Up until this point, we have covered the core skills and processes that a Customer Success Manager needs to practice and internalize. It's time to shift focus toward the leaders of Customer Success teams. They have an equally important responsibility to make sure they hire, develop, lead, and retain the best talent in the organization. To do this, you need to be introduced to three main concepts. The first concept is how to manage the CSM workload and coverage ratios depending on your segmentation strategy. Then, how to design incentive structures to drive the right behaviors. The final concept is how to use reports and dashboards to drive operational rigor.

Segmentation and Aligning a Customer Success Manager to the Right Customer

Earlier in the book, we briefly covered segmentation, but we feel it is a subject that requires a bit more knowledge and depth to use it effectively. Your goal is to provide a balanced CSM-to-customer ratio (or CSM ratio) based on your business segmentation strategy. Your company likely has a wide range of customers with varying sizes, revenue, expansion opportunities, and needs. To be able to manage such a diverse group of customers, it is essential to segment them into subgroups based on shared characteristics. In Chapter 7 (Figure 7.4), we reported that the most common data point for segmenting customers is an Annual Recurring Revenue (ARR) number. If your business doesn't have a recurring revenue business model, an alternative is to use “expected revenue” from your customer. A revenue-related metric is the most commonly used because customer-based revenue tends to be an exceptional proxy for the CSM workload, especially as it relates to meetings, touchpoints, and escalations.

Segmentation assignments for your CSMs are an important strategy for a company of any size, especially as the company starts to grow. The worst thing you can do is have a segmentation model that both inhibits your CSM's capabilities and your growth. We decided to approach two people for their rich understanding of this subject. The first is Patrick Eichen, Vice President of Client Success at Cornerstone OnDemand. Patrick has vast experience developing operationally efficient, development-driven, and performance management models in Customer Success.

According to Patrick, “Customer segmentation is one of the most important aspects of scaling customer success. Investing time and resources in this area will help you better understand your customers and how your product provides them value. Most importantly, it should help to clearly define what they need from you in order to be successful. As you start to refine this approach, you will likely realize that the skills needed for a Customer Success Manager to be successful in supporting each customer segment will look different. Aligning the right type of CSM to the right customer becomes a critical component of the overall framework.”

Patrick added that Cornerstone spent much time identifying customer personas in each of their market segments, which influences their segmentation approach. Aside from just focusing on typical aspects like revenue, employee population, and industry, Cornerstone also considered factors such as how mature customer talent processes were and how complex the customer use-case was with Cornerstone's software. “Having implemented thousands of customers,” Patrick said, “Cornerstone now has a good sense of what type of support our clients will typically need and have incorporated this in how we have scaled customer success.”

The second individual we sought out to enlighten us on this subject was David Kocher. David is the Vice President of Customer Success at GE Digital. GE Digital is the leading software company for the industrial Internet. They have been reimagining the industry's infrastructure by connecting software, apps, and analytics to industrial businesses. David and his team have gone beyond using the revenue and ARR model and contemplated using a “needs” based segmentation. They set out to answer a few questions that dictated their segmentation strategy:

1. Which customers should I engage with?
2. When should I engage with them?
3. What do I focus on during my engagement with them?

David told us that “While difficult, answering these questions is critical if your program is going to be successful.” The subsequent sections highlight the approach utilized at GE Digital for addressing this need. They call this simple segmentation “Prioritize to Execute” (Figure 13.1).

David explained that the first half of this approach, the Prioritize section, addresses question A, “which customers” and question B, “when to engage.” To segment for prioritization, they used two axes: Value and Health. These two dimensions are central to prioritization because they tell you who's valuable and how happy they are. Grouping customers into these buckets is straightforward, but the insights gleaned are meaningful. You can structure the CS organization or your portfolio of accounts for the highest impact. According to David, to structure a CS organization using this technique, it's essential to identify what the appropriate coverage ratios are to enable optimal engagement with each grouping: Immediate, Fast, On Schedule.

• Immediate – requires a rapid response from a CSM with targeted skills (product, industry) at a lower ratio given the size, and presumable complexity, of customers with higher ARR.
• Fast – requires a quick response from a CSM with general skills at a higher ratio given the reduced complexity of lower ARR customers.
• On Schedule – requires a gated response from a CSM to align needed activities with the Customer's Journey and defined complexity. Coverage ratios for this group vary based on the Customer Lifecycle stage and size.

