strong local leader.
  8. Sell services—and CSM in some cases: You may not be able to do all the work you need to do from another location. In that case, consider selling your clients services to cover the cost and expanding your Professional Services team to deliver those. The work that can't be moved to a low-cost location may involve onsite advisory, high-touch education, and deep or technical guidance. Enterprise clients are typically accustomed to paying for services in these areas. You could also consider charging for the CSM role itself, which we'll cover in the next chapter.
  9. Hire earlier-career CSMs and use technology to help them: CSM is still a relatively new field. Some of the most efficient and scalable CS organizations “grow their own” by investing in hiring, enablement, and systems.
  10. Reduce waste: Not every activity a CSM performs is valuable. Some don't impact the client at all. Some don't correlate with retention, expansion, or advocacy. Find and eliminate situations where you are “pushing on a string” and you will scale more effectively.

Summary

Eventually, Customer Success switches from PowerPoint to Excel. By that we mean it switches from a theory to a model. And the question is, how do you scale the model? In this chapter, we reviewed ten strategies for scaling your Customer Success approach without throwing people at it.