The Essential Guide to Budgeting for Customer Success

Budgeting for Customer Success is not without its unique challenges. What goals will yield the biggest return? How do we rally support? And where is the funding even coming from? Whether you’re supporting a growing Customer Success team or an established organization, it’s never too early to break out the spreadsheets and start planning.

Chapter 1

The Importance of a Customer Success Budget

Why is a marketing budget important? Or a sales budget? The answer is simple—both budgets fuel fundamental pillars that keep businesses, well, in business. From our perspective, the same can be said for Customer Success. In less than a decade, Customer Success has grown from a concept into a full-blown business imperative. It has given new life to the way that we view customers and brings with it a slew of results. According to SaaS Capital, businesses utilizing Customer Success can see a 40% increase in revenue, 50% faster growth, and experience many positive effects on churn and customer happiness. Customer Success has also paved the way for new job titles, advanced technology, and most importantly, it’s introduced a fresh way for companies to work together and truly impact the customer experience.

"2014 was the year that companies, executives, and investors finally realized that Customer Success is a strategic asset and a revenue driver."
- Nick Mehta

As with any new idea, it takes time for organizations to devise ways of supporting a Customer Success model and provide the funding it requires. Customer Success is constantly evolving and this becomes glaringly apparent, and almost overwhelming, when it comes to creating your budget plan. Figuring out how to fund Customer Success is something that many are struggling with because they lack a clear model for how to budget and scale their activities—another caveat of being ahead of the curve.

In this guide, we’ll cover the ins and outs of Customer Success budget strategies from determining the source of funds to establishing goals to getting buy-in from your C-suite, so you can continue to strengthen and scale your business with effective Customer Success.

Chapter 2

Determining the source of your funding

When you bring up budgets and Customer Success in the same conversation, someone is bound to ask, “Which corporate budget will these dollars come from, and how will that affect our current budget strategies?” While money will have to be divided differently, this doesn’t necessarily mean that any one department will suffer in the process. As mentioned before, Customer Success is a significant revenue driver, so investing in it now could mean larger budgets for all departments in the future.

There’s a long running discussion in the world of Customer Success over whether funding should come from the Costs of Goods Sold (COGS) bucket or Sales & Marketing. One of the reasons this dilemma exists is because the job duties of a CSM fall into both the COGS and Sales & Marketing categories. Some of a CSM’s daily tasks, such as training and support, fall into the COGS category. But activities like renewals and upsells make more sense labeled as Sales & Marketing. Because there is no one-size-fits-all answer to this question, many different methodologies have emerged.

We sat down with a diverse group of finance and Customer Success executives to hear how they tackle CS funding. Using the learnings from the discussions, we’ve compiled four broad strategies. While each strategy is unique to the business that uses it, you may find that their approaches spark inspiration:

  • Strategy 1: Since the CSM has a role in owning or supporting commercial discussions such as renewals, upsells, and cross-sells, their costs are associated with Sales & Marketing. This works well for large companies with a Sales organization that has a large enough budget to support CS costs.
  • Strategy 2: Because CS teams play an important part in support, onboarding, and driving retention, their costs are considered COGS. To maintain a clear dividing line, upsell or cross-sell opportunities are only identified by a CSM and then handed to the Sales department.
  • Strategy 3: CSMs wear many hats, and the time they spend on various activities can be hard to track. If this is your case, consider splitting the costs of the team down the middle with a 50/50 allocation to both COGS and Sales & Marketing.
  • Strategy 4: Map the responsibilities of your CS team and use those to determine which cost bucket to pull from. For example, funding for support and training come from COGS while contract renewals, upsells, and cross-sells get funding from Sales & Marketing.

Another way of looking at CS funding divides the Sales & Marketing category into three SaaS-specific cost categories. Breaking the mold of traditional finance strategy, this view creates the platform upon which Customer Success can be adequately funded.

  • Customer Acquisition Costs (CAC): Sales & Marketing costs associated with acquiring new customers. Best practices suggest allocating 65% of Sales & Marketing costs into this bucket.
  • Customer Expansion Costs (CEC): Sales & Marketing costs associated with expanding revenues within existing customers. Best practices suggest allocating 15% of Sales & Marketing costs into this bucket.
  • Customer Retention Costs (CRC): Sales & Marketing costs associated with renewing existing customers. Best practices suggest allocating 20% of Sales & Marketing costs into this bucket.

The beautiful (and often frustrating) thing about working with a new strategy is that it can take some tweaking before it delivers the results you want. Keep that in mind as you work with your Customer Success budget. Be aware of the overall impact your funding decisions have on your company’s other departments and work together to create methods that bring everyone success.

Assessing Your Customer Success Maturity

A start-up with a budding CS strategy and a small customer base has different needs than an enterprise operation with an established CS department that services hundreds of clients. Understanding what stage your Customer Success strategy is at will help you determine what needs to be done to advance those efforts.