“By determining how many customers you have in each bucket,” David stated, “you can calculate how many Customer Success Managers, with what skills, will be required to save customer's with low health while progressing higher health customers along the adoption maturity curve. This simple segmentation won't work for 100% of your accounts. There will be additional qualitative criteria you need to review for exceptional customers to determine the coverage model.”

As a CSM managing a portfolio of customers, you will find that accounts move within the segmentation – hopefully from left to right. Low health, therefore, is a prioritization gating mechanism. Putting out customer fires, quickly, so you can move toward higher-value interactions is a must. This move requires a balancing act of managing the critical few that are escalated while still accelerating adoption for customers with positive health indicators.

The second half of this approach answers question C: “what to do.” As noted above, if the customer has low health, the most critical play is focused on risk remediation. Remediation plays should consider the nature of the issue (product, support, delivery, and commercial) to develop a specific plan of attack. The plan must be agreed to by the account team and the customer. Remediation plans should be tracked regularly to completion.

For those customers not at risk, GE deploys the “Execute” segmentation to determine specific playbooks or “plays” to run. They leverage two axes – Journey and Maturity – to group customers based on how much they are using your software and how much value they're receiving by doing so.

• Activation plays – supporting the Customer Journey with onboarding, adoption enablement, performance tracking, and other similar activities.
• Growth plays – retaining and growing account value through upsells and cross-sells.
• Advocacy plays – evangelizing the benefit of engagement, both internally and externally.

Finally, Patrick suggests that if and when you consider a Customer Success segmentation strategy for your organization, start by asking yourself the following questions:

• What is our go-to-market strategy, and where do we expect our customer base to grow?
• What are the shared characteristics of our customers? Size, industry, use-case with our product?
• What are the most common support needs for each customer segment? Are we addressing them in the right way today?
• How do we measure success? Do the measures align with our customer's vision of success?
• What are the skills needed for a CSM to be successful in each customer segment?

Determining the Best Customer Success Manager-to-Customer Ratio and CSM Profiles

We now know that most companies think about their customer base in three segments and use revenue as the basis for segmenting their customers, typically into High-, Medium-, and Low-revenue customers. The next thing we need to understand is how company resources, namely CSMs, are allocated. Are they driving maximum success across these segments and in the most cost-effective manner possible? How many customers does a CSM effectively manage?

Enterprise Customer Success Manager-to-Customer Ratio and CSM Profiles

Based on our prior research, some patterns emerged with regards to how companies segment their customers. In the Enterprise segment, which has your highest revenue customers, the median amount of Annual Recurring Revenue (ARR) that an Enterprise CSM manages is $2M to $5M. Meaning that CSMs assigned to this segment manage a customer portfolio size between $2M–$5M of ARR with a median number of customers between 11–50 (Figure 13.2).

In the Enterprise segment, you typically want CSMs who are experienced at managing the complexities of these types of customers. The skills usually include managing a wide range of stakeholders in the same organization, such as different Business Units' stakeholders, and various functional stakeholders. They will also need executive-presence and must drive significant change management with customers. In some circumstances, you might find value in bringing in experts with specific industry verticals or categories that a majority of your Enterprise customers belong to, as we described in Chapter 4. Profiles of persons with prior experience with these skills include Management Consultants, Enterprise Sales, Account Management, Enterprise Project Managers, and Enterprise Solutions Consultants or Engineers.

At Cornerstone, Patrick has been very thoughtful about the types of people they hire as Enterprise Customer Success Managers. He stated that: “In our large enterprise customer segment, our clients invest a considerable amount to implement our software. They have a greater degree of complexity, and in most cases, our product is a critical component of their entire talent management process. They expect daily support from someone with a high degree of expertise, and we incorporate this into how we ensure they have the right CSM to work with. We partner them with someone who has a significant track record of experience and has the right mixture of technical savvy, deep industry expertise, and account management skill set to guide them to the right outcome. These are often individuals that have held senior positions in industry and in some cases have implemented our product before. We do everything we can to create an environment where our customers feel like their CSM has walked in their shoes and is a true extension of their team.”

Mid-Market Customer Success Manager-to-Customer Ratio and CSM Profiles

In the Mid-Market segment, the industry trend shows a CSM managing roughly the same amount of ARR as an Enterprise Customer Success Manager, but it is spread across many more customers.

