A Guide to Building your First Customer Success Organization

Three things truly matter in regards to measuring a SAAS company’s value and long term prognosis:

1. Net New ARR Growth - This is usually defined, in a non PQL model, as how many quota-carrying account execs you can deploy that effectively hit their ramped quota numbers.
2. Net Revenue Retention - This is a measure of both how sticky your product is post-purchase and the appetite for your customers to not just renew but buy more from you.
3. Cost of Revenue Acquisition - Whether you use the magic number or CAC or LTV / CAC to measure revenue add efficiency, it means the amount of money you need to deploy to achieve items 1 & 2 above.

This guide is focused on item 2 - Net Revenue Retention and the importance of thinking through from the get-go how you build a terrific customer success experience and team.

NRR is a top metric that I look at in understanding the long term potential of a business. It is, of course, tricky to gauge that when investing at the seed stage. We do our best in diligence by 1) talking to 3 to 5 customers and understanding how much they emotionally love the product and company and 2) discuss with the founders their view on possible revenue expansion at accounts over time (usually the growth of initial product and or new product expansion).  

Revenue growth is indeed exciting when looking at companies. Still, revenue does not cure all evils if it’s not sticky. It is extremely costly and psychologically trying if you have to continue to refill a leaky bucket - not to mention incredibly hard to drive high new business win rates if you have too many former customers as detractors in the market.

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As an example, Alex Clayton and the team at Meritech are a terrific source of public SAAS company operating metric deep dives. Their data draws a strong correlation between a company’s NRR, its magic number, and ultimate market valuation multiple. As an example, the chart below ranks public saas companies by their NRR - it’s no surprise that the leaders here are also some of the highest valued public software companies in the world.

That being said, NRR and customer success start first and foremost with the quality of your product. No amount of customer success hijinks, investment, and mastery will make up for a substandard product experience where the product doesn’t deliver the outcome a customer desired or consumes far more calories to do so than they anticipated.

Assuming you have your ICP and product fit figured out, job two is to ensure that you are building the right level of post-sale support and guidance - i.e., your customer success team. This team’s effectiveness + the quality of your product drives your overall NPS - one of the most significant indicators of your company’s ability to scale for the long term.  

Most start-ups at the seed stage that we engage with generally have a 1-2 person success organization. They tend to be overworked smart generalists that do everything for customers - onboarding, field support calls, drive adoption workshops, introduce new features, secure renewals, etc. Customers tend to love them. In the early days, your product is likely immature, and using people to fill those gaps and overcompensate with terrific support is completely understandable - and a good strategy. Quotes you will hear often is “we have never received this exceptional level of support before ''. Everyone feels great about such feedback, and they should - it is a sign that your customers do love you and who cares if it’s the product or success team - there is love to build on.

However, as you start to raise more institutional financing and put together 2-3 year P&L’s and operating models, you might often be in for quite a shock. Modeling out that level of support as you scale is 1) crazy expensive 2) confusing to your p&l, and 3) doesn’t allow for the level of specialization and focus and proper hand-offs that occur in a mature customer success organization - especially if you sell to and serve customers across market segments. Furthermore, all too often, I see R&D involved in customer deployments and support, which will never scale. R&D needs to focus on building the product and its core capabilities and NOT in doing custom support or development work for customer deployments.

I interrupt this guide to remind everyone of how to properly account for the cost of your customer success efforts in your P&L:

• Professional services costs go into your COGs line. Most companies separate out the revenue for PS and PS costs to derive PS margin distinct from SW or Platform GM.
• Customer support costs go into your COGs line and are included in your SW/Platform gross margin calculation. If you need to provide too much support for your product, it will show up in your SW / Platform GM line, which you want to keep above 70%.
• Customer success management costs are included in your costs of sales and marketing as an operating expense because these costs are going towards retaining and potentially expanding your existing revenue stream.

By a company's series B raise (say $5M in ARR), their customer success org should comprise the following:

• A dedicated executive - that reports to the CEO who runs all things customer success
• A dedicated professional services/onboarding team - whose role is to get customers live once they have purchased the product.
• A dedicated technical support team - whose role is to answer tickets and resolve customers’ “this isn’t working” or “how do I” questions.
• A dedicated customer success management team - whose role is to drive product adoption and retention post-deployment and secure contract renewals.
• CS financial metrics that make sense - i.e., net negative dollar churn + professional services margins of at least break even + platform gross margins (inclusive of support) north of 70% + CSM team costs that are between 10-12 cents on the dollar in your magic number calculation.

But for now - you have two people doing everything. How do you possibly get there?

Hopefully, this playbook will provide you comfort and set you off in the proper direction. Special kudos to all the great success people I have worked with in the past, including Charlie Nelson for many of the great ideas and content provided here. He did a fantastic job in transforming SmartRecruiters’ customer success organization as they pivoted from a freemium product to an enterprise product and customer-first company successfully serving the needs of some of the world’s largest corporations.

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Step 1 - Start with the Generalists

If you have no single employee in customer success, get going! In the early days, it does make sense to start with 1 to 2 generalists who handle all things customer success.  

These tend to be people who are quite clever, can multitask like a champ, and have hopefully some domain expertise / shared job experiences for the customers they are serving. For example, in the early days of SmartRecruiters (hiring software), having people who were former recruiters as customer success people was incredibly helpful as they could easily relate to and understand the company’s initial customers.

If your product requires some complicated work to get deployed, these generalists will likely have some detailed professional services implementation experience. They should be excellent project managers and have experience implementing software projects on time. If your product onboarding is not super complicated, then the generalists tend to be less implementation-minded individuals and more attuned to driving continual progress and product adoption within your deployed customers.  

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Step 2 - Make the Move to Specialized Roles

After you have 1-2 generalists, it is time to start to build out specialized roles so you can focus your team’s skill-sets and priorities appropriately. These are the three primary roles in a customer success organization:

Implementation / Onboard / Professional Service

These are the people that get your customer live after they have purchased your product. They configure the solution, integrate it with other systems, migrate data, and conduct end-user training as the solution is rolled out. These roles can vary as your teams grow but usually comprise project managers, integration architects (if appropriate), and end-user training people.

Their core KPIs that they are measured on are: PS bookings, PS Revenue, PS Margin, Billable utilization, and deployment CSAT.

Their compensation tends to be a base salary with a bonus between 15 to 30% on top of the salary tied to the KPIs above.

Technical Support

These are the people who your customers email/chat/call when they have an issue regarding a feature they don’t believe is working correctly or if they don’t understand how to use the product.

They manage the support queue in your ticketing system and troubleshoot with customers, PMs, and engineers. They also contribute to and create an internal knowledge base for their own efficiency and for customer self-support.

Their core KPIs are: First call resolution rate, case volume, Service Level Agreement adherence, and CSAT for support interactions.  

Their compensation tends to be a base salary and organizations generally look to locate their support teams in lower-cost cities.

Customer Success Management

These are the people who work with your customers proactively post go-live to ensure they are adopting the product correctly, understand how to use new features, and guide the customer on achieving their desired outcomes. They are ultimately responsible for retention and renewals. They may identify upsell opportunities as an ordinary course of business, but in my view it’s the account executive’s role in sales to drive those incremental ARR opportunities to closure.

Their core KPIs are: customer health score, customer NPS, gross and net churn.

Their compensation is usually a 70/30 split between base and bonus with bonus tied to renewal rate or net churn.

So to net it out:

• Professional services get customers live and are measured on deployment success and revenue/margin/utilization of services.
• Technical support resolves customer product issues & questions and is measured on resolution rate and CSAT.
• Customer success drives customer adoption and retention and is measured on net retention.

To start the process of moving to specialized roles, this is what I recommend assuming you have 1-2 generalists who look most like a customer success person.