  • Early Stage: Using Gainsight Maturity terminology, this is the Reactive stage. If you’re in this stage, you’re probably hard at work getting your Customer Success up and running. You treat every customer the same and you reactively address risks and expansion opportunities. The ways that you invest your time and money now will affect the future of your entire business.
  • Evolving Stage: If you are in this stage, your Customer Success is Informed and becoming Proactive. You’re likely to be embroiled in an iterative process to make your Customer Success efforts more consistent. You have organized your customers and data, but have yet to truly operationalize it. As you grow, you are proactively managing the customer lifecycle and using data to drive a programmatic approach to managing risk and expansion opportunities.
  • Established Stage: This is the Predictive stage—you have an established CS strategy and are probably focused on increasing efficiency and scaling. You have optimized the lifecycle across all functions and are leveraging automation to drive scale and maximize visibility.
Chapter 3

Defining your Customer Success Goals

Ask any Customer Success veteran which departments should be involved in Customer Success and chances are they’ll answer with, “Every single one of them.” That’s because at its core, Customer Success is a company-wide effort. This mindset goes both ways—just as a company supports its CS team, the CS team should have initiatives that drive success for the entire company. Apply this “Success for All” ideology to your budget strategy by taking the objectives your company has set for itself and making them the primary drivers for your CS goals. The first two steps of your budget planning process should be:

  • Determine the primary objectives of your CSM activities
  • Understand how those objectives will help your business

Following these two simple steps will help you better align your initiatives with your company goals. To get those wheels turning, we’ve prepared a list of common goals. Although we’ve organized them by maturity level, these goals can apply to any stage, depending on your situation.

Early Stage Goals

  • Reduce churn
  • Improve Time to Value

Evolving Stage Goals

  • Make processes more consistent
  • Scale your CS efforts

Established Stage Goals

  • Expand revenue
  • Raise customer sentiment

Creating and Tracking Your Initiatives

“We love it at a meeting when a CMO or VP of sales/CS says, ‘I need additional heads and I can commit to additional revenue in the process. Here’s how I’m going to do it.’”
- Byron Deeter, Partner, Bessemer Venture Partners

Reduce Churn

To reduce churn, you must first determine what part of it is avoidable and unavoidable. There are many opinions out there about what’s considered unavoidable churn and each company divides its churn differently. Most commonly, company buy-outs, a customer going out of business, or when an advocate for your product leaves their company counts towards unavoidable churn. Best practices also suggest dividing your avoidable churn by segment (i.e. Enterprise, Mid-Market, Small) for a better understanding of how churn spreads out among your customer base. Once you’ve established your avoidable churn rate by segment, find your weak points and propose strategic solutions.

Strategies:

  • Are customers getting enough attention? If your CSMs are spread too thin, consider hiring more CSMs. A 1:Many strategy can also increase outreach efforts without putting too much strain on your team.
  • Are you missing early warning signs? Implement customer sentiment surveys to keep tabs on customer satisfaction and act on the feedback. Technology that tracks and aggregates product usage and support tickets also provides increased visibility into customer health.
  • Are customers unhappy with your product? Focus on understanding which parts of your product cause friction. Improve your support documentation and customer outreach based on those findings.
  • Are your CSMs confident and well-equipped? Provide your Customer Success team with playbooks optimized for renewals so they can carry out their jobs more efficiently.
  • For additional churn reduction strategies, check out our Essential Guide to Churn.

Metrics to Track Your Efforts:

  • Net Retention Revenue (NRR)
  • Customer Churn Rate
  • Revenue Churn Rate
  • Customer Health Index (CHI)

Improve Time to Value

One of the primary goals of Customer Success is to help customers discover the ROI of your product. Improving the time it takes for your customers to realize this return on investment will inevitably reduce churn and increase customer happiness.

Strategies:

  • Is your onboarding process leaving customers confident or confused? Create a Voice of the Customer strategy and send surveys after a customer has finished onboarding. Use their responses to improve your onboarding playbooks and devise a way to address your less confident users.
  • Are you holding regular business reviews? Quarterly Business Reviews (QBRs) are strategic, face-to-face meetings involving CSMs and individual accounts. Implementing this practice will give CSMs a chance to talk with customers about their business goals and how your product can support them. Our Essential Guide on QBRs provides insight into this strategic post-sale touchpoint.
  • Is CSM product knowledge up to date? A CSM is an incredible resource for customers and the better they know your product, the better advice they can provide. Give them adequate training and keep them up to date on new features so they can give customers suggestions that will drive success.
  • Do your customers know the extent of your product’s capabilities? As you roll out more and more capabilities, make sure you provide documentation and notifications so customers are aware of how your product can help them.

Metrics to Track Your Efforts:

  • Customer Satisfaction (CSAT) scores
  • Net Promoter Scores (NPS)
  • Customer Health Index (CHI)
  • Customer/Revenue Churn Rate

Standardize Processes

It’s never too early to start standardizing your Customer Success processes. The sooner you start, the easier it will be for you to scale. This goal is very broad, as it applies to any and all operational aspects of your CS team, so there are many ways to approach it.

Strategies:

  • Are you taking advantage of technology? Customer Success software provides frameworks for processes, keeps track of customer health, automates activities and much more. Adding a software component to your strategy will provide a boost of organization, no matter what stage you’re in. For more on evaluating CS software, check out our guide.
  • Are your activities aligned with your organizational charter? Clearly defining the mission, metrics, and activities of each CS function will help your team understand and adhere to the responsibilities and expectations required from each role. Gainsight CCO, Allison Pickens, authored a great blog post on the subject that will help you create or improve upon your organizational charter.
  • Are you struggling with consistent customer communications? Establishing a high touch/low touch outreach model will significantly decrease the amount of time CSMs spend on customer communications. Equip your team with as many pre-populated emails, slide decks, and other resources as possible so they stay consistent and save time.

Metrics to Track Your Efforts:

  • Team Performance Metrics
  • Customer/Revenue Churn Rate

Scale CS Efforts

As your business grows and takes on more customers, it’s imperative that your Customer Success grows with it. Always keep in mind the ratio of customer accounts per CSM. If your CSMs are spread too thin, there will be less defense against churn and issues can slip through the cracks.

Strategies:

  • Is your customer base outgrowing your team? Accommodate your growing number of accounts by expanding your CS team. If you’re in the early stages, consider hiring people who are comfortable wearing many hats. As you grow, ramp time of new employees becomes increasingly important, so look for people that can learn your processes quickly. As Gainsight CEO, Nick Mehta, says during this webinar on budgeting and hiring for Customer Success, “If a CSM is learning the product while the customer is, that’s just a recipe for disaster.”
  • Does your team have dedicated operations support? Sales and marketing departments work more efficiently with dedicated operations and IT assistance, so why not provide this same type of enablement for your CS team? With the rise of CS technology, CS operations roles are quickly becoming an apparent need. Consider expanding your team by adding these support roles—we believe that every five CSMs should have a CS operations role supporting them.

Metrics to Track Your Efforts:

  • Net Retention Revenue (NRR)
  • CSAT Score
  • Team Performance Metrics

Expand Revenue

Once your churn reaches a manageable level, focus your energy on making Customer Success a revenue driver. Using the same customer segmentation as before (Enterprise, Mid-Market, Small), research your upsell rate and Annual Recurring Revenue (ARR) by segment to create attainable targets. Then use strategies like the ones below to hit those targets.

Strategies:

  • Do you know when to approach customers for an upsell/cross-sell? Understanding the customer journey is the first step to a highly strategic upsell/cross-sell process that delivers true value to customers. Use data on a customer’s health, product usage, advocacy, and so on, to create milestones that mark the optimal times to engage in conversation with them about upsells/cross-sells. Your CS software can be a valuable asset when expanding revenue, as it automates these processes and gives CSMs full visibility into an account’s activity.
  • Is your CS team confident pitching upsells/cross-sells? Provide your CSMs with the training and resources they need to succeed. Give them opportunities to learn sales skills, through online courses or onsite education, and create an upsell and cross-sell workflow that will take the guesswork out of processes. These investments in your team will empower them to approach upsells with confidence, which means higher returns for you.

Metrics to Track Your Efforts:

  • ARR by segment
  • Team Performance metrics

Raise Customer Sentiment

Raising customer sentiment should be strived for every year as it affects everything from churn reduction to revenue expansion. There are many paths that lead to increased customer sentiment, so it’s important that you understand exactly where friction is happening. The following strategies will help you listen to customers, act on their responses, and analyze the feedback to improve customer experiences.

Strategies:

  • Do you regularly ask for customer feedback? Create a customer outreach strategy that targets important milestones along the customer journey. Best practices suggest sending surveys upon completion of onboarding, after a support issue has been solved, and once a quarter.
  • Are departments working cross-functionally to act on customer feedback? Sometimes a customer will have feedback that requires the help of other departments, like Product or Development. Cultivate a culture of interdepartmental collaboration so customer feedback becomes a reality.
  • Are you closing the loop with customers? Sending surveys is only the first step in raising customer sentiment. The magic happens when you close the loop on the responses you’ve gathered. This means you should prioritize following up with disappointed customers, or ones who could be potential advocates, to show their comments have been heard and are being addressed. In a study by Oracle, 89% of consumers began doing business with a competitor following a poor customer experience, so don’t let unhappy customers stay that way.
  • For more strategies, check out our Essential Guide to Voice of the Customer.

