What's $2 million ARR got to do with it?


Account Ratio

[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


It’s arbitrary

Only illogical

You must try to ignore

That $2 million means anything more


[Chorus]

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


[Chorus]


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


[Chorus]


End music.

Collect thoughts.

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!

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