The two questions CS leaders have to answer to survive

What’s your margin contribution for your company and your customers?

We are in the midst, or perhaps just the beginning of a sea change in B2B SaaS. Markets and investors are spooked and as a result are more and more focused on profitable growth, not growth at all costs. The cost of capital is no longer close to zero, as has been the case for the past 10-15 years. With the cost of capital now around 10% (convertible dept probably at 12%) funds for growth are increasingly expensive. Raising capital to cover your burn rate and extend your runway (how long before you run out of cash) is now both very expensive and increasingly challenging. Cash, or lack of it, is the one sure thing to put you out of business. That means budgets for anything are increasingly scrutinised against their contribution to profitable growth and existing budgets are pored over with a fine tooth combed to identify costs that can be trimmed. CEOs, CFOs and investors are now reassessing what was, until very recently considered important but nice to haves and becoming laser focused on must haves.

CS is no exception. I have not found any figures specific to CS but Forrester are predicting 20% of customer experience programs will be cut next year. Private Equity are adopting a benchmark for CS spend at 6% of revenue; a big difference from the 12-15% often quoted by the CS community.

The changing macro-economic environment reinforces the need for CS leaders to focus on two dialogues. They are not new but not enough CS leaders are really literate in them. That has to change and quickly.

The internal dialogue

The question CS Leaders have to answer internally is “What is CS’ margin contribution?”

In the past, justifying CS investment was easy. Once a delivery model was agreed, headcount and other resources grew in line with customer count. Too many CS leaders relied on the assumption that investment in building a CS department was an essential part of a SaaS business. Well now, that assumption, along with other operating norms across the business will be questioned. I have spoken to CEOs who are asking about the impact on churn and growth (NRR) of not having a CS department. ‘Accepted wisdom’ is no longer accepted at face value. The cost of capital, its impact on cash runway and the focus on profitability has changed that.

If your CS operation is not generating margin, you are a cost centre. And even if you are margin positive, the pressures on the business will lead to requests for more. CS has some great arguments in its favour: the lower acquisition costs for renewal and upsell revenue; the impact of NRR on valuations; the contribution of referrals (secondary revenue) and the need to deliver on promises made in the sales motion are just a few. But even if you are doing all this, if you are costing the business more than you are earning, you will deservedly come under scrutiny. For this reason, growing NRR is no longer the game. Growing profitable NRR is. I believe CS leaders will be we be better served by measuring NRR efficiency the cost to deliver each % point of NRR) and CLTV:CAC ratio.

How do you address this? The model CS P&L. P&Ls are simple: Income – Cost = Margin. I built one for my own B2B SaaS company and helped several others do this as part of my coaching work. Note: this is a pro forma P&L; it’s a tool to help understand the financial impact of CS, however you choose to define the scope of that capability.

Let’s break it down.


  • Recurring subscription revenue
  • Recurring services revenue
  • One-off revenie

Cost of revenue (Can be included in costs for a simplified model)

  • PS costs
    • People (See headings below)
  • Support (if part of the CS organisation)
    • People
  • TOTAL Cost of Revenue
  • CS Gross Margin


  • Staffing costs (CS, PS, Implementation, CS Ops)
    • Salaries
    • Bonuses
    • Employer Taxes
    • Expenses
    • Training & development
  • Technology
    • Software
  • Customer marketing
    • Content production
    • Distribution costs
    • Events
  • Other
    • Facility costs (space, core equipment ….)


  • Margin contribution = Gross margin – costs
  • Margin % = Margin contribution/Total revenue

So what does this mean. There are some pretty clear implications.

The CS P&L will help you focus on profitable retention and growth. If you can’t track the data above, you have a problem. You are not in control of your business. Use your CFO to help you fix it.

If you do not directly own a number, you are a cost centre! On your head be it when the company starts looking to preserve cash.

The biggest cost element is always people. If the business is looking for meaningful savings to preserve and extend the runway, they will look here first, Productivity – how you can do more with the same or less is key. For me, productivity is about how we can deliver the same, or preferably better value for customers with the same or less resources. There is no trade-off: meaningful productivity requires both.

New products and features and how these are packaged and priced can change the top line but it usually takes time, which you might not have.

To repeat myself, this is not a ‘for real’ P&L but a very powerful tool for understanding and agreeing the financial expectation from customer success. It is richer than a budget, which tend to focus only on spend as it includes both income and costs.

I always run two, linked versions. The first is used to model how CS currently operates and how you want it to operate. This s your planning tool used during budgeting and periodic CS business reviews – typically quarterly. It’s a great tool for asking questions: “What’s the revenue potential of increased retention or upsell?” “What productivity improvement will we get from greater automation?” The real power comes from the discussion about how these changes can be made, generating a shared perspective on how actions can be implemented.

