Lessons Learned From Segmenting Customers in EMEA Image

Lessons Learned From Segmenting Customers in EMEA

Russ Drury is the Director of Customer Success at Workfront, a cloud-based project management software company. He leads the Customer Experience organisation in EMEA, heading up the Professional Services implementation team, Customer Success team, and training. He is responsible for guiding customers in their Workfront journey and on to long term success through onboarding, implementation, adoption, and value realisation.

All companies treat their customers differently, regardless of whether they officially have a Customer Success organisation. It’s just a fact. Whether you’re buying a car, jewelry, or software… the more you spend, the better you get treated.

Segmentation is the structure and strategy that supports how you deliver value to your customers. You segment your customers because, economically and financially, you have to treat your customers differently. We’d all like to give every customer the white glove treatment but it’s simply not financially prudent, and we all have to live within some financial constraints.

Since it’s driven by financial realities, it’s important to understand that segmentation is done exclusively for the benefit of the vendor, not the customer. Trust me, no customers want to be segmented into anything but your top tier—but typically no more than 10% end up in that tier.

Your customers have a primary motivation for accepting your segmentation even if they don’t like where they land—they want you to stay in business, and they are business people too. Fortunately, this means they will understand your need to live within realistic financial boundaries.

Your segmentation is critical because it is the basis for everything else you do to deliver Customer Success. It drives or helps determine:

  • Your engagement model for each segment, which drives your
    • Headcount model, which drives your
      • Retention forecast

It’s important to understand that each point above will be different for each of your segments.

My points in this post are going to relate specifically to how segmentation may be approached for a growing, expanding, EMEA-based Customer Success team. The vision, intent, direction, and structure will likely be set by your Global HQ, and will broadly be the same. But autonomy and the unique nature of European business can’t be overlooked, so there may be differences.

Learn More | Deep Dive Webinar on Segmentation
Want to learn more about segmentation, tiering, and prioritising customers? Check out this Segmentation webinar featuring Dan Steinman, GM of Gainsight EMEA, and Russ Drury, Director of Customer Success at Workfront.

In the very early days of Workfront’s EMEA Customer Success team, we didn’t think a whole lot about segmentation and tiering our customers. Now, some years later, we’ve been through a number of iterations of segmenting our growing customer base, matured it, thought more about the economics and value offerings, and re-implemented it. Again and again.

I’m going to share some of the segmentation lessons we’ve learned, specifically in EMEA. I’m going to assume that at some point, once you have segmented, you are going to aspire to use the commonly accepted ‘high-touch, low-touch, tech-touch’ model within your different segments (although tech-touch is a new enough concept that we’re all figuring out what works best).

Lesson #1: There are many different ways to segment.

By Country/Territory

In the US you tend to see Sales teams segmented by region: West Coast, Midwest, Central, East Coast, etc. In EMEA you have some pretty obvious territory segmentation too: UK & Ireland, Benelux, Nordics, DACH, etc. Unlike the US model though, you can only segment by region if you have a large customer base. You will tend to have a bias towards the home country the office is based in or where you have the most Sales folks. I’m yet to find too many SaaS companies where the largest country in EMEA isn’t the UK and Ireland, so our focus at Workfront in that home territory is not unique.

Segmenting by country/territory often leaves challenges in balancing account assignments. Depending on where your sales and marketing efforts are focused you will almost certainly end up with more customers in one country compared to the others. You’ll want to take that into consideration if you are going down this path.

If you have a smaller customer base for your region, you just won’t be able to scale the CSMs effectively enough. You’ll likely end up searching for a CSM who speaks multiple languages. That’s not a CSM, that’s a translator!

By Industry

I hear this one a lot and it’s probably not too dissimilar from segmenting customers by country/territory. When you segment by industry, you group all customers into one segment and assign a CSM with expertise in that industry. That makes a lot of sense on the surface, but the challenge can be if you have customers of varying sizes in the same industry.

