How CS Ops Drives Market Valuation Image

How CS Ops Drives Market Valuation

Organizations create Customer Success teams to increase NRR, and we’ve recently published research showing that NRR drives valuation. But then, organizations find that the baseline impact of simply having a CS team will plateau — your NRR stagnates.

So, to improve NRR or to reduce costs by scaling up your customer base with the same CS headcount, organizations recruit people who make it their career to continuously improve CS functions. That team of your in-house, expert thought partners is called Customer Success Operations.

But how do you assess the right level of CS Ops resourcing? And how do you quantify the impact of CS Ops?  In other words, what’s the ROI of CS Ops?  Here are a few ways to think about CS Ops resourcing and ROI.

  • Resource Benchmark: Budget ~10% for CS Ops Cost as a % of total CS Org Cost
    At Gainsight – and via conversations with other Ops leaders – we’ve estimated the overall mature level of resourcing for CS Ops at 10% of the cost of the CS team.  When you’re getting started – as a company or within the CS org – you’re likely spending more.  Once you have 5+ CSMs, you’re ready for a CS Ops resource.
  • ROI From Efficiency: CS Ops Enables Higher Ratios
    What level of CSM Ratio increase would cover the cost of CS Ops investment to make that increase possible? CS Ops and CS leadership should align on target ratios for the next year that incorporate assumptions based on CS Ops programs. For example, at Gainsight we justified the addition of a “CS Content Specialist” responsible for standard CS decks and materials based on the additional accounts a CSM can manage.

  • ROI from Retention: CS Ops Scales Risk Identification + Management
    Faster risk identification and resolution reduce dollars lost to churn.  Every day, CSMs are individually identifying and addressing risks. CS Ops creates standardized ways of identifying risk so CSMs don’t have to and provides best practice playbooks based on what works from individual CSMs. How much do you estimate that those improvements would impact your retention rate? How many dollars does that translate to?

  • ROI from Growth:  CS Ops Drives Advocacy + Expansion
    CS Ops typically runs the survey programs that identify potential promoters or leverages the data to systematically guide promoters to advocacy. And similar to Risk, CS Ops is the team that identifies what’s working with current expansion programs, standardizes the approaches, and measures the impact.  Taken together, you can quantify the increased advocacy and expansion from CS Ops programs.

It helps that Sales and Marketing figured this out long ago. Software, reporting and analysis, enablement, and rock-solid processes and techniques will multiply the impact of a great sales rep or copywriter. The same is true for CSMs.

Can’t I do it with the people I already have?

You’ve invested in a rockstar VP of Customer Success, and they are at the absolute center of the success of CS Ops. Who else can see across all segments and teams to see the greatest pain points and low-hanging fruit? Who else can interpret strategy from Product, Marketing, and elsewhere into the CS team’s role? But there are three reasons that they are lousy at being responsible for CS operational improvements:

  1. Urgent priorities crush the VP of CS. When a big customer is at risk of churn in the last week of the quarter, nothing will stand between your VP and the key stakeholder call. When the Board meeting is next week, they need to have their story straight right now. When the buck stops with them, short-term needs will beat long-term value every time.

  2. Exactly how much are you expecting this superhero to do, personally? They already own a vision, a revenue number, a team to inspire and coach, day-to-day execution, and every last individual customer. Plus, we all know the effort it takes to context-switch between deep project work and a fire drill, then back to the deep work. Can your VP of CS do some CS Ops? You bet. Will they improve your CS practice at the pace needed to meet your NRR & valuation goals? Likely the answer is no.

  3. Your VP of CS has the wrong skill set. Have they been hands-on with data and reporting before? Likely. Are they even in the top 50% of data and reporting professionals, though? What about systems administration? Process design? Project management? This should be exciting and inspiring! Your CS team is already furiously speeding down the highway with water for engine oil — imagine what happens when you pour in the good stuff!

You may also look outside the CS team to do CS Ops work. It’s common to lean on IT, Revenue Ops or Sales Ops, an analytics team, or others. They can be a massive force-multiplier for CS Ops, but they can’t own the responsibility for using systems and processes to improve CS’s NRR or scalability, for three reasons:

  1. Who’s going to tell them what to do? Let’s say that you decide to improve retention though better onboarding. Who’s going to break down the challenges and opportunities in your current onboarding program? Your VP of CS? See above.

  2. They lack the context to be thoughtful. These other teams sometimes have the skills to be true thought partners and business consultants, taking that pressure off of CS leadership. Any great consultant needs to know the right questions to ask, though. These teams don’t know CS’s systems or how the CS team works. They couldn’t describe the ROI of CS, the key actions and responsibilities of a CSM, or the difference between CS, Support, and Services. They don’t spend every day steeped in the knowledge that’s essential to be a thought partner.

  3. You need impact faster than they can give it. You’ll need to make the case for the team to prioritize every request, small or large. It takes time for you to have that ROI conversation, and it leaves your team and customers in the lurch while they wait. It’s common for CS to get prioritized behind teams like Sales and Marketing, who have more time-tested and common-knowledge ROI than CS. Starting a CS Ops team in the CS org puts CS in charge of their own destiny. You’ll be able to make progress fast and pivot on a moment’s notice.

What will CS Ops do?

