In this article, I’ll explain why CSMs should and shouldn’t own the revenue for existing customer, a hotly debated topic in the space.
I'll get into when Customer Success should own the revenue and, whether or not they do, I'll look at revenue targets we can tie to customer success.
My name's Rebecca Nerad and in this article, I'll go through who should own the revenue for existing customers.
I've been in the customer success space for 20 years. I like to say well before we even used the term customer success. I've been in leadership roles in customer success, support, marketing, and alliances. I'm very passionate about customer success.
I've spent this time in the supply chain industry, mostly at SaaS companies like i2Technologies and JDA Software. I'm currently with E2open, we are a global provider of a connected and intelligent end-to-end supply chain platform. I've also been on the consulting side of the business as well.
In this article, I'm going to be talking about should CSMs own the revenue? I'm going to be sharing why and why not. This is a hotly debated topic so I'll be sharing points of view from both sides.
Then I'll get into when Customer Success should own the revenue. And whether or not Customer Success does own the revenue I'll look at revenue targets that we can tie to customer success.
I'll end with some recommendations.
I'll start with a quote...
This quote is from Anthony Reynolds, a leader in the SaaS space. Don't disguise just another seller as a customer success manager.
I love this because there's a distinct difference between sales and customer success even though both, of course, are responsible for the relationship with the customer.
The company, of course, has the need for both of these roles.
In this article, when we break down who should own the revenue for existing customers, I'm primarily going to be talking about the differences between when sales own this or when customer success does.
There are a lot of ways companies can actually break up who manages that commercial responsibility for existing customers. Obviously, new opportunities tend to fall into the sales organization, but for managing renewals and cross-sells and upsells there are different models.
In some, the sales organization owns all commercial responsibilities. In some, the CSMs do in the case of the existing customer base, and in some, it's broken down between new opportunities and for upsells and renewals that are owned by the CSMs.
Here, I'm not going to get into the specifics of various renewal groups or finances' role and how they play. I'm just going to keep this for simplicity to sales and customer success as being the primary owners. First, I'm going to start with why CSMs should not own the revenue.
Why CSMs should NOT own the revenue
It jeopardizes the relationship and trust
One of the main reasons is it jeopardizes the relationship and trust that the CSMs have in an advisory role. Sometimes CSMs like to be able to say, "I'm not trying to sell you anything, I just want to make sure you're getting value from the solutions that you own".
For their skill set and their knowledge, they like to stay in that trusted adviser role.
Sales understand the competitive landscape
Another main argument for why CSMs should not own the revenue is sales also understands the competitive landscape and they have experience closing deals, doing negotiations, revenue recognition, articulating value propositions, and so they should be responsible for the selling activity.
Specialization of roles is important
That specialization of these roles is important. If the CSMs need to understand the products to be able to advise customers how to deliver business outcomes, that's a very different skill set than sales as I mentioned before.
A focus on renewals influences the priorities and time horizons of a CSM
Also, a focus on renewals influences the priorities and the time horizons of a CSM. If the CSM is focused on the timing of a renewal, then that may get in the way of the ongoing activity or a focus on onboarding when the CSM needs to be focused on not just the different priority, but also the timing needs.
A team is focused on the customers’ success - not just a single point of contact
One reason that you benefit when sales own the revenue is there's a team of players who focus on customer success. Not just a single point of contact, it's okay that there are different people with different roles, and this also helps that there's not a single point of failure.
If there's one person at your company who has that primary responsibility and then for whatever reason that person transitions from the organization.
Negative outcomes from the rest of the organization affect the CSM beyond their scope of control
I also mention that sometimes negative outcomes from the rest of the organization affect the CSM beyond their scope of control.
If you think about solution complexity or immature products, if professional services delivered insufficient value, if the sales team oversold something that wasn't able to be delivered, the CSM ends up owning all of those responsibilities, trying to deliver value, trying to give the best business outcomes and a focus too much on revenue could distract that focus and could be discouraging for the CSM when they're measured on that.
Now I'm going to flip to the other side of the argument and say why CSMs should on the revenue.
Why CSMs SHOULD own the revenue
CSM is a single point of contact
One of the main reasons is the CSM is the single point of contact, they're already the trusted advisor. It's not confusing who to go to, they understand the customer through the lifecycle.
So instead of transitioning back to sales, which can be a negative experience for the customer, they continue to work with the person who they know.
The CSM understands which of the functionality is being leveraged and how the solution provides value
The CSM also understands which of the functionality is being leveraged and how the solution provides value. The CSM can provide guidance, which can be leveraged for expansion opportunities, and they already know what's going on with the customer.
Revenue ownership drives accountability for the CSM
It also drives accountability for the CSM to own this revenue. If the CSM has been delivering value and working on outcomes and making sure the solution is of benefit to the customer, then the renewal is almost a byproduct of this when it comes time to ask the customer to renew.
