Why Invest in Customer Success Enablement
Updated: Apr 9, 2022
So you have a CS team, maybe even a CS Operations team, and now you are wondering "If I invest in Customer Success(CS) Enablement, what will my business get for this? What problems would a CS Enablement function help resolve?"
First, let's quickly define CS Enablement. There are infinite ways we could define CS Enablement, but let's stick with the following for the sake of this article.
Customer Success Enablement provides the Customer Success organization with the information, knowledge, and education required for the CS professionals to A.)help customers succeed and B.) ensure the business obtains its desired retention and expansion targets.
Second, let's cover some ground rules when it comes to calculating the impact of Customer Success. Some metrics are fully owned by CS - i.e. retention. Some metrics are partially owned by CS - i.e. expansion. Any metric we use to evaluate Customer Success takes a village to accomplish. Additionally, the degree by which one team is responsible for each metric changes by company, product, and situation.
If you stood up a Customer Success team without sales, support, services, etc. beside it... well, there wouldn't be any successful customers. Throughout this article I will make calculations which attribute the whole outcome to the CSM. This isn't in vain or in effort to discredit those critical teams. This simplification is intended to increase understanding, make a point, and do so in an efficient amount of time - 12 minutes reading to be exact.
Lastly, all these benefits take time to achieve. Often times a lack of enablement is only one of the roadblocks preventing these outcomes being realized. In pursuit of any of these benefits, you'll uncover additional issues which need to be addressed. That's actually one of the benefits of enablement. The process of enabling your team will often surface additional gaps which need to be addressed.
1. Accelerated time-to-value of new hires
New hires, regardless of department, do not start day one as profit generators. Not even close - not even for revenue-generating roles. The reasons are infinite. The primary reason is that it takes time for new hires to be knowledgeable and confident enough to be proficient at their roles.
The idea of "time to proficiency" has been long looked at as a key metric for new hire onboarding. A common disconnect is found in how rarely we tangibly connect that it isn't until an employee is proficient that he or she can actually start delivering your targeted ROI for their role. Until a Customer Success Manager(CSM) is proficient, they likely are not fulfilling all their job responsibilities, and performing few job responsibilities on their own. The former reduces the value he or she can deliver, and the latter increases the cost of what this new hire executes.
CS Enablement should own the new hire onboarding program. CS Enablement should detail what to learn, when to learn it, and how to know when it has indeed been learned.
For many companies this will mean establishing such a program from scratch- which should then continuously evolve with time. For other companies, this might simply mean improving the existing onboarding program, and keeping it relevant as your industry, products, services, processes, and strategies change.
Creating a streamlined, regimented program should reduce the time required for CSMs to become proficient. This accelerates the time-to-value of your new hires.
Let's break this down by the following numbers on a per-CSM basis using the example of a CSM managing 15 customers worth $5M ARR. This company typically has a 10% churn rate without CSMs assigned, and only 5% when there is an assigned CSM. Additionally, they only see a 7% expansion rate without a CSM assigned, yet this is taken to 25% with a CSM assigned.
Ramped CSM Fully Burdened Cost: -$200,000 Increased Annual Revenue Retention: +$250,000 Increased Revenue Expansion +$900,000 --------------------------------------- Total Annual Return on CSM $950,000 (4.75x ROI)
Reducing time-to-proficiency is an easy metric to tackle first. If we are netting $950K ARR per CSM, this means that every month a CSM is proficient and performing brings the company $79K ARR. So let's imagine you invest in CS Enablement and the new hire onboarding program reduces time-to-proficiency from 6 months to 5 months... $79K! That's actually really impressive if you think about the fully burdened cost of that CSM being $200K.
Of course time-to-value/time-to-proficiency is only a benefit in the first year of the CSM's employment. The $79K in this example would be realized once, and only once.
2. Increasing the proficiency and effectiveness of CSMs
Reducing the time it takes to become proficient is easily tracked and easily planned for. Improving proficiency is less straight forward, and harder to project in advance. However, making your CSMs more proficient and effective is a benefit which will be realized each and every year.
Let's take the same example company and CSMs. Now instead of 5% churn and 25% expansion, the new onboarding program produces higher performing CSMs. These CSMs are delivering an average churn rate of 3% and expansion rate of 30%. Both of which are applied to the same $5M ARR portfolio size.
Ramped CSM Fully Burdened Cost: -$200,000 Increased Annual Revenue Retention: +$350,000 Increased Revenue Expansion +$1,500,000 ------------------------------------------ Total Annual Return on CSM $1,650,000 (8.25x ROI)
While the difference in performance between the 5% churn and 25% expansion to 3% churn and 30% expansion might not seem overwhelming, the way it pencils out certainly can be. The real beauty is that this is an annual benefit. Your company will benefit from this improvement each and every year.
Approaching your Chief Customer Officer(CCO) saying "I need 3 more CSMs, $600K, it should get us a net $1.6M in increased net revenue retention" sounds much better than ending that sentence with the six-figure $950K. Both are great numbers, and as the leader, the opportunity to go from a six-figure to a seven-figure return on each CSM is a gold mine of opportunity. This is one of the greatest benefits of Customer Success Enablement. It isn't just about getting CSMs off the runway faster, it's also about helping them fly higher.
So why is there SO MUCH focus on time-to-proficiency/value?
Reduced time to proficiency can be projected simply by showing the prior and future onboarding schedules side by side. Improved proficiency requires time to pass so that results can be collected. We tend to focus on what we can project and present easiest.
However, you can see that improved proficiency is not only a much, much higher return - it is also an evergreen metric. This better-performing CSM should, by all logical reasoning, perform at this higher level year after year. If these CSMs have variable compensation which is increased by this improved performance, you'll also likely retain this higher-performing and higher-paid CSM longer. ROI on employee retention is for a separate post.
In short, an effective CS Enablement function can reduce the time it takes for a new hire to start delivering value, and can increase that value by improving the proficiency and performance of each new CSM. Lots of focus is placed on reducing time to value/time to proficiency, yet improving performance through onboarding generally has a much higher, recurring value. The truth is both should be a focus of your CS Enablement team. We want our CSMs to be as effective as possible as early as possible in their tenure.
3. Greater efficiency of each CSM
One thing CS Operations and CS Enablement have in common is the overall mission of making CSMs more productive, by increasing both effectiveness and efficiency. CS Operations has made a massive impact in the productivity of CS teams over the past several years.
Automating communications, surfacing areas of risk and expansion, and streamlining internal knowledge sharing have all been hugely progressed by CS Operations. As the processes, systems, demands, and role of CS teams grow in complexity, the more challenging it is for these to be adopted by CSMs.
Process and system adoption has long been the final baton of effectively optimizing a CS team. It's an important step. All these tools help us carry more customers per CSM, protect more revenue per CSM, and surface more expansions per CSM. Well, only if the CSMs use the systems, follow the processes, and look at the data being surfaced to them. That's where adoption comes in.
Not every new system or process will have 100% adoption across all team members in all situations. But it is likely that each one of these system and process changes is oriented at saving your CSMs time.
Now two things can be done with time that is given back to CSMS. 1.) Leveraging saved time to assign more accounts per CSM. 2.) Having CSMs perform greater by reinvesting the time into activities which drive retention and expansion.
Most get hung up on the former, even though the latter is where the greater opportunity lies. However, let's break down both so you can decide for yourself with real numbers. In this case we are going to use the same example, but with the conservative 5% churn and 25% expansion metrics.
So let's imagine that by making the CSM team more efficient each CSM can handle one more customer. CSMs in this example have an average portfolio size of $5M ARR, comprised of 15 customer logos on average. So, by making the team more efficient, the 5% churn and 25% expansion now get applied to 16 customers, worth $5.333M ARR.