The second is the actuals, used to track performance and drive discussions around the progress of the changes to achieve or improve positive margin contribution.

The customer dialogue

Your customers are operating in the same challenging environment and probably having the same discussions: how can we maximise our cash runway and improve our profitability. Cost cutting is always quicker and easier than revenue growth so the larger the pressure on runway, the more this is likely to happen.

Your products and services are on the list of potential cost savings. How safe are you? I think that depends on two categories of factors:


There is always cost and risk associated with change. Incumbents benefit from this. Costs of change include training, adoption, integration and process change. Never underestimate the hassle factor in sustaining the status quo. We tend to prefer the easy over the best. Whilst real, these are all negative: reasons not to change but not meaningful reasons to stay. The greater the pressure on your customers’ costs the more these factors fade.


Positive reasons for change are primarily twofold.

The first, and I believe the most critical and influential is the recognition of the measurable value customers achieve from using your products and services. This operates on two levels: the measurable value achieved by the key roles you serve and how these benefits aggregate to achieve a measurable business impact, Not all will be financial. The important point is that they must be identifiable and of real importance to the individuals and the business.

Not all elements of value will be a direct result of your product. If you are on your game, you will be providing help, data and guidance on the broader issues of improving the domain of business you work in. This position of trusted advisor amplifies the value your product delivers. Beware; though this broader value is important, its impact wanes in the absence of measurable value attributable to using your product.

Rebalancing the see-saw

The financial situation has shifted the balance, increasing the focus and importance on the measurable value you deliver. If you cannot reliably and repeatedly prove, to the satisfaction of the key roles you serve (which will increasingly include your customer’s CFO) you are on the “potential savings” list.

I have been doing, advocating for and helping companies identify and report the measurable value they deliver for many years. Still, only a small number of CS leaders include measurable customer value as one of their KPIs. Do you? The tiny number that do is frankly staggering and a blight on the discipline. It’s a bit like a sprinter who doesn’t measure their times, relying instead on relevant but indirect measures like stride length, knee lift and arm cadence. They all contribute to performance but do not measure performance of what matters most – who wins. Too many in CS are happy to stick what they can measure – adoption, relationship strength customer health rather than what they must measure: what measurable value are customers achieving.

Let’s be clear, if you cannot show measurable value to your customer’s decision makers (which will increasingly include the CFO) and key users you will be in trouble. Key users are important because, if they can show they are achieving measurable value in the context of their role, they will advocate for you and you may well need all the help you can get.

The privilege of leadership

If you are not able to answer or not actively working on these two questions you are failing the people you lead. They rely on you to make their case for continued employment; to guide them on how to focus on the right things. When conditions change, it is the leaders job to lead, to adapt working practices and focus to what the changed situations demand.

Having lead a B2B SaaS company through previous financial crises, I can tell you it will be tough but one thing is sure. Thinking it won’t happen to you and your team is just sticking your head in the sand. It is abrogating your responsibility as a leader. I also learned one other thing. Hard times amplify what you should have been doing all the time.

Tagged : /

The one thing millionaire Nick Mehta got wrong

Right-Right signs

I read Nick Mehta’s article “The One Thing Billionaire Frank Slootman Got Wrong” commenting on @Frank Slootman’s book “Amp It Up”, specifically Frank’s thoughts about customer success departments.  It is a topic I addressed in my presentation at the Customer Conference in London in June this year.  Titled “Notes from a CS heretic” the presentation referenced Slootman’s approach in  questioning much of what we do in the name of customer success.  Here’s my take on the debate between Batman and the Joker.

In his book, which I highly recommend, Slootman says; “If you have a customer success department (my emphasis), that gives everyone else an incentive to stop worrying about how well our customers are thriving with our products and services.”  Slootman is not the first CEO to raise the issue of how organisations address the challenge of delivering value to customers.  In his book Subscribed, Zuora CEO Tien Tzuo describes the typical response to challenges saying “When in doubt, build another vertical silo.”  

Many in the customer success community have wrongly interpreted Slootman’s aversion to a customer success department as a failure to recognise and deliver on the importance of delivering value to customers.  I see no evidence of that.  Slootman eschews a customer success department, Tzuo doesn’t.  Both are successful companies.  Slootman’s comment that CS is everyone’s business does not mean that the work of marketing, selling and delivering measurable customer value is not designed into the organisation.  It simply means that Snowflake chooses a different approach to implement it: one that works exceptionally well.