Sales should be focused on driving opportunities
Their skillset should be leveraged to close new businesses. So sometimes sales could neglect the current customer base if they’re focused too much on driving new opportunities.
Humans are ‘wired for reciprocity’
I borrow a quote here from Mike Davis, there was a customer success event last year where there was a debate and people talking about both sides. I love what Mike said about humans being wired for reciprocity, that CSMs are in a great position to leverage their goodwill.
Poor customer experience can result when Customer Success is removed from business conversations
Obviously, if the CSMs are owning the revenue or driving all of those conversations, then they're in the loop and are able to see what's relevant when it comes to the renewal or leveraging additional value out of the solutions the customers already own.
It becomes complicated to coordinate conversations, hand-offs, and responsibilities
Because lastly, it can become complicated to coordinate conversations and handoffs, when there are various responsibilities at your company. Obviously, they're relying on technologies that show a better snapshot of customer health, or even having a CRM is very helpful.
In the absence of that, it can take additional time, bandwidth, and effort to make sure you're communicating enough through email or meetings.
WHEN should the CSMs own the revenue?
Now I've talked about the pros and cons, why the CSM should or should not on the revenue, really what I want to get into to answer the question is when should the CSMs own the revenue? Because there are benefits to both sides.
But there are some specific times when it makes the most sense for CSMs to own the revenue.
The effort required to get clients to value is low
If the product isn't too complex, has a strong UI, has in-up walkthroughs, or integrates data easily, then the CSM is usually able to deliver more value.
And if there's limited strategic decision-making required for change management, then the CSM has the bandwidth to deliver the value and manage through renewals.
The length of the initial sales cycle is short
If the length of the sales cycle is short, then the CSMs can own the revenue. But in cases where the salesperson has taken quite some time to build a relationship with a customer, if the sales cycle, the complexity of your solutions requires that the pre-sales and sales teams have been engaging for a year and they're building the relationships and they're learning about what this prospective customer needs, sometimes then it makes sense for that person to continue to stay engaged in the renewal even after they're a current customer.
The renewal process is straightforward
If you have a pretty straightforward renewal process that depends on a lot of your internal processes, but sometimes it doesn't add too much bandwidth on top of the CSM if that's the case.
The product and pricing model
If the product and pricing model results in normal CSM activities leading to upsell, that also is another easy way for the CSM to continue the conversation. If for example, they're discussing increased usage then the CSM can see through that activity instead of needing to hand it off to someone in the organization.
Drivers for upsell come from “more of the same”
The last major point is that when drivers for the upsell come from more of the same, you're increasing the pricing maybe or talking with the customer about higher consumption or expansion of features, then it makes sense for the CSM to see that through as an extension of their normal conversations on driving more adoption with those existing solutions.
On the other hand, if upsells come from entirely new sales, if you're selling into a new division or a new product, then obviously, more work is needed with the sales team.
What if my model doesn't fit those scenarios?
I highlighted my main points here in purple and white so you can see.
Let's face it, customer success leaders want to be responsible for the revenue, we don't want to be seen as only a cost center.
It's clear our work directly influences recurring revenue so we like to show we have that involvement and interaction.
But contributing to the renewals and expansion does not require that CSMs own them. What we need to do is be accountable for retention, even if the renewal execution is handled by sales.
That can be part of a bonus structure without actually requiring the CSMs own the commercial activity.
How do we do that? We tie revenue targets to customer success.
Revenue targets to tie to customer success
How do you demonstrate tangible value?
There are some different ways to do this and I would suggest it's actually an evolution in many cases on how to go about it.
First, I'm going to reiterate you have to focus on building strong customer relationships on improving health, and on driving adoption. That's always going to be the CSM’s primary responsibility and that doesn't change.
Create an organizational revenue performance goal, for the company or business unit
But next, you look at the importance of the revenue targets. First, often what happens is you create an organizational revenue performance goal for the company or maybe for your business unit. That may be ned ARR growth or revenue versus plan for a particular business unit.
Some companies choose to keep these team-based metrics in place.
Link churn reduction to individual CSMs for their assigned accounts
Often what happens though, is companies evolve to link churn reduction to individual CSMs for their assigned accounts. These measurements can be done in different ways with gross customer retention, net churn, do you factor in upsells and expansion? Are you focusing more on churn? I do encourage you to consider where churn risk can be predicted.
Consider what you can forecast in advance versus the actuals and having the CSM play a role in that whether or not they're compensated directly for the sale. Lots of different measurements are possible here when we look at how the CS behavior links to the renewal.
Net dollar retention (NDR) shows fluctuations within the existing revenue base
The newest measurement that we see more and more of is net dollar retention, I included the equation for you here.
Taking these things into account in your business, what should you consider and what are some of the gotchas when you are linking revenue to your customer success team?
Evaluate compensation structures of both Sales and CSMs
First, you have to evaluate the compensