How to Get the Headcount You Need
The Promise of Customer Success
When resourced properly, Customer Success (CS) can be a significant, positive contributor to the customer experience, retention, and ultimately, revenue. But from staffing, to budgeting, to determining authority levels, getting there can be a minefield, especially when executives view CS through the same lens as they view sales. Both have unmistakable impact on the bottom line, but to realize the promise of CS, it’s essential to resource your CS team for optimal performance.
Sales and CS are equally important, yet in so many industries, CS struggles to justify its importance, and thus its budget. This is the hard-fought experience of many of us with a decade or more of CS experience and the nature of forging a path in a still maturing field. This is somewhat understandable, since sales has been around as long as time has been recorded, while CS is still a maturing field, with the seeds first planted only comparatively recently (in the mid-1990s).
But amid these growing pains, you still have a department to run and quotas to meet. No matter where you are in the resourcing process, there is a way to decipher your optimal resource levels and earn the buy-in you need from the C-suite to secure them.
STEP 1: Take Stock
As they begin to structure their CS programs, a common question arises among many company founders, investors, CFOs, CXOs, and CS leaders: “How can I determine how much to invest in Customer Success?”
To answer this question, you must first assess some foundational elements of your CS practice.
What are the goals for my CS program? What are the KPIs your CS team will be accountable for? How do your CS team’s goals complement sales’ goals and quotas? These realities will drive your resourcing decisions and help you pinpoint how much to invest in CS versus sales staff.
Look at the structure of your company, its maturity, its current growth stage, and where your CS budget sits. For instance, within every Annual Operating Plan (AOP) and fundraising pitch deck, there always sits an allocation for sales and marketing expenses. Often, these allocations include CS, but sometimes CS exists as its own Line of Business (LOB). CS might also reside inside of the costs of an operation, in which case, it is considered a cost, rather than a profit, center. I discussed this in detail in a previous blog.
Compare revenues attributed to sales and marketing versus Customer Success. It’s especially important to analyze your findings through a lens of the most widely used and favorable industry metric, Net Revenue Retention (NRR), which calculates total revenue (including expansion) minus revenue churn (contract expirations, cancelations, or downgrades).
Evaluate historic and forecasted sales and marketing spend in relation to those of Customer Success against the following metrics:
Contribution to margin
Lifetime Value (LTV)
Customer Acquisition Cost (CAC)
Average Revenue Per Account (ARPA) at 0-3-6-9-12-18-24-36 months
Number of Marketing/Product/Customer Success Qualified Leads (M/P/CSQLs)
Time to value
Time to upsell
Time to cross-sell
Consider sales and marketing spend relative to the cost of retaining, upselling, and cross-selling to the existing customer base. Sales and marketing teams have long histories of operating under strong metrics and reporting, and all CFOs, CMOs, and sales leaders know exactly how each dollar under their purview is being spent. Similarly, your CFO knows exactly how much Customer Success costs to operate, as well as the ROI and profits it returns. Work with your organizational and cross-functional team leaders to compare how much revenue each team is managing, retaining, and returning to the company compared to its expenses.
Ensure solid Customer Journey Maps (CJM) and Customer-for-Life (CFL) programs are in place. An organization cannot survive, let alone sustain, year-on-year (YoY) growth without having strong customer-centric programs in place and the necessary investments in the infrastructure and staff to execute and maintain them. This reality is no more pronounced anywhere than in the SaaS world, where Product-Led Growth (PLG) principles are the traditional mainstay. PLG companies need customer-centric maintenance and advocacy programs to sustain their trajectory.
STEP 2: Align CS Performance Goals
Many CFOs and CROs argue that if sales is to secure a certain amount a year in new business, and CS is managing twice that amount a year in existing revenue, CS should be doubling the size of sales. But, the appropriate budgetary starting place may be more than 2x, given that typically, accounts must remain customers for more than one year before they contribute to profitability. To achieve this performance, companies must support product offering, growth, implementation needs, support, and land-and-expand motions with the necessary post-sales resources, of which CS is a major player.
With the right program investment and leadership, CS is best positioned and significantly more capable of carrying out highly effective and profitable customer retention and expansion motions using standard, low-cost marketing technologies and methodologies that deliver significant results. Often, these can be built alongside pooled, digital CS teams and playbooks that already exist.
STEP 3: Map CS Staffing Needs to Goals and Budgets
Before trying to define the ratios of “how many CSMs per…” it’s wise to identify your staffing needs by answering:
1. What is your customer’s journey? Build out your ideal and actual customer journey maps.
2. Where in the customer journey can face-to-face (FTF) interaction and proactive outreach from your CSMs drive the most value for your customers?
3. Given your CSMs’ current workloads, how much time can they afford to engage with your customers along “moments of truth” or “moments of value” within the customers’ journeys?
4. What activities would the CSMs ideally conduct?
5. Can any of these activities be standardized, measured, and automated for scale?
6. What is your team’s RACI (Responsible, Accountable, Consulted, Informed) matrix?
7. What does your CS time and activity analysis reveal?
Now that you have a sense of your CS staffing needs, it’s time to think about mapping those needs to budgets. Consider these questions:
How many CS Managers do I need?
How many CS Managers do I need per sales reps and account managers? Per annual revenues?
How many accounts should I assign to each CS Manager?
When do I start building CS operations
Ah, the struggle to balance forecasting resources against needs. Quick to follow on the heels of this conundrum is the question of how to forecast resources and infrastructure over projected growth and scale. It will take some introspection and pencil-sharpening, but here are some approaches that have helped both MarketSource and our customers overcome these age-old challenges to build a thriving CS practice.