The median amount of Annual Recurring Revenue (ARR) that a Mid-Market Customer Success Manager manages is also between $2M to $5M, with 58% of Mid-Market Customer Success Managers managing more than $2M of ARR (Figure 13.3). A Mid-Market Customer Success Manager manages roughly 100–250 customers as the median. As you can imagine, it becomes hard for this segment to offer the same human workflows as the Enterprise segment. Hence, it's essential to be more “digital first” in the outreach strategy and rely on human intervention on a “just in time” basis.

In the Mid-Market segment, you typically want CSMs who are skilled at prioritization, heavy on task management, and product savvy. Given the high number of customers that they need to manage, CSMs in this segment need to be able to adapt quickly and be very efficient project managers. Being product knowledgeable and versed in the category your product belongs to is a huge plus. Customers want to know how to convert their needs into your product. They also want to know what other customers in the industry are doing, so it benefits everyone to be an industry watcher. Example profiles of persons with prior related experience and skills include Project and Program Managers, Support Reps (especially if your product is technically complex), and customer-facing Product Managers.

Small Business Customer Success Manager-to-Customer Ratio and CSM Profiles

In the Small Business segment, which has your smallest revenue customers, a CSM manages roughly $1–2M as the median, with 54% of Small Business Customer Success Managers managing less than $2M of ARR. A Small Business Customer Success Manager manages roughly 100–250 as the median, however 37% of CSMs in this segment manage more than 250 customers each (Figure 13.4). It's even more important in this segment to sharpen your digital outreaches and only focus your CSMs on customers with high risks to renewals or expansion or advocacy opportunities. By default, your team in this segment will be highly reactive.

In the Small Business segment, you typically want CSMs who are skilled at prioritization. If your product or service needs technical competence, most Small Business customers will not have the budget to spend on paid services from your company. They will expect the CSM to roll up their sleeves and work with their teams. In those cases, hiring people with excellent technical skills is advantageous. Example profiles of persons with prior experience and related skills include Solutions Architects, Sales Engineers, or Support Reps, especially if your product is technically complicated. If your product is simpler to set up, then Inside Sales Reps, Business Development Managers or Account Managers can work well in this role.

Some companies implement a shared or a “pooled” Customer Success team. On this type of team, Small Business customers don't get a designated CSM. Instead, they get a pool of people, and the customer is managed by whoever has available capacity at any point in time. Patrick Eichen from Cornerstone OnDemand commented on this type of CS team. He stated: “When we scaled customer success for our mid-market and small business customers, we implemented a shared support model, meaning our clients don't have a dedicated resource. Instead, they work with a team of CSMs that support their market segment. When we made this change, it was important to us that our clients still felt that they could depend on us to help them achieve their desired outcomes, even if it meant they didn't have a person dedicated to them to help achieve this. Additionally, many of our smaller customers have limited resources and often can't invest a considerable amount of time to ‘skill up’ on our product. To ensure the success of our clients, we provide a variety of virtual engagement opportunities, all hosted by Customer Success Managers, so that clients can engage an expert and get the help they need.”

Patrick further added, “In order to deliver on this model, we have invested heavily in our talent acquisition process. Aside from having various CS leaders vet out potential candidates we also conduct a situational based component within the interview process so that a candidate gets to go through an exercise that they will likely encounter in the field. This gives us a good line of sight into the specific skills we know a candidate needs to have to be successful – things like product knowledge, presentation skills, and the ability to overcome objections. It also allows the candidate a better perspective of a day in the life of a CSM within our organization. This approach has also provided us with greater internal talent mobility, giving our CSMs that were initially hired into a shared support role the opportunity to eventually develop and grow into a more dedicated role with larger customers.”

Here's one final note, a cautionary one, related to determining your CSM ratios. Do your best to avoid using an arbitrary revenue per CSM target and working backwards (e.g. $2M per CSM). Doing so does not account for the desired outcomes you need to attain and could set you up for failure from the beginning. You should start your analysis by trying to determine the minimum amount of engagement that is required to attain your maximum retention and growth revenue targets. In other words, try to identify what activities and motions your CSMs must conduct that have the greatest impact on your company's performance objectives. Determine the level of effort required and the frequency of customer engagement across your various segments to help inform you of the number of CSMs you'll need to hit your revenue and growth targets. It's the same exercise any Sales Executive would go through in their planning efforts.