Metrics to Track Your Efforts:

  • Customer Satisfaction (CSAT) scores
  • Net Promoter Scores (NPS)
  • Customer Health Index (CHI)
Chapter 4

Getting Buy-in From Your C-Suite

So, you’ve set your goals and created a strategy, now the fun part begins—getting buy-in from your C-suite.

You can research strategies all you want but they’ll boil down to the same thing: know what your C-suite wants and prove you can deliver it. Pop on your salesperson hat and turn the things you want into something they will want by offering actionable steps that directly link to ROI. You’re on the same team and share the same goals and it’s up to you to explain that.

This leads us to our first point (which may sound familiar): align your initiatives with the company’s initiatives. Prove how the investments you want to make will lead the company to reach shared goals. As our VP of Revenue Ops, Ryan Toben, writes in his blog post on getting the budget you want,

"Don’t make your executives fill in for themselves how your plans will help them achieve the company’s goals. Draw the map for them."
- Ryan Toben

Strengthen your side of the discussion by establishing an advocate for your initiatives. Proving that someone will take ownership of an investment, such as a new software tool, will provide accountability and give your executives peace of mind. One of the biggest struggles when establishing a solid CS strategy is creating cross-functional dependencies that you can count on. Do the legwork beforehand to get buy-in from your peers before proposing your budget to the higher-ups. When you show up with proof that someone will own the project and everyone is on board, you’ll be able to breeze over any doubts your executives may have.

Last but not least, don’t try to wow your executives with unobtainable results. There’s nothing like proposing that a new tool will shave 35% off your churn rate and breaking your back all year to end up with a result far below that estimate. Just imagine how they’ll react next year when you tell them another new tool will bring them great results. Spoiler alert: they won’t believe you. Instead of going the show-stopping route, offer realistic ROI and a concrete plan of action. Not only will you get what you want, but you won’t be losing sleep when the time comes to deliver on your promises.

Questions Your C-Suite Will Ask

Assuming you’ve followed Tip #5 of our CEO’s Guide to Under-budgeting for Customer Success and Destroying Shareholder Value in the Process, you’ve put together a polished deck for your budget pitch and all that’s left is to prepare for the inevitable wave of questions. While the first thing on your C-Suite’s mind is the bottom line, how you leave them feeling at the end of your presentation can go a long way. Answer these questions with confidence and you’ll confirm that you’ve done your research and can deliver the promised results.

  • How will your goals drive the vision of the company?
  • What do you have to trade to get them done and back up your vision?
  • How much do you really care about your goals?
  • Who are you dependent on?
Chapter 5

Widening Your Budget with Paid Services

Once you’ve tackled churn and set your sights on revenue expansion, you might consider providing professional services separate from your current Customer Success offerings. While this step isn’t exactly an easy one—a lot of strategy is involved—these paid services can become a useful source of revenue. At Gainsight, our professional services offering is not only a critical function that delivers meaningful results for our clients, it serves as an engine of growth for the company. By assuming the role of both solutions provider and tool vendor, you can offer prescriptive solutions using the tools your software already offers. You are in an ideal position to show clients direct applications of your product.

When creating your paid services strategy, start by asking yourself: “What will differentiate the paid services from our existing offerings?” and “How will this org live within our existing framework?

What will differentiate the paid services from our existing offerings?

To set your strategy up for success, align your offerings with your expertise. However, your paid services should differ from the ones offered by your client services team. For example, Gainsight focuses on helping companies establish a CS strategy or carry out the execution in our paid offerings. While our existing client services focus on a client’s success using Gainsight, our paid services are more tactical, offering on-site workshops, requiring in-depth interviews, and involving the creation of strategy and collateral.

"There is a big difference between solutions that companies must have to survive day-to-day and solutions they need to stay on the leading edge ahead of their competition."
- Angela Scott

A useful method for developing your paid services is to look for patterns in the questions asked by your customers. In Gainsight’s case, questions fell into two buckets: When can we start? How do we execute? So we created service offerings that helped clients achieve those goals.

How will this org live within our existing framework?

Create a clean divide between paid and complimentary services by establishing two organizations, Professional Services and Customer Success. While the two may share certain skills, the organizations will grow up to look very different and be measured in totally different ways.

Once you’ve established the two groups, take some time to think about what role each will have in a customer’s lifecycle and assign metrics that align with those duties. Dan Steinman, General Manager of EMEA at Gainsight, wrote a great blog post on aligning CS and services.

Most importantly, provide your team with the resources and education they need to sell and execute your services. At Gainsight, we worked cross-functionally and leveraged resources with strong consulting backgrounds to create compelling thought leadership and strategic assets. It’s critical that your team is armed with the skills and resources necessary to deliver on the initiatives paid for by clients.

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