The New Species in the Sales Ecosystem

by in Sales

animals-ducks-water-birds-drake-largeA new species has emerged. It has found a natural habitat among sales teams, alongside sales development reps (SDRs), account managers (AMs), and account executives (AEs). The species has erupted in large numbers: an estimated 18,000 members currently exist. It is also proliferating at rapid pace. This new species, dubbed the Customer Success Manager or “CSM,” has proved to be a productive addition to the sales environment. Organization with a dedicated team of CSMs boast a churn rate that is 24% lower than those without dedicated teams.

Regrettably, many organizations have been mired by the buzzphrase of “Customer Success.” They’ve been caught up in the hype and, in an effort to capitalize on the potential benefits of a dedicated CSM team, have simply re-titled “AM” positions as “CSM” ones. According to Software Advice, a review site that compares CRM software, 56% of CSM job postings require previous AM experience. In reality, CSMs and AMs are distinct species. Though they bear some resemblances, CSMs exhibit several unique traits. For one, they work with a different demographic of customers: existing ones rather than new ones. For another, they operate (or should operate) according to a different set of revenue objectives: recurring revenue, (predominately generated via up-sells and cross-sells),rather than net new ones. As well, their day-to-day activities differ: they focus more on proactive rather than reactive outreach.

Don’t fool yourself: if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck. To optimize a sales team’s overall effectiveness, it’s critical to recognize CSMs as distinct creatures with unique roles and activities. Disguising AMs as CSMs will not lead to a thriving ecosystem. As distinct species within the sales organization, CSMs play a unique ecological role on sales teams. Accordingly, they should operate according to a distinct set of objectives. CSMs will thrive, prosper, and spawn customer success if they operate according to specific key metrics.

1. Net Promoter Score (NPS). CSMs should be responsible for ensuring that existing customers are satisfied and are realizing the full value of their purchase. Although NPS is a overly simplistic metric, it’s a valid starting point for CSMs to assess their effectiveness. The NPS, which measures how likely customers are to recommend an organization or offering, can function as a good initial indicator of customer satisfaction levels. Top performing CSMs will couple an NPS analysis with other customer satisfaction pulse points, such as the number of support tickets submitted, the number of references provided, the extent of participation in marketing initiatives, etc.

2. Churn rate. Like NPS, churn rate can function as “low hanging fruit” in terms of allowing CSMs to gage their effectiveness. Calculated as: (# of customers churned in given period)/(total # of customers), it can immediately raise a red flag that customers are not satisfied and things have gone awry. Churn rate should be monitored by CSMs on a consistent basis.

3. Revenue retention rate. NPS and Churn are rudimentary metrics. While valid in their own rights, they cannot tell the entire story. Not all high scoring NPS customers are equal. Similarly, not all churned customers are equal. SaaS companies rely on renewals and up-selling for up to 95% of their revenue. To gain full insight into their effectiveness, CSMs must keep close watch on revenue retention.

In particular, they may want to keep close watch on what’s been termed the “Customer Success Magic Number,” a measure of revenue retention. It is computed as [ARR/MRR of customers renewed in period + ARR/MRR of up-sells in period] / [Total cost of Customer Success team + Customer Support team]. It’s recommended that this number remains above 5.0.

4. Customer health rating. NPS, churn rate, and revenue retention rate are all lagging indicators. To maximize performance levels, CSMs must also consider leading indicators. Doing so will empower them to develop more proactive approaches to customer outreach and high levels of customer satisfaction. CSMs will be served well by developing a “customer health rating” that can serve as a North Star in understanding customer success levels. The metrics baked into the rating will differ for ever company. They, however, will almost certainly encompass usage rates (e.g. number of daily active users), activity rates (e.g., number of features used), and engagement rates (e.g., time spent on platform). Gaining insight into the metrics for which customers are scoring high and low on can provide CSMs with purview into whether  a particular offering aligns to the expected business outcome. This coveted intel can help CSMs tailor customer conversations, especially those centered around up-sell and cross-sell opportunities.

5. Overall organizational adoption. Best-in-class CSMs understand the potential and importance of a “land and expand” strategy. They actively search for pockets of excellence – particular individuals or groups of individuals who’ve been highly successful at adopting a product. They study these successes and identify use cases. Armed with this knowledge, they predict which other groups within the organization may exhibit similar use cases (and, thus, will be more apt to adopt the platform successfully). And they leverage the successes. They see them as “product champions” and avenues to reach new departments, divisions, and/or geographic regions. When CSMs optimize for high organization penetration, there’s a domino effect in terms of overall adoption and usage rates. All of a sudden, up-sell and renewal proposals become more potent.

We’re living in the “age of the customer.” It’s almost inevitable that the CSM role will continue to rapidly gain prestige and importance. While it’s tempting to jump the gun and hire for the new position, it’s critical to consider timing and resources when developing a strategy. A commonly-used and cited rule of thumb is to hire one CSM for every $2M in annual recurring revenue. Larger companies should consider hiring for two types of CSMs – one focused on active selling and generating up-sell and cross-sell opportunities and one focused solely on customer satisfaction. Since the objectives of generating revenue and maximizing customer satisfaction are necessarily at odds, this delineation helps to ensure that one CSM is explicitly devoted to customers’ best interests. Unfettered by revenue targets, they can quickly become a trusted advisor for the customer and eliminate any skepticism that incentives are not aligned.

The time is ripe for all organizations to create an ideal breeding ground for CSMs. Indeed, the species faces no risk of impending extinction –  it’s been proposed that by 2020 customer experience will outweigh the importance of price and product.

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About The Author

Rebecca Hinds
Rebecca Hinds - View more articles

Rebecca Hinds graduated from Stanford University in 2014 with a M.S. in Management Science and Engineering. In 2013, Rebecca co-founded Stratio, a semi-conductor company developing infrared sensors. The company was selected by the Kairos Society as one of the 50 most innovative student-run businesses in the world.