STEP 4: Calculate the Headcount You Need
CS may need to demonstrate more justification for its resource requests than sales must, but going through the processes to do so can actually strengthen your CS practice and make it easier to secure future resources.
Resource Calculation Formulas
First, you need data, and you need a formula to help you define that data. There are many formula options you could rely upon, and MarketSource can help you find the right formula for your organization. Chances are, you’ll have to try a few to find that one that best suits your organization. You may also need to change formulas as your company, CS team, products(s), and customers evolve. Remember that the variables for designing teams are infinite, and your approach to designing teams against your model of choice may differ widely from others’. Regardless of which one you apply, you’ll find that none are perfect. But calculation formulas play the all-important role of giving you a starting point and providing you with an objective, data-based justification for your requests—current and future.
The long-used industry model for calculating resources versus need is:
Annual Contract Value (ACV) Per Customer Success Manager (CSM) = $2M in Annual Recurring Revenues (ARR)
This formula takes a top-down approach. In other words, it involves reverse-engineering the resources required to run a CS organization that manages $2M in ARR (Annual Recurring Revenues). Many CS leaders find this formula inflexible, but it could work for you.
Another formula you might try involves demonstrating how ARR (in our example, $2M) is divided between two companies based upon their customers’ average Monthly Recurring Revenues (MRR).
ARPA = $1,000
> 100K customers
Avg. # of accounts per CSM = 200
ARPA = $4,000
> 1K customers
Avg. # of accounts per CSM = 50
You may find this model problematic, because, depending on your client types, GTM, and product, ACV, or client count, they are very narrow ways to approach budgeting for CS. Yet, many CS leaders are held accountable to the confines of these over-simplified metric alignments. In this example, account segmentation is key, because, looking at the Avg. # of Accounts per CSM, we are, indeed, dealing with averages.
You may ask, “Isn’t this complex resource-identification formula akin to the process sales leaders use to identify how many sales reps they need?”
This is both an innocent and tongue-in-cheek question. While in CS, we often don’t know how (or even whether) sales forecasts the number of reps it needs. But, we do know that if sales explode, sales is able to secure additional resources easily, with few questions asked. When I hear prospects share this on discovery calls, I start to think excitedly, “If Customer Success delivers similar revenue and profit windfalls, we’ll experience the same freedom and autonomy sales enjoys! Sadly, this isn’t always the case. Rather, it seems that CS often must qualify, quantify, and justify its needs for additional hands. Like it or not, CS must start from data-backed formulas like these.
The 90-Day Pilot
Another immensely helpful tool is the 90-day pilot, where you test the processes and constructs you’ve designed with a limited number of staff and resources over a 90-day period to determine whether your headcount calculations were sound. The pilot serves as a control group that allows you to test your resource projections and demonstrate your results, a key proof point you can either adjust or share with the C-suite. If the test goes well, the CFO is more likely to give you the headcount you need. If it doesn’t, you have a solid starting point for iterating, which is a healthy habit to adopt to ensure your resources don’t stagnate as you grow.
We know from extensive experience and from talking with partners that CS teams that have justified their financial (revenue and profitability) metrics with a 90-day pilot and verified their numbers with Business Intelligence (BI) and Business Analysts (BA) teams, have received nearly as much headcount and budget to scale their pilots as our partner was willing to sign up for.
As a CS champion, you likely look forward to the day when, if your team is at capacity, you can say confidently that you cannot trim any “gratuitous” budget items because you can’t make your team more efficient than it already is. Further, if your organization is forecasting more logos and more dollars, it can already justify a relatively linear increase in CS managers—until, of course, you need to expand digital CS. Infinite linearity in growth is not scalable, let alone substantiated, beyond a certain threshold.
STEP 5: Avoid These Resourcing Pitfalls
My recent conversations with C-suites and boards reveal increasing awareness, education, and hard-won wisdom when it comes to building a budget that empowers the Customer Success team for, well, success. Unfortunately, there are many early-stage companies, in addition to those late to the CS game, who realize mid-year that their hiring plan is grossly inadequate and therefore underfunded. This can lead to a vicious cycle of bad hires for the wrong roles, low morale, poor customer experience, and missed milestones. The prognosis for this situation is poor, often marked by slow or even halted growth.
Another common mistake many companies make in the CS budgeting and planning process is to push their CS reps under a support organization, putting unnecessary pressure on both functions. A more rational approach, for both early-stage growth companies and those late to establish CS teams, is to invest in and appropriately compensate an experienced CS leader who knows how to forecast and build an AOP. The CS leader should build the AOP based upon a hiring philosophy that is designed to establish the first round of potential frontline managers and future operational talent, all supported by the appropriate tech stack. Unfortunately, many organizations default to the “head of CS” route, which is usually short-sighted. I’ve also written about this recently in Setting Your CS Leader Up to Win.
Until CS achieves the same level of awareness and trust sales enjoys, you may find that you must offer more transparency and proof of your needs than sales leaders are expected to deliver, but it is possible to calculate and secure the headcount you need. And your team will be stronger for it.
By cross-functionally building the organization’s customer journey maps before budgeting and using customer-driven data, CS can more accurately both calculate and allocate the correct spend (headcount, tech stack, ops, etc.) relative to customer-led value and company-earned revenues. The models I’ve outlined here offer a simplified place to start. Continue to follow us here for more cutting-edge Customer Success wisdom.