Before writing-off Frank Slootman’s approach, its worth exploring some of Nick Mehta’s critical comments.

Nick claims Frank’s view “reflects a dated perspective around the future of software.”  I would argue that some of the practices Snowflake employs represent the leading edge of SaaS.  It has a strong product-led capability, free trial and employs consumption-based pricing.  Snowflake recognise the latter as a key plank of their customer-led approach, beginning with sales.  In the words of Snowflake’s CRO Chris Degnan, “With the usage-based model, the account team stays engaged post-sale to make sure you are consuming and getting value(my emphasis) out of that consumption. Your account team should be excited about helping you solve real-world problems and discovering new use cases. It’s all about making you successful by building the right team around you from the get-go.” A sales leader focused on helping customers solve problems is something many leading a CS department in other SaaS companies would love to have. 

In his article, Nick says “Clients expect the vendor to drive the outcome.” Driving outcomes is clearly a must do, not just because customers demand it but also for self-interest.  Recurring revenue demands recurring value.  He adds “Customer success teams are at the tip of the spear of driving value.” But that is because that is how those organisations are designed.  In others, professional services, implementation teams and product lead and/or contribute to that task, sometimes working with partners.  There is no evidence that, implemented well, other models of value enablement can and do deliver the repeatable measurable value that underpins retention and growth.  In fact Snowflake proves that to be true.  Also, there are many cases where companies with large CS departments fail to deliver high NRR and customer satisfaction because they fail to deliver measurable customer value. I have encountered few CS departments that actually measure customer value delivered. It is not the presence of a Customer Success department that guarantees success but the presence of the intent, processes and resources to make customers successful.

Nick also says “Thousands of companies can’t be wrong”, citing the number of companies with CS departments.  But what if they could achieve Snowflake’s level of success, or better, with a different approach? As I am fond of saying, common practice is rarely best practice.  Indeed a criticism often levelled at the CS community is that it is an echo chamber; quick to reinforce current practice and insufficiently self-critical in the pursuit of excellence.  I am not saying the existence of a customer success department is wrong.  I am saying that there are other valid and proven ways of achieving repeatable customer value.  To dismiss these out of hand is what is wrong.  

Is everyone in sales too?” asks Nick and if that’s true “do we need sales people?”  That takes a very narrow view of sales people.  If sales is about delivering revenue then CSM’s owning renewals and upsells (a practice Nick supports in his article), are sales people. So are value engineers or CSMs involved in pre-sales and product managers driving product-led acquisition.  Like value-enablement (customer success), real selling is a team sport.  Let’s also not forget that the best sales people are those that identify if and how their products and services deliver measurable customer value.  They enable buying, which is different in both intent and process from old-school hard selling.  As my friend Bill Cushard taught me, “Helping sells, but selling doesn’t help!”  Another CEO recognises this customer success approach to selling.  Chris Savage, CEO of Wistia said “In essence, our sales approach isn’t that different from our customer success approach.  In both cases, we’re just helping people get the most of out of our products.  It’s just that one group helps existing customers and one group helps prospects.” So yes Nick, everyone is in selling.

Despite not having a CS department, Snowflake employs Customer Success Managers, as a quick LinkedIn search will confirm.  Dig deeper into job profiles I have) and you will find the work of delivering customer value in many roles; e.g. Account Manager, Support Manager.  I think Snowflake believes deeply in delivering measurable customer value but prefers a different way of organising for it.  Snowflake’s results suggest there is merit in Frank’s approach.  Earlier this year, Snowflake reported the following results:

  • NRR               170%
  • NPS.               71
  • Revenue         $1.2 billions 
  • YoY Growth   102%

This cannot be written off as only the result of good product-market fit or a unique business.  Consumption based pricing drives strong NRR but growth is only possible if customers are retained and that is significantly dependent on customers achieving measurable value. 

The belief that there is only one way to organise for customer success and that is around a customer success department, is a mistake and displays a lack of imagination.  In no small part it is driven by a lack of understanding of the work of organisation design; work that is a primary responsibility of a CEO.

For me, organisation design is about how a company implements its vision, values and strategy and from a commercial perspective, centres on four inter-related frameworks:

  1. The company’s value proposition; 
  2. The customers it sells to and serves (and by definition, those it doesn’t);
  3. The go-to-market approaches the company employs;
  4. The metrics it uses to track performance.