It has a pretty good justification at scale, but, again, to add value to customers by industry, you have to think about scalability. Whereas you can hire CSMs with two languages under their belt, it’s harder to hire CSMs with multiple industry experience—certainly at the level where you can really add differentiated value to the customer.

When you hire a CSM with specific industry knowledge, you’re also looking for that unicorn CSM, and when you find them, you’ll have to pay handsomely for them. I’ve found it’s easier to teach or gain industry-specific knowledge than teach strategic CSM skills.

By Technology or Product

If you have multiple products or significant technology differentiation, you may be tempted to segment your customers by what they have bought from you. An unintended consequence is that you will inevitably create silos across your Customer Success organisation.

What happens if a customer buys multiple products? Which segment do they sit in then? I’ve seen segmentation by product. It doesn’t last long. Companies who acquire other companies for their technology will soon merge the structures together.

Ultimately, it seems that the best way to manage Customer Success in a multi-product company is to create product specialists who overlap the CSMs and can be pulled into customers as needed. Segmenting by product more commonly exists where the product is so complex that specialism and expertise in that product IS the differentiator or where there are a large number of products sold in bundles. Think Adobe and Microsoft.

By Strategy/Market/Opportunity

Segmenting by strategy is a pretty compelling case. After all, it is your company strategy. We have segmented by strategy as a main segmentation and a sub-segmentation in the past. This would make a really good way to tier your customers within the segmentation of account value (described below).

Market categorisation (FTSE 100, FTSE 350, NASDAQ, Fortune 500, Forbes Cloud 100, etc.), or perhaps employee size (<2,500 employees, 2,500-10,000, >10,000), or your own company strategy (go-to-market strategy, market sizes, internal strategic focus) are all reasonable segmentations when analysed under the lens of your own company direction and intent.

Learn More | The Age of the Customer Podcast
In Notion Capital’s podcast series, Paul Papadimitriou interviews Dan Steinman and discusses how to define Customer Success, what role technology will take in the evolution of Customer Success, and what to look for when hiring someone in this emerging job function. Tune in and listen here.

Let’s say you segment your customers by value: >£250,000 in value, £250,000-£100,000, and less than £100,000 in value. You have a huge FTSE 100 company as a customer—say Unilever or Vodafone—but they fall into your lowest tier because they only spend £50,000 with you. Are you really going to bundle them in with Joe’s Pizza Company who spends the same? They’ll be one of a large number of customers under a CSM, probably in a low- or tech-touch segment. This scenario begs for adding opportunity as a variable to your segmentation model.

By segmenting (or sub-segmenting) by strategy/market you are giving yourself a better chance to address the future potential. Whilst Vodafone and Joe’s Pizza Shop spend the same amount on your product, Vodafone has 110,000 employees whereas Joe’s only has 110. Who could spend more money in the future?

By Account Value

I’ve left this one until last deliberately. This is probably the most common, and obvious, and needs the least explanation. I don’t think you can get away from segmenting by account value and I think this will be present even if you opt for another segmentation model. Even if you have segmented by one of the above, you’re likely to have a layer over the top which breaks down each segment by value.

The customers who pay you most will get more of your attention because you want to keep them more. I’m not saying the smaller value customers don’t matter. Of course not. “Death by a thousand cuts” is just as painful as losing the big customers. But if you have two customers—one worth £50,000 and the other worth £250,000—the loss of the larger customer is obviously much harder to equalize than the loss of one of the smaller ones.

Lesson #2: Some questions may never be answered.

I hear the next two questions all the time. Every Customer Success leader battles with these two, and they inevitably come up when talking about how you segment and engage your customers. It’s like the ultimate life question: “Why does toast always land butter-side down?”

“What ratio of customers to CSMs should I have in each segment?”

The ultimate answer is “I don’t know, there is no right answer.” It’s different company-to-company. It’s different segment-to-segment. But it’s also different depending on how mature your Customer Success organisation is.