1. Create first a defined technical support function. Your next 1-2 hires would be here first with usually a team lead as one of the two hires to help you build out the function and processes. Direct all customer support questions to this team and have them manage a formal queue of tickets. Your existing two generalists continue to do onboarding/implementation and customer engagement/adoption.
2. Create next a defined onboarding/implementation team. 1-2 hires go here with hopefully a team lead. This team now owns all things implementation and onboarding for customers. It will help, especially if deployments require >10 hours of work, to hire someone with a PS background or at a minimum, a strong project management background.

If your first two people were more implementation minded, that’s okay. I would still invest in a support function first. Then, invest in dedicated customer success management.

So now, you likely have a team of 5 people in customer success with a few people in ps, support, and customer success. This team will be crucial in working daily with customers, and coming back with the data and guidance on what they see is needed to help scale the business. With this small team, make sure you have defined the customer hand-off model, so customers do not feel left in the lurch. If the customer has bought SAAS before, this type of customer success org structure will feel very natural.

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Step 3 - Diagram The Model for Scale that Will Work for You and Your Customers

Now that you have the beginnings of a customer success organization, it’s critical to diagram how this organization will scale (given known cost constraints) as you grow the company. I routinely ask the companies I work with to white-board the following 3 x 3 to get them to think through how much in-person touch is required vis a vis what they can afford. As part of the process, I ask them to write down all the ways in which fewer resources are needed - i.e., what would make things more efficient:

What becomes clear to most companies is the TLC they are providing to customers of all sizes just will not scale. They also realize that they must find ways to offer better self-service and automated ways to serve the needs of the small so that they can devote resources to larger accounts.

This always should come back to your product and ensuring that the product you have and the markets that you are targeting make sense in regards to being able to complete the above exercise properly. For example, if you have a clunky enterprise product that requires a ton of implementation and support and success hand-holding, do not go and try and sell it to an SMB buyer unless you are ready for churn-a-palooza. If you want to GTM down market and have great NRR, ensure your product is more stripped down and has the appropriate level of in-product guidance and usability for that market.

Below is an example of a company’s “high/low” CS approach that I have worked with. It clearly shows in green where there is direct human involvement, whereas in red , they need to rely on automation - whether from a customer marketing or a product guidance system. It is likely far more sophisticated than you need at the seed stage but a good example to aspire to as you grow.

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Step 4 - Build the Organizational Linkages

Your customer success organization can NOT be a silo. They, more than anyone else, talk to your customers every single day and often when things are nervous (deployment) or frustrating (support). That is why it is critical to build the core linkages between your customer success team and the appropriate departments within your company. These are the core linkages I like to see teams build early as a very strong muscle. The basis of these are key to answering the following questions well on a regular basis:

1. How do we minimize customer’s frustration with the product not working as anticipated and or too frustrating to use? (Support w/ R&D)
2. How do we prioritize properly the net new product efforts (feature completion, new feature creation,etc) that will drive higher levels of success and retention for our customers? (CSM w/ Product)
3. How do we provide comfort to our new sales prospects that we have a concrete plan of attack to get them live and towards their desired outcome? (Services w/ Sales)

As you build out your customer success teams, drive the following linkages from the outset:

1. Technical Support & Engineering Linkage. Tech support should be submitting bugs from their case queue to engineering. Engineering and Support should review weekly the level of technical debt and closely track new bug creation versus resolution. They also should closely monitor the organization’s SLAs with customers and ensure they are on track with that expectation. For clarity, usually in your terms of service, you need to clarify your responsiveness in resolving P0 & P1 bugs with customers.  
2. Technical Support & Documentation Linkage. More than 50% of inquiries into a product support team are really around “how do I” - i.e., the customer doesn’t know how to do something because the product is not intuitive, the knowledge base is unhelpful, or they are just lazy. Regardless, tech support should be working with whoever is responsible for product documentation, product FAQs, product guidance tools, etc. Together, they should ensure that 1) that their documentation and knowledge base is up to date and 2) the product team looks to address the top 10 drivers of these calls within the actual product user experience. I highly recommend investing in product guidance software where non-technical employees can author and publish in product guidance, especially in areas where customers get lost and give up and call support.
3. Customer Success & Product Linkage. Customer success people get pinged all the time from customers around the features they want or need - i.e., “if you just had this feature that was in my old crappy system that I never used and abandoned to use yours, then I would be pleased as punch.” The challenge is that CSMs and, for that matter, everyone in the success orgs job is to support the customer with the live product that is GA today - not some future roadmap that everyone wants. Product teams need to establish a very clear roadmap that explains what their plans are for the next three quarters and why. In those prioritizations, the CSM organization’s top ten feature requests should be factored highly in the product team’s plans. To help, look at investing in product feedback software that allows customers to submit and vote for their feature requests and receive automated updates when their requested items are shipped.
4. Customer Success & Sales Linkage. My view is that net new ARR or expansion sales opportunities are closed by the AE, and they receive quota credit for it. That being said, post-go-live the CSM is heavily engaged with the customer in driving their success forward. As such, the CSM and the AEs of the accounts that they support should be “best of buddies”, routinely meeting to strategize on not just how to drive retention at accounts but expansion opportunities as well.
5. Professional Service & Sales Linkage. This is pretty straightforward as well - do not close an order form with a customer and then just dump things off to PS to resolve. First and foremost, using services mid to late funnel to scope and explain to the customer how they will engage with them to drive them to go-live is key for a customer to move forward on a deal - especially in a COVID world. Secondly, to ensure that PS can successfully deliver on what’s been promised to the customer, they need to be engaged before a deal closes to ensure the customers expectations and needs are properly understood.
6. Professional Services & Engineering Linkage. This linkage is relevant if data migration and systems integration work are required as part of taking a customer live. In that case, professional services should work with engineering to prioritize a strategy for integration, including the relevant endpoints that must be exposed in the core product and a broader strategy for repeatable integration connectors to the most commonly requested third party systems. Additionally, professional services and engineering should align on how best to make data migration easier and faster as it is often what holds up go-lives the longest.

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Step 5 - Find a Way to Measure Your Customers Health

It goes without saying that as a management team you should be tracking regularly your core customer success metrics. At a high level, I ask teams to focus on these top three:

• Customer Health - percentage green/yellow/red
• Customer Retention - actual / forecasted net customer and net revenue churn
• Customer Love - % of customers referenceable & customer NPS

The second two are quite straightforward. Customer health measurement can be a bit trickier to agree on when looking across your customer base. To determine if they are green, yellow, or red (aside from them telling you they plan to churn), consider in the image below the appropriate metrics for your business in evaluating your customer health.

Usage and NPS are always helpful indicators but companies who use your product a lot might actually churn if they aren’t achieving their desired impact. For a small start-up, I would personally start with usage/NPS and try to add some metric around if the customer is achieving their desired outcome. If you serve customers across segments, it is essential to track the aggregate scores of customers in those segments separately as you may be doing far better in one segment than another - so do not munge the data.

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Step 6 - Flesh out Your Free & Paid Services & Support Offerings

A common question to ask at this point is “what drives how many people I hire in the different functions?” The answer somewhat lies with the results of your exercise in step 3 described earlier in this piece. That being said, investing in support and professional services are really demand-driven capacity hiring models. On the support side, it simply comes down to the size of your case queue and your goal for resolution rate. If your queue is getting larger and your resolution rate is coming down, aside from digging into the root cause of why, you need to hire some more support people. On the services side, hiring is driven by how many professional services hours are required to be delivered and the acceptable delay in starting deployments for your business. If you are unable to deliver customer projects on time because of a lack of bodies, aside from digging into why the implementations are so resource-intensive, you need to hire more professional services people.

Now - here is the golden rule to understand: your customers will demand of you as much support and help you will give them, especially if you are not charging for it.