Architects teach us that ‘form follows function’: a building’s structure is only considered once its purpose, users and work are understood.  Great organisation design occurs when these four frameworks are highly coherent: they work together by design.  Success is also highly dependant on collaboration and alignment; factors that never appear on organisation charts.  Yet all too often, organisation design begins and ends with structure and ownership; factors that tend to drive silos and narrow focus.  Creating a customer success department in and of itself doesn’t solve the problem of marketing, selling and delivering measurable customer value.  Equally, other approaches are worthy of consideration and not summarily dismissed.

The first of the ten laws in the excellent book Customer Success, which Nick co-authored, is “It’s a top-down, company-wide commitment”.  I agree whole-heartedly.  In my book Customer-Led Growth: A CEO’s guide to building a B2B SaaS company, I argue that measurable customer value is the red thread that connects the whole organisation with the customer.  I do not however believe you have to have a CS department to achieve that but nor do I dismiss that approach.  Both approaches can and do work.  What makes the difference is not organisation structure; the existence or absence of a customer success department but the quality of organisation design.  

Nick does himself a great disservice by likening Frank Slootman to Michael Jordan and himself as a ‘middle school kid on the playground”.  I have founded, built and sold a SaaS company and know how hard it is.  My success is small compared to what Nick has built at Gainsight.  He’s no kid!  I have huge admiration for what he has done but just as he disagrees on one point with Frank, I disagree with him on this point.  Nick described Slootman as his nemesis: The Joker to his Batman. Well if that’s the case, I have to confess to leaning to the dark side. But let’s be clear, the real enemy is not the presence or absence of a customer success department but the paucity of meaningful customer focused organisation design.  

Mind you, if my revenue depended on the existence of customer success departments I too would probably rail against anything that questioned that need.  But even here, Nick is missing a trick.  Recognising that measurable customer value is the red thread across the go-to-market cycle and not just the domain of a CS department expands the opportunity for software focused on delivering measurable customer value.  Perhaps Frank has expanded Nick’s market opportunity.  

Building a scale CS operation

Delivering customer outcomes is the primary purpose of customer success in B2B SaaS companies. Delivering that at scale with a digital first approach meets the twin needs of customers that often prefer a self-service approach and the productivity companies need to deliver affordable service. This article explores the capabilities and roles needed to deliver scale CS.

Need help in building out your scale CS operation? Give us a call.

Personal musings on CS

I was pleased to be asked to discuss my thoughts about customer success by Dave Blake and Burke Adler of Client Success. We covered a lot of material in 45 mins including:

  • A review of the current state of CS and the challenges we face.
  • An introduction to product-led CS
  • Thoughts about where CS is headed.

The webinar was well attended and well received. If you didn’t get the opportunity to join us live, the folks at Client Success were good enough to record it. I have also added a copy of the slides for those requesting them.

Client Success webinar: April 2019.

Enjoy and, as always, use the comments to let me know what you think.

What does CS as a culture really mean?

I have read several things on LinkedIn and elsewhere proclaiming that real customer success is a culture, not a team.  I agree entirely but what does that really mean?  Here’s 15 things I think indicate a customer success culture at different stages of development of a B2B SaaS company.

  1. The business opportunity is defined in terms of the goal/value the company delivers to customers.
  2. The value it delivers to customers is central to the company’s raison d’être: it’s purpose, vision, mission. 
  3. Identifying the characteristics of customers that can, with the right support, achieve their goals is an important element of an ideal customer profile.  
  4. The company invests to build and maintain a  deep understanding of the goals, work and challenges facing its chosen customers. 
  5. Product-market fit is defined in terms of the customers achieving their desired outcome.
  6. Guiding the customer to their goal(s) is central to the product.
  7. The company constantly strives to deliver, profitably, a great customer experience. 
  8. The entire engagement cycle (marketing, sales and customer success) is defined in terms of the goals and challenges facing the customer at each stage and how the company helps solve them.
  9. An initial goal is agreed with the customer as part of the sales process.
  10. A robust, repeatable success process exists fro help key contacts in every customer achieve their goal.
  11. The company builds an understanding of the causal links between what the customer does, the success they achieve and its own performance.
  12. Guidance for customers goes beyond how to get the best from the product, helping them with process and organisational problems they face in achieving their goals.
  13. Progress towards and achievement of customer goals is a key metric for the company.
  14. Leaders make clear the relationship between customer outcomes and the work of everyone in the company.
  15. And for the brave … the company’s pricing is based on the outcomes it achieves.  

What factors do you think indicate a CS culture at work?

CS Strategy

This blog describes a framework for thinking through the different elements of a CS strategy.

True customer success is not an add-on or an appendix to a company strategy.  Rather, it is shaped by and, as importantly shapes the fundamentals of the business.   The decisions needed to develop a meaningful CS strategy require the leadership team to formalise things that many companies have, at best, not fully agreed and, at worst, have not addressed. 

CS strategy requires decisions in three main areas;

  • The company’s strategic framework sets out what problems the company solves for its chosen customers and how it delivers its products and services in a profitable, scalable way.  CS has to help shape this.
  • This sets the context for the CS delivery model, the core of customer success.  This the process through which the company delivers measurable value (ROI) to the customer in a repeatable, scalable and profitable way.  
  • The final element is the CS organisation: how CS, in its broader sense is staffed to deliver.  Depending on the decisions around the company’s strategic framework and the CS commercial model, this may well include skills and staffing in customer success, product, sales and marketing.
Copyright (C) 2019. TheCustomer.Co All rights reserved

I am in the process of building an expanded version of the framework into the CS Vision & Strategy module of the FREE online CS Leadership Program. Watch for further announcements!

Building a customer success plan

Delivering a return on a customer’s investment in your product is key to retention in B2B SaaS. That’s why a robust success plan built on a deep understanding of your chosen customer is the most important item in the customer success toolkit. You can’t claim to be remotely interested in CS without one.

The topic is covered in depth in our FREE Customer Success Leadership online learning program. The module “Building a success process to deliver customer ROI” covers this in detail and sets out a comprehensive approach to guide you through the thinking. If you don’t want the full monty (and you should at some time) the here is a simple version using our Customer Success Canvas.

Let us know how you get on with it in the comments, below.

10 metrics that show your ICP is working

An ideal customer profile (ICP) is a detailed description of target, or good fit customers for a given use case.  Put simply, a good fit customer is one that can achieve value from your product and can be acquired and serviced cost effectively.  Note the first element of my definition: achieving value underpins many of the benefits of an effective ICP.  Defining good and bad fit customers is also essential to getting marketing, sales, customer success and product teams working together effectively.  

But once you have built an ICP, how do you know if it is working?  Here are ten measures that will inform you.  Whilst not the only cause, if several are going the wrong way, your ICP may need revisiting.

  • Cost of acquisition (CAC): An effective ICP will lower the cost of acquiring new customers.  Available dollars can be focused on more targeted campaigns that should convert at higher rates.  A good ICP reduces disputes and friction across the different teams, allowing them to focus better on the job of winning customers and delivering their expected ROI.
  • Deal cycle time: An ideal customer relates better to your value proposition and therefore tales less convincing.  Remember the adage; a good opportunity closes quickly; a bad one dies slowly!  The same number of sales reps can therefore close more business.
  • Logo churn:  Ability to achieve value is an important component of an ICP.  A good fit customer is therefore less likely to churn as they are more likely to achieve value.  Assuming of course that you have an effective customer success process
  • Net revenue retention (NRR): Bad fit customers are less likely to achieve value from using your product and therefore unlikely to buy more.
  • Cost to service:  Good fit customers recognise the issues/opportunity they face and are motivated to address them.  As a result they typically respond better to the advice and guidance needed to achieve their goals.  A defined customer also reduces the need for custom content, increasing further CS productivity.
  • Word of mouth sales (WOM$):  Customers that achieve value are far more likely to recommend you to others.  That also contributes to a lower CAC as referrals are typically the lowest cost and highest converting lead source.
  • Lifetime customer value (LTV):  The LTV calculation includes churn as one of its components so good fit customers are highly likely to improve LTV.
  • Feature adoption:  Customers with similar needs are more likely to want similar capabilities in the product.  New features are therefore likely to have higher adoption rates.  This can also lead to simpler products and lower development costs per customer.
  • Average customer ROI achieved:  Given that achieving value is a key component of an ICP, it is obvious that good fit customers are more likely to achieve ROI, raising the average ROI per customer.  Don’t track it? You must: it is the biggest driver of retention for most B2B SaaS companies.  
  • Sat/NPS:Customers that achieve value are more likely to return higher satisfaction scores because they are more likely to achieve the value they bought the software for.  It is also easier to design and deliver an experience for customers with similar characteristics, improving your chances of delivering a great experience.

This free resource will help you define your ideal customer profile and build an end-to-end customer lifecycle to acquire and service them. 

How good is your Success Plan?

Success plans set out how a company guides the customer to the value/ROI they purchased your software for.  They are therefore at the core of customer success: the means by which SaaS Customer Success deliver on their purpose. 

Having built and reviewed success plans for a range of companies, I have developed a maturity model to help B2B SaaS companies assess their success plans and develop actions to improve them.  The model was originally developed as part of a project for the Customer Success Network – a European online group for CS really worth joining.  

Feel free to download the Success Plan Maturity Model.