Most importantly, remember why you are segmenting in the first place. You are doing it for financial purposes. The ratio of CSMs to customers is really dictated by affordability. The rule of thumb for mature companies with a classic Customer Success model is that one CSM should be managing approximately 10x their fully burdened cost. If you pay them 100,000 and their fully-burdened cost to your company is 130,000, then they should be managing around 1.3M (annual recurring revenue) worth of customers.

The more mature your processes and technology are, the more customers per CSM you can probably handle. If you have leading indicators and metrics and the technology to warn and prompt you at the right time, then you’re more likely to be able to handle more customers per CSM. In the long run, the reason Customer Success teams are turning to technology solutions is to deliver a higher level of productivity to the business.

Learn More | Webinar on Segmentation and Tiering
Want to find out more about segmentation and tiering your customers? Check out this webinar featuring Russ Drury, Director of Customer Success at Workfront, and Dan Steinman, GM of Gainsight EMEA.

My advice is: don’t think of it in terms of how much it will cost you to employ another x-number of CSMs, think about it as what value they can add and how much churn they can reduce. If you have to hire more CSMs because you reduced the customers-per-CSM ratio in the top tier of your segmentation, that CSM is now able to give more attention to those top-tier customers. More attention, better service, better focus. The year-on-year cumulative effect of reducing churn in your top tier by just 2% is astonishing.

“Should I charge for the Customer Success Manager?”

My opinion: no. The Customer Success Manager should be a part of the solution you deliver to your customers and, therefore, included in the subscription fee. I recognise that some might want to try to charge in order to pay for the cost of the Customer Success organisation, but how does that look to the customer? “You mean, not only do I have to pay for the product, but I have to pay to help you keep me as a customer? Shouldn’t you be doing that anyway?” In the end, it’s very hard to charge a customer for something they know has as much value to you as it does to them.

For a growing company, the economics of charging for a CSM might sound appealing, but what effect is that going to have on the relationship with your customer if you don’t provide value?

There are two reasons that your answer could be “yes” to this question:

  1. If you have really mature processes, technology, usage data, and value-added services that can differentiate a CSM in the top tier of your segment from those below, then you might have a case for charging for a CSM. But only to the top tier of your segmentation. Don't charge for a CSM in the lower tiers because they won't be offering the same great service as the top tier CSMs.
  2. If you have an extraordinary level of domain expertise to bring to the customer through your CSMs, you may be able to charge for that. The challenge will be differentiating when a customer reaches that level. It can be very difficult for customers to understand switching the financial model for the same person one day to the next. If you do go down this path, remember that you are really just creating another layer of Professional Services that just happens to be delivered by your CSMs and that requires different metrics to manage.

Lesson #3: Change. Change fast. Change smart.

Don’t be afraid of change. Change is inevitable. Not changing your segmentation, in the long run, will hurt your ability to serve your customers. Your business will change, your market will change, your customers will change. So if you need to change segmentation structure and coverage models, do it.

As a growing EMEA business you will likely have greater agility than your corporate HQ, just due to size. You have fewer CSMs and/or fewer customers. One of the biggest mistakes I’ve seen is drawing out the decision to make a change to your segmentation and coverage model.

Not changing quickly enough when the time comes only adds confusion and uncertainty, both internally and externally. Rip the plaster (band-aid) off and change fast.

Changing fast doesn’t mean changing foolishly.

Don’t underestimate the effort to plan a change to your segmentation. Account-by-account, work out what it will mean for the customer and the CSM if you’re going to change the segmentation model. How many times has that customer changed hands in the past? Have they already worked with the new CSM in a previous segmentation model? What is the impact to revenue/value/book of business?

You can change fast and change smart at the same time. If a renewal is coming up, don’t change right before that. If there is a particularly concerning problem or issue a customer has raised, don’t change your model and structure in the middle. Rather, use it as an opportunity to focus more attention on the customer.

Picture of Russ Drury
Russ Drury Director of Customer Success at Workfront Director of Customer Success at Workfront

Leave a reply

Your email address will not be published. Required fields are marked *

Shares