Previously for $5M ARR at 5% churn and 25% expansion:
Ramped CSM Fully Burdened Cost: -$200,000 Increased Annual Revenue Retention: +$250,000 Increased Revenue Expansion +$900,000 ------------------------------------------- Total Annual Return on CSM $950,000 (4.75x ROI)
Now for $5.333M ARR at 5% churn and 25% expansion:
Ramped CSM Fully Burdened Cost: -$200,000 Increased Annual Revenue Retention: +$266,650 Increased Revenue Expansion +$959,940 --------------------------------------- Total Annual Return on CSM $1,026,590 (5.13x ROI)
This provides more than $76K ARR greater annual return on each CSM. It's a similar figure to the one obtained by shortening the time-to-proficiency by a month. However, this benefit can be realized year after year.
Now let us consider the alternate option: reinvesting the CSM time into activities which we know lead to increased retention and expansion. These activities range from driving adoption, presenting value, building rapport, and good ol' discovery questions.
So for this example, we will imagine that this reinvestment takes churn from 5% to 4.5%, and expansion from 25% to 27.5%.
Previously for $5M ARR at 5% churn and 25% expansion:
Ramped CSM Fully Burdened Cost: -$200,000 Increased Annual Revenue Retention: +$250,000 Increased Revenue Expansion +$900,000 ------------------------------------------------------------- Total Annual Return on CSM $950,000 (4.75x ROI)
Now for $5M ARR at 4.5% churn and 27.5% expansion:
Ramped CSM Fully Burdened Cost: -$200,000 Increased Annual Revenue Retention: +$275,000 Increased Revenue Expansion +$1,025,000 ------------------------------------------------------------- Total Annual Return on CSM $1,100,000 (5.5x ROI)
What seems like a minimal improvement to retention and expansion results in a $150K ARR increase per CSM per year. In this example, that's 75% of the fully burdened cost of a CSM. All by giving the CSMs more time to do the activities which truly matter and impact the business.
Your CS Enablement function is should drive greater CSM adoption of the systems and processes which were built to save their time. This time can be reinvested in additional accounts per CSM or reinvested in doing more of the activities which drive retention and adoption. Ideally this would win you both an extra account per CSM and increased performance, but I'll assume you only obtain one of these benefits. In our example, that could be anywhere from $75K - $150K ARR via improved retention and expansion from CSMs with a fully burdened cost of $200K. Neither of those figures are anything to scoff at.
You might need much more than a 0.5% reduction in churn, but all that means is that you need all the 0.5% reductions you can get. An entire team of enterprise CSMs reducing churn by 0.5% over the course of a quarter or two could have significant impact on a company's performance.
4. Greater revenue predictability
SaaS sales really lead the way for Customer Success in so many ways. Both teams impact revenue. Both have to be religiously committed to leading indicators and accurate forecasting in order to hit their revenue goals. In the early days of SaaS sales, the quality of CRM data was far from ideal. Inconsistencies could be found in all the ways sales reps converted leads to opportunities, advanced sales stages, updated close dates, and marking deals as lost. All the necessary tools were available to avoid this, but the problem was nonetheless very present.
Well here we are in 2022, and guess what... Customer Success is in a similar position to make or break the revenue predictability game. Surprise churns, late renewals, and even undocumented expansion leads can all wreak havoc on your leadership's ability to forecast revenue and goals.
CS Enablement can help mitigate such issues by driving adoption of the systems and processes meant to collect and report these insights. If you have all your CSMs updating risk >150 days ahead of renewal, vs <30 days prior to renewal, you will have significantly transformed your company's ability to forecast accurately and set obtainable goals. It's important to know that this goes beyond the simple adherence of "put this data in that system in this way, by that date".
When CSMs actually execute the activities they are supposed to, the data they enter into your systems (should) become much more accurate and reliable.
Let's think through an example. Assume you have determined that adoption audits need to be done quarterly in order to accurately predict risk. Hypothetically you have data to back this up, and that is how you chose this cadence.
If these adoption audits are in fact only being done every 6 months, you're likely surfacing inaccurate and outdated insights to your executives. Without CSMs collecting critical data regularly enough, you could be setting inaccurate forecasts which are doomed to be missed.