As such, in the transition from seed to series A & B, you need to flesh out what makes sense from a customer’s perspective (and what you can afford) as to what is included (as part of their subscription) and what they should pay additional money for. I find start-ups all the time in the early days who just waive onboarding and implementation fees to get that ARR number up - I get it - and every single time, I tell them to stop doing that. It’s time to build the proper foundation for what’s free and what is not, especially if we need the funding to invest appropriately in our success teams.

In the image below, I show how to group the types of help you provide into whether they are free, for a fee, or somewhere in between.

At the early stage of a company, my recommendation is you charge for service implementations and you do not charge for product support and customer success management teams. Once you are at this for a while, the next level of paid offerings to consider is relevant if you sell to and service larger enterprise accounts. For those businesses, they may often demand a higher level of support responsiveness and dedication - i.e. much more stringent service level agreements. In that case, charging for premium levels of support as a subscription offering makes sense - these tend to vary in pricing from 10 to 20% of the ARR of the licensed software product.

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Step 7 - Develop Your Customer Success Playbooks

For those that know me, I am a big fan of playbooks. Much of the playbooks shared online deal with new customer acquisition on the sales side - for obvious reasons. You need to build some repeatability around how best to sell to your different types of ICP personality types and different types of account dynamics. I recommend that you start to build similar playbooks on the customer success side. Three basic playbooks you should start to define now are

• The playbook for proactively driving successful activation and usage of your products.
• The playbook for handling escalations when things go awry.
• The playbook for identifying and driving account expansion.

Below are three representative examples - they may be a little more advanced than what an early stage start-up will have but they should serve as inspiration for a desired level of sophistication in your playbooks.

The great thing about a playbook is that if you follow it, you have a consistent process to benchmark against. When things do not go as planned, you can check first to see if the playbook was followed. If it was and things didn’t work out, you should then re-examine the playbook and adjust it appropriately.

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Step 8 - Invest In the Systems You Need to Support Your Processes & Teams

It obviously is no surprise to you that I like the companies I work with to invest in the appropriate software to drive the process consistency and metric measurements key to success. Of course, you don’t want to over-invest too early or operationalize too early before you have nailed some level of market-fit. At a high level, I would say these are the core systems you need to invest in / extend:

• CRM: Ensure your deployment of the tool of your choice incorporates the complete customer life cycle. To that end it means, setting up and tracking your customer accounts for not just software sales, but all of your post-sales activities. So licenses should be bought for all of success as well. Customer cases should be logged against accounts, renewal opportunities should be tracked and managed separate from new business opportunities, professional services dollar amounts should be tracked separately from software subscriptions, feature requests tied to lost deals and customer accounts, etc.  
• CPQ:  Pricing and quoting systems are far cheaper and easier to deploy than they once were. The earlier you have set up in your systems the concept of contracts that have order forms associated with them, and order line items for success offerings discrete from software offering tied to those order forms, the easier it will be to track the real dollars at play with your customers and the easier it will be for you to allow customers to add mid-contract purchases and/or early renew without it becoming a complete cluster@@@. Moreover, for those companies that have a self-service/self-purchase offering with real demand, enabling this level of automation will pay off in spades down the road.
• Product Experience: I do not think it is ever too early to invest in this type of software. The more you as an organization are product-led, the higher chance your customer success organization will thrive and your NRR results will make others envious. Take a look at something like www.pendo.io and start to 1) understand real-time customer usage and sentiment 2) provide in-product guidance to reduce customer frustration and support desk calls 3) receive and incorporate customer feedback into your going forward product roadmap.
• HelpDesk / Jira: Likely, your development teams are already using something like Jira to track their development efforts. You should make sure, either as part of your CRM investment or separately, that you have a customer support helpdesk system to receive, track, and resolve their support inquiries. These systems should be integrated with Jira to ensure that bugs are properly created and associated to customer support cases so that you can track your technical debt and its impact on your support volumes and abilities to meet your SLAs with your customers.

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Step 9 - Contract Terms Matter

This is a very short and sweet reminder - the more of your deals that are annual in length or even better, multi-year agreements, the more likely it is that your NRR results will be better. Your customers will be more committed to doing what they need to on their end to drive the successful usage of your product. Lengthy commitments also buys your success team the time they need to work through the usual ups and downs of any customer relationship.