Every company creates a different strategy to improve retention, expansion, or efficiency. Plus your low-hanging fruit may be piled in one of those categories. This is why every CS Ops team looks a bit different. A CS Ops leader will be an extension of your VP of CS’s brain to help you figure out that strategy. That’s what they’re good at.

When you set a direction for CS Ops, they will implement systems, processes, reporting and analysis, enablement, and “1-to-Many” customer outreach to move the needle.

CS Ops for Retention & Expansion: What do I get?

Lagging outcomes of GRR and NRR will be preceded by these leading indicators:

  • Customers achieve more value
    • Time to first value
    • Product adoption
    • % of customers with goals defined
    • % of customers with verified outcomes achieved
  • Renewal execution is more smooth and predictable
    • % of renewals in compliance with process
    • Forecast accuracy
  • Risks are handled and closed effectively
    • ARR of at-risk renewals that successfully renew
    • Compliance with risk process
      • Time that a risk ‘marinates’ before your team identifies it and begins mitigation
      • Time to risk closure
  • Customers expand more
    • Expansion ARR sourced by customer success
    • % of customers with expansion opportunities
    • Time to close an expansion
    • Size of expansion
  • Customer success has more influence on the product roadmap, pricing, and marketing’s ideal customer profile, thanks to high quality, data-driven insights

CS Ops for Scale / CSM Efficiency: What do I get?

Lagging outcomes of higher account ratios and lower CS costs (as % of ARR) will be preceded by these leading indicators:

  • Each CSM can handle more accounts
    • % of customers with a CSM
    • % of customer touchpoints that are automated
    • % of CSM time that is customer-facing (instead of administrative, prep work, etc.)
    • Accuracy of health scores, to drive day-to-day prioritization and proactive outreach
  • Customer success is delivered with higher quality and consistency
    • CSAT/NPS for CSMs
    • NPS response rate
    • Consistency of customer-facing activities
    • CS leadership time spent on operational tasks (such as account assignments)
    • CS leadership time spent on reporting
  • CSM onboarding is effective and efficient
    • Time to first account ownership
    • # accounts owned in first 30 days

How will I know if it’s working?

Most of the above metrics, especially NRR, will take time to change. Start tracking numbers you trust, so you get a good before-and-after. (CS Ops can help with that.) In the meantime, start by ensuring that your CS Ops team’s projects are aligned with your priorities to improve the retention/expansion/efficiency of your CS team. Then, measure their own throughput using one or more of:

  • Objectives & Key Results (OKRs) / Management by Objectives (MBO)
  • Surveys of your CSMs
  • Project management statistics (such as Agile sprint points)

When should we launch CS Ops?

If your CS team has formed, and there’s something you want to improve that will take more than coaching, then you’re ready for CS Ops. A common first step is to make it a CSM’s part-time job, drawing down their account load and giving them a chance to prove themselves. Note, though, that these roles have been shown again and again to be short-lived stopgaps before an organization decides to make it a full-time transition, or to hire for someone who brings more experience or a specific skillset aligned with their key projects.

If you hire CS Ops too late, you’re setting yourself up for a host of regrets:

  • Data that’s structured and scattered in ways that can be near impossible to untangle
  • A hodge-podge of systems poorly suited to CS
  • A team of folks whose habits must be ripped out and replaced instead of well-built from the beginning
  • Aggravated CSMs and CS leaders who feel that you aren’t creating tools to help them do their jobs
  • A fraught relationship with your CFO thanks to inaccurate renewal and expansion forecasts

When you eventually bring on CS Ops, would you rather that they’re spending their time fixing old problems, or putting in best practices from the ground floor and building your vision?

It’s common to need CS Ops once you have about 5 CSMs, since you start to see inefficiency and negative impact on customers from each CSM doing things differently. 10 CSMs is a common threshold to expand CS Ops beyond that first hire, often to bring on a person with a specialized focus, like data analysis or systems administration. This will allow your CS Ops leader to be less of a tactician and more of a thought leader, not just following the lead of the VP of CS, but pointing out areas for improvement.

What first, exploratory steps can I take?

Here’s how to determine if you want to take the plunge:

    1. Decide what you need CS Ops to do. When that first hire comes in, they need clear guidance on the problem areas. (In time, CS Ops will identify them for you.) They need all of CS leadership to agree on that focus, so they aren’t pulled in random directions, and so their peers motivate them with gratitude when they deliver. (There’s nothing more dispiriting in CS Ops than finishing a project and all your peers in CS leadership show you apathy, or worse, resistance.) So, gather your CS ‘brain trust’ to brainstorm all the potential ideas, then narrow them down to those that feel highly feasible and highly impactful. That ‘impact’ will also help you estimate which metrics (NRR, account ratios, etc.) you hope for CS Ops to improve by how much, which is critical to your ROI calculation.

    2. Get hands-on help from Finance. A CFO is literally always hunting for places to spend money with reasonable confidence of ROI, and that’s a story that you have all the tools to tell. (See the top of this article.) Finance can help you build and pressure-test a simple financial model that will get you budget.

    3. Get hands-on help from HR. There are many open questions when creating a new position, but thankfully HR knows them all. Engage them as thought partners in crafting this role. In particular, ask for their help in writing a job description that opens the door to people with each of the necessary skills, but who have never worked in CS Ops before. The hiring market is full of process-oriented CSMs, for example. CS Ops is still a new enough role that direct experience is hard to find, so you’re looking for folks with just the right combination of skills that they bring from other contexts.