There's no way to calculate a potential value of this. If you have ever worked at a publicly traded company, you know the value of a proper forecast. Having surprise churns which prevent you from hitting the number you promised to the street will have an outsized impact on your evaluation. If such a miss occurs in your first few years after IPO, this negative impact can be even bigger and longer lasting.
5. Employee Retention
It is really expensive to hire and lose employees. Especially in Customer Success when it not only incurs costs and detracts from the number of ramped team members, but also disrupts strategic customer relationships. So, how can investing in CS Enablement help improve employee retention? This question itself will be answered in a separate article, but for the meantime, I want to cover it briefly here.
Let's start with why employees often leave a company. The following is far from a complete list of reasons, but these are great starting points for CS Enablement to focus on.
Time spent on unfulfilling activities
Declining or stagnating performance
Time spent on unfulfilling activities
Time spent on unfulfilling tasks really is a culprit of much employee dissatisfaction. CS Enablement should discover what CSMs do outside of their core job responsibilities which distracts from higher-value activities. Then CS Enablement should work internally, especially with CS Ops, to eliminate the cause of these distractions. Often these ancillary activities are not fulfilling for CSMs(sometimes these are), as these often do not significantly improve areas of passion or performance. If your CSMs are spending more time directly influencing retention and expansion, they'll eventually achieve higher levels of each. Because of this, they'll likely feel satisfied, be more successful, and have a better outlook for the future. CS Enablement identifies areas of poorly allocated time, resolves root causes of this, and guides CSMs back to higher-impact activities.
Declining or stagnating performance
Everyone wants to win individually and as a team. If performance is flat or falling, the risk of losing team members is increased.
Declining or stagnating performance can be caused by a myriad of reasons. Often this is due to a misalignment between the CSM's rate of growth and the rate of change of the company, product, industry, etc.
Another cause is that as CSMs get comfortable in their roles, they take less of a learner mindset and more of a task mindset. The learner mindset is much more stimulating and motivating. CS Enablement can tackle both these by providing continuous education and training for the team members. Such training should definitely be applied when the product, GTM strategy, and or industry has changed. Additionally, a year-round opportunity to allocate time to learning and growing can improve performance substantially. Part of how we evolve our performance is by evolving ourselves and how we see the situations we face. Continuous exposure to career education can keep a learner's mindset as our default setting.
Lacking leadership is a huge reason for employee attrition. While rarely the first focus of a new CS Enablement function, enabling CS middle management is a critical responsibility of CS Enablement. Leveraging CS Enablement to improve leadership performance warrants an entire article of its own. CSM leaders should be driving adoption of CS processes and systems among their team members. CS Enablement should help managers understand how they can track and coach team behavior and outcomes. This makes it more likely that the managers help CSMs develop professionally, execute high-impact tasks, and therefore perform better. By creating better managers, we should see team member satisfaction and retention improve.
While these reasons are powerful and impactful individually, the real beauty of these benefits is how each fuels the other. When you make CSMs more effective and efficient, not only do they do better work, they have more time to do that work at that higher level of performance. The two benefits compound each other. When CSMs contribute accurate and consistent data, they too get to use that reporting to more effectively and efficiently manage their own portfolios. When this accuracy of data is made available to leadership, managers can better coach their team members. Which, as we have discussed, improves the performance and retention of those team members.
Like most things in life, these benefits beget more of what they are, and of each other. There are numerous benefits of CS Enablement - these are just the five reasons I find most impactful. If you launch a Customer Success Enablement function, and do so well enough to achieve these benefits, you will have radically improved your business's long-term trajectory.
It goes without saying that none of these benefits are easy to achieve. In fact many of these can take months, if not more than a year, to noticeably optimize. You'll be making impact in these categories while decisions made long ago come full circle to cost you greatly on the same metrics. That's business. That's life. If the strategy of CS Enablement serves your business goals, stick to the strategy.