[K!A CX Client]: Kia, what do you think of the $2 million ARR per CSM metric?
[My inside voice]: Queue music (Tina Turner, What’s Love Got To Do With It)...
You must understand
Though the $2 million metric
Makes your pulse react
That it’s only the thrill
Of Customer Success meeting a metric
The desire for CSM headcount projections & customer ratios attracts
You must try to ignore
That $2 million means anything more
Oh what’s $2 million ARR go to do, got to do with hiring a CSM
What’s $2 million but an arbitrary number
What’s $2 million ARR go to do, got to do with hiring a CSM
Who needs a metric
When a metric doesn’t correspond to your business
It may seem to you
That I’m acting confused
When you’re building your CS org
If I tend to look dazed
I’ve managed scale someplace(s)
I’ve got cause to be
There’s a better way to go
There’s a business model that fits
Use activity based modelling
It’ll do it for you
It’ll take you on a new direction
And I’m excited to say
It aligns not only to your own business
But your customers this way
Hmm, how do I get the message across on this one?
[My outside voice]:
I think it’s arbitrary and detached from your business.
What Customer Success Managers (CSMs) do to make a customer successful does not correlate directly to the amount customers pay for the product.
You can have a $2 million ARR client that is humming along and needs very little support from your CSM. Assigning only this client to the CSM would be a waste of your valuable CSM capacity.
Conversely, a $20k ARR client could really be struggling with product adoption and the CSM needs to spend a huge portion of their time helping them out. At $2 million ARR, would they be able to support 100 of these more demanding clients?
The technology you provide also plays into the type of work Customer Success (CS) does.
If your product is creating a new industry, the CS organization will be obliged to conduct a lot of education to assist the customer in performing their job in a new way using your product.
Your product is fundamentally changing how a customer’s organization operates which requires change management and more time from your CSM’s. Suffice it to say, CSM’s in this scenario will have a fewer number of customers they can support.
Contrast this to a product that is dead easy to use, in a well defined market, that has well defined business methodologies.
CSM’s in this situation can support a higher customer ratio or potentially the customer journey can be almost entirely automated so no CSM assignment is required. The $2 million ARR model does not account for automation potential.
ARR or customer to CSM ratios really do depend on, and start with, your customer’s journey.
What I have found to work really well is to first understand my customer’s journey and the associated work activities required to support that journey.
When I know the type of activities and corresponding time estimates required to deliver those services, I can create an activity based model to determine the average FTE (full time equivalent) required to support a customer.
Plugging customer count and projected growth numbers into the model reveals the current and future CSM headcount needs. It also provides the CSM:customer and CSM:ARR ratios that make sense for the particular business.
Things get really exciting when CS starts to optimize CSM activities to increase the CSM to customer ratio, without adding to the CSM’s at-capacity workload and most importantly, without ever decreasing the customer’s experience.
Now that’s something to sing about!