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Step 10 - Build Your Ongoing Staffing Model

We are in the home stretch now! How should you think through modeling over the next several years how much you should plan to invest in the aggregate success function and the individual teams? First and foremost - there is no one size fits all model - budgeting and staffing is really tied to your business model and your math. The biggest variances will of course be driven by the complexity of the product you offer, the types of customers that you serve, and the level of corresponding help they need. That being said, here are some basic rule of thumb things to consider:

1. Technical support hiring is tied to the volume of support inquiries you receive and your ability to resolve them as quickly as you need to maintain customer love. These costs are incorporated in your platform/software gross margin number - one of the key numbers any investor looks at and usually is applied to the magic number calculation of your overall SAAS efficiency. Therefore, you must find efficiency here, or else your business margins will be less attractive to investors. That being said, NEVER have too few support resources. They aren’t that expensive, and underinvestment here is the easiest way to piss off your customers for life.
2. Professional services resources are tied to a capacity model. As long as these resources are billable (i.e., you are charging appropriately for your services work) and you manage FTE utilization appropriately (i.e., you don’t have a bunch of people sitting on the bench), this is easily manageable. Generally, as long as your PS margin is close to zero (i.e., you are a software company and investing in growth and as such no investor expects you to run Accenture like services margins), you are fine. That being said, if your PS revenue is large relative to your software subscription revenue, that is a complicated business that is hard to scale. Some businesses require a bunch of PS however. Once you have nailed the recipe for delivering PS successfully, it is incumbent on you to form partnerships with third-party SI’s to deliver a large share of that services work. Otherwise, one of your core growth constraints is your ability to hire PS people - not a great sign for a SAAS company.
3. Customer success management resources are the hardest ones to apply real math around. These resources are costs incorporated in your cost of sales and marketing, and you simply cannot afford to go hog wild here in regards to hiring. The exercise in step 3 will help guide your efforts here. The back of the envelope calculation for CSM investment at scale is that you are spending no more than 10% of ARR on these teams. If you need to spend considerably more to achieve your NRR goals, stop and go back and look at your product’s fit / readiness for the market segments you serve.

Below is a helpful guide in regards to investing in your post-sales organization from our friends at Insight Venture Partners. Your numbers may vary but I find this to be a helpful rule of thumb.

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Step 11 - Hire a VP of Success

I generally guide CEOs to, at some point have a VP of all things Customer Success that report directly to them. CEOs need to be directly connected to the health of their customers and what the organization can do to improve it. As such, I don’t really like a level of management between the CEO and whoever runs success. I also don’t like organizations that have a head of PS and a head of CSMs with no overt direct leader. A CEO needs one leader on their management team who can answer for him/her/they the following questions:

1) What is our implementation strategy? What’s the revenue/margin/resourcing should I expect? And of our implementations in play, which are red/yellow/green and why?

2) How happy are our customers in regards to the product they have purchased and the level of support we provide them? How many of them are referenceable? If not happy enough, what should we do?

3) What business outcomes / metrics are our customers achieving? What are the top 10 things to build/improve in our product to improve their results?

4) What is our forecasted net customer and net revenue churn? Why is it that? What are the top things as a business that we could do to improve those results?

Now I get it - if you are just starting with 1-2 generalists, how do we get to the point where we have an amazing uber head of success who walks, talks, chews gum, and dunks basketballs all at the same time. It’s a process.  

For me, I would start to look for a lead of all things success early on - likely a director / senior director level. At an early stage start-up, they will usually start out being your CSM lead or PS lead and will look to scale over time. They may or may not scale - as you consider making a senior hire of success - and for me at series B and potential series A fundraise, you should have a leader of success who works for the CEO. SAASTR offers a great quick guide on how to hire your first head of customer success here. Until then, you and your existing team leads can hopefully use this playbook to get you well on your way to customer success, customer love, and NRR that your neighbors envy!

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