Compensating Your Customer Success Managers

There's no one-size-fits-all solution for compensation and structures for CSMs. It all depends on what you are trying to drive with that team at any point in time. This structure also implies that you'll need to evolve your design over time as you accomplish your goals for that measurement period (Figure 13.5).

The one principle that is widely adopted is to design the team's compensation in a way that depends on a fixed base while adding a variable portion on top. The most common model is 70–80% of the compensation tied to the fixed base and the remaining 20–30% tied to variable compensation. The variable compensation can be based on commissions, like a sales organization, if the primary role of the CSM is to manage renewals and upsell transactions. Many organizations use Account Managers for this task. Moving to more of a bonus-based compensation structure allows you to differentiate from the sales function and gives you the flexibility to evolve the metrics over time.

Next, it's important to decide what metrics drive the variable part of the compensation structure. If your CSM team is relatively new, and the maturity of the team is low, the primary objective should be to get consistent and predictable in their activities. At this stage, tying the variable compensation to completion of key events like Executive Business Reviews, onboarding processes, renewals milestones, or adoption review meetings with customers, helps ensure the team is developing the right Customer Success Management muscles. This stage is foundational, and the team must be doing the basic maneuvers before becoming more sophisticated in processes and metrics.

As the organization matures and activities become more predictable and consistent, you will find that many activities can get you to the same outcome. The Customer Success team, by this time, has developed the ability to recognize patterns and choose different playbooks based on the situation. However, it's not enough to just monitor those activities. You have to start measuring the impact of those activities which are the leading indicator outcomes. Examples would be improvements in product adoption metrics, improvement in Health Scores, improvement in the number of referenceable customers or an increase in expansion leads generated. These will tell you that your customers are heading to long-term success and hence revenue retention and growth for your business. At this stage, tying the variable compensation to the achievement of key leading indicator outcomes helps ensure that the team is evolving from activities to the impact that those activities are having with the customer base.

Finally, most of you likely work at for-profit companies. That means you need the CSM to make customers successful because successful customers drive retention and growth in your company's revenues. As the organization matures, you will need to track optimizing activities and leading indicators that drive towards the financial impact on your company. Financial outcomes are a lagging indicator, meaning that all of the actions have already taken place that can influence it. At this stage, tying the variable compensation to the achievement of key lagging financial outcomes, like gross retention rate, net retention rate, or upsell or cross-sell revenue, helps ensure that the team is evolving from leading indicators to the financial impact at your company. You might be tempted to start measuring and compensating your CSMs on the lagging financial outcomes to show the “value” of the team. Resist that temptation! You are doing the team and your company a disservice by building sophisticated processes and metrics before addressing the foundational processes.

If you are going through this maturity curve for the first time, here are some guiding timelines to help you think about the transition milestones:

• Start and stay in the activities stage for at least six months; this is the minimum time you'll need to get the team used to their processes and metrics.
• Stay in the leading indicators stage for at least 6 more months, preferably 12 months. Your team will get better at pattern recognition of the activities and leading outcomes.
• If your primary business challenge is avoiding churn, measure and compensate the team on gross retention rate or churn rate. Ideally, you can tie compensation to individual CSMs' portfolio of managed accounts or books of business. If they are not large enough or predictable enough, start with tying the compensation to the overall company retention or churn goals. If the primary business challenge is driving expansion in your customer base, compensate the CSMs on the upsells/cross-sells in their book of business.

Dashboards to Manage the Customer Success Team

As a leader of the CSM team, there are a few different types of dashboards you need to manage your team effectively; Table 13.1 provides a glimpse of your options.

Churn/At-Risk this Quarter and High-Risk Customers

Extending the renewals report further, you can understand which of the renewals in the current quarter are at risk based on the Health Scores of those customers. Assuming you have an accurate model, the customer Health Score should ultimately be an indicator of renewability. When you combine renewal information and customer health into one view (Figure 13.7), you can more easily assess how many renewal dollars are at potential risk in current and forthcoming quarters (Figure 13.8) and take appropriate action in advance with the associated customers.

Average NPS Score

This report (Figure 13.10) gives a quick view of trends in Net Promoter Scores over time to see if customers' perceptions of Customer Experience are improving or deteriorating over time.