Budgeting for Customer

Success in 2015

December 4, 2014

Housekeeping

• Q&A panel on your right

• Recording for colleagues who can’t make it

• All attendees will receive slides

• Twitter hashtag #customersuccess

Our Speakers

Nick MehtaCEO

@nrmehta

Byron DeeterPartner

@bdeeter

On Your Mind?

• Strategy• How do I set my goals for 2015?

• What initiatives can drive these goals?

• What do my CEO and board think?

• People• What functional roles do I need in 2015?

• How many of each do I need?

• How can I justify the hiring?

• Process• What processes can I use to drive efficiency and effectiveness?

• What technologies and services can be helpful?

• How can justify the ROI?

Strategy

How Do I Set My Goals for 2015?

Maturity

Churn Focus

Low hanging fruit

Customer engagement

No brainer risk management

Up-sell Focus

Churn efficiently managed

More products to sell

Mature client relationships

Fo

cu

s

How Do I Set My Goals for 2015? Churn…

Retained90%

Churned10%

1) 2014 ARR*

Avoidable50%

Unavoidable50%

2) 2014 ARR Churned

Out of business

Acquired

Sponsor change?

* Hypothetical Example: Assumes 1 year contracts

ARR

$5 MM

$2 MM

$3 MM

2014

Avoidable

Churn

2%

5%

10%

2015 Target

1%

2.5%

8%

Mid-Market

Small

Top

How Do I Set My Goals for 2015? Churn…

3) Avoidable

Churn by

Segment

5% Avoidable

Churn

3.4% Total

Churn

Churn ARR

Saved

$50K

$50K

$240K

ASP

$50K

$25K

$10K

Customers

Saved

1

2

24

Mid-Market

Small

Top

How Do I Set My Goals for 2015? Churn…

4) Sanity

Check

27 Extra Clients

Saved

54 (2X) Extra

Clients Closely

Managed?

ARR / #

$5 MM

$2 MM

$3 MM

2014 Up-sell

5%

2.5%

1%

2015 Target

10%

5%

2%

Mid-Market

Small

Top

How Do I Set My Goals for 2015? Upsell…

Up-sell by

Segment

3.3% Total Up-

sell

6.6% Total Up-

sell

What Initiatives Can Drive These Goals?

Retention Initiative Examples Up-sell Initiative Examples

Customer-specific

Tiering

Time-to-value

Early warning

Success planning

Sponsor management

Playbook optimization

Support improvements

Renewal execution

Tiering

Up-sell identification

Up-sell workflow

QBRs

CSM sales training

CSM-sales alignment

Company-wide

Customer journey

Voice of the Customer

Product

Sales qualification

Pricing/packaging

New products

Price increases

T&C optimization

What Do My CEO and Board Think?

Cost Center Revenue Driver

In COGS

Efficiency

Scale

In S&M

Productivity

Acceleration

What Do My CEO and Board Think?

• Part of growth initiative?

• Part of customer sat initiative?

• Standalone initiative?

• Ranking in priority?

What Do My CEO and Board Think?

Source: TomTunguz.com

“But on average, the customer success team saves about 4 months of contribution margin per customer which means company can spend up to 3 months' worth of contribution per customer on churn management.”

What Do My CEO and Board Think?

Source: TomTunguz.com

Example: Gainsight

Retention Initiative Examples Up-sell Initiative Examples

Customer-specific

Cadence

Success Express

1-to-many CSM

CSM operations

Services operations

Community

Exec sponsorship

…

CSM sales training

CSM-sales alignment

Company-wide

Simplified packaging and T&Cs

Sales to CSM hand-off

Product on-ramps

…

New products

People

What Functional Roles Do I Need In 2015?

Seed

CSMSeries A

+ Onboarding

+ Operations

Growth-stage

+ Support

+ Customer Marketing

+ Renewals

Pre-IPO

+ Training

+ Advisory

Public

+ PMO

+ Managed Services

+ Domain Experts

+ Product Specialists / Architects** Earlier in companies with tech buyers

How Many Of Each Do I Need?

Role Scaling Factor

CSM ARR

Onboarding New Clients

Operations 1+

Support Case Count

Customer Marketing 1+

Renewals ARR Renewing

Training 1+

Advisory Revenue-driven

PMO 1+

Managed Services Revenue-driven

Domain Experts Revenue-driven

Product Specialists / Architects Product ARR

How Many Of Each Do I Need? CSMs…

Source: Jason Lemkin / SaaStr

“As the deal size goes up, the CSM can be more proactive. And you’ll find it’s critical to segment the team based on deal sizes, so they can specialize in what they do.”

$2 MM Rule of Thumb

How Many Of Each Do I Need? CSMs…

Financial Line Item Value

Revenue $100 MM

Gross Profit (70%) $70 MM

- R&D (15%) $15 MM

- G&A (5%) $5 MM

EBIT Before S&M $50 MM

S&M for $100 MM Renewals

(10%)

$10 MM

S&M for $20 MM New (20%) $20 MM

EBIT $20 MM

Grow 20%

Spend $0.10 / $1 renewal

Spend $1 / $1 new

Make 20% EBIT

Assume $100K/CSM

Assume 2X Overhead

$2 MM ARR / CSM

How Many Of Each Do I Need? CSMs…

High-growth Low-growth

Early-stage

$250K ARR / CSM

Jack of all trades

Ramp time

$1 MM ARR / CSM

Jack of all trades

Late-stage

$500K ARR / CSM

Ramp time

$2 MM ARR / CSM

ARR

$5 MM

$2 MM

$3 MM

CSMs

5

2

3

Accounts /

CSM

20

40

100

Mid-Market

Small

Top

How Many Of Each Do I Need? CSMs…

Assume $1

MM / CSM

Accounts /

CSM

20

40

100

Hours /

Quarter

520

520

520

Hours /

Account

26

13

~5

Mid-Market

Small

Top

How Many Of Each Do I Need? CSMs…

Sanity Check

How Can I Justify The Hiring?

CSM Hiring

Plan

5 =>

10

2 => 2

3 => 3

Accounts /

CSM

20 => 10

40 => 40

100 => 100

Net Retention

Increase

20%

Mid-Market

Small

Top

Investment

Proposal

$1 MM

Investment

$1 MM Net ARR

Growth

Example: Gainsight

Value 2014 2015

ARR X 3X

CSMs 3 15

Onboarding ~15 ~30

Operations 0 2

Support 2 8

Customer Marketing 0 1

Renewals 0 2

Training 0 1

Advisory 0 5

Process

What Processes Can I Use?

Efficiency

Ramping

Prioritization

Automation

Effectiveness

Training

Content

Timing

What Technologies and Services?

Technology

Support

CSM

Community

PSA

LMS

Communication

Advocacy

….

Services

CSM Training

Sales Training

Team-building

Conferences

Churn research

…

How Can I Justify The ROI?

Retention

Up-sell

Cross-sell

Advocacy

Ramp Time

Consistency

Account Ratios

Example: Gainsight

Technology

Zendesk

Gainsight!

Community Software

Clarizen

Service Rocket

Influitive

Services

CSM University!

Sales Training

Pulse!

Eigenworks

Need a Starting Point?

Here, take ours.

All attendees of today’s webinar will receive Gainsight’s actual Customer Success budget for 2015.

Keep an eye out for today’sfollow up email.

We’re Here To Help

Fill out the survey on your screen to schedule a meeting with a Customer Success specialist.

Strategy & KPIs Structuring the CSM Org Investing in Process

Free 30-minute consultation call between now and the end of 2014.

Thank You!

December 4, 2014