BY CHRIS BOHLE
It’s hard to believe that we’re
just a couple of months away from 2021. To say that 2020 has been a
challenge would probably be the understatement of the century so far—and I
think I speak for everyone when I say that I am cautiously optimistic that
we’ll launch into 2021 feeling better about how things are going—in business
and life.
That said, 2021 will
undoubtedly bring with it a new set of challenges & questions that we’ll
need to be ready to address. And one of the most important ones that we
hear about from leaders is: “How much money should I spend on Customer Success
in this upcoming year?”
The answer to this question has
always been dependent on several different factors. In these uncertain times,
we have even more things to consider: the industry you are in, the type of
recovery you are experiencing, and what adjustments you made in 2020 that need
to be re-visited in the new year.
To try and dig deeper into this
topic, we sent out a survey in early October to leaders of public and
late-stage private SaaS companies asking how they are thinking about their CS
budgets for 2021. The responses demonstrated that—across the
board—companies are doubling down on CS in 2021. They will try to recapture
some of the growth that they didn’t achieve this year and get back to focusing
on CS as an expansion engine and not just a risk mitigation strategy that has
so often been over the last six months.
Here’s what else we
learned:
1. CS Spend: Revenue Varies
Based on Company Size
One of the metrics that we
focused on as part of this analysis was the ratio between CS Spend and
revenue. This can be a useful benchmark to estimate how you should be
budgeting for CS at your organization. But ideally, you compare this to
companies similar to yours, especially when it comes to size.
We found that companies
with below $250M in ARR on average, spend 8-10% on CS, while companies above
that $250M threshold spend an average of 3-5%, relative to ARR.
Obviously, that percentage is going to go down as the amount of impactable
revenue goes up. However, we also see efficiency gains as companies grow ARR
with more mature CS functions that also accounts for that ratio going down.
2. Higher CS Spend = Higher
Growth Rate
Another interesting variable to
consider when determining your optimal CS Spend: Revenue ratio is your growth
rate. When comparing CS costs to ARR, companies projecting a 30%+ growth
rate year-over-year are spending on average 8%. Companies experiencing
less than 30% growth are spending closer to 5%.
This is often a bit of a
chicken and egg scenario, so it can be difficult to attribute more CS spend to
higher growth definitively. However, it’s clear that companies are
choosing to invest in CS during periods of rapid scaling. This allows them to
continue to drive outcomes for their new customers while scaling at a record
pace.
3. CS Spend: Revenue in 2021
Will Be Slightly Up
When comparing this ratio in
2020 to the plan for 2021, the data pointed to a slight uptick, with nearly
one-quarter of respondents saying that they expected this number to go up next
year. This trend seemed to be most common for companies with less than
$250M revenue, which may signal expectations for faster growth & scale in
2021 for that group.
The rest of the responses
indicated a pretty consistent amount of spending in 2021 compared to this year,
which in many cases still reflected increased investment in CS and a sizable
increase in revenue as companies look to get back on track.
4. Companies Are Investing in
CS Operations
One of the most consistent
growth and investment areas that we see companies make is their CS Operations
function. Organizations that historically had just a resource or two
supporting extensive CSM teams are now focused on scaling these functions so
that their CS team can continue to evolve as their business
evolves.
We’re now seeing an average
ratio of 16:1 in terms of CSM FTE’s compared to CS Ops FTE’s. As usual,
this varies based on company / team size with smaller orgs (< $250M revenue)
having a 12:1 ratio while larger orgs (> $250M revenue) are closer to
21:1. But regardless of size, this was something that was called out by
nearly every organization that we surveyed.
5. Optimizing Onboarding & the Customer Experience = Huge Priorities in
2021
The last thing we asked was,
“so how are you going to spend your CS money next year in terms of specific
initiatives?” Analyzing the responses highlighted two big themes:
1) 82% are focused on optimizing the onboarding process for their customers to
start driving value and achieving outcomes sooner, and 2) 75% are focused on
the enablement of the CS team – in particular, performing more strategic
activities and managing their portfolios more effectively.
One final point that came out
of the survey was understanding how companies allocate their CS costs, which
appears to be getting closer and closer to an even split between Sales &
Marketing (S&M) and Cost of Goods Sold (COGS). Our data indicated
about 55% including it in S&M and 45% including it in COGS.
Hopefully, this information
helps you think about your 2021 strategy and how to allocate resources at the
company best to drive outcomes for your customers. We would love to hear from
you about how you and your company think about Customer Success, especially as
2021 is underway. Please take our assessment to share your thoughts.
Chris BohleDirector of Solutions Design
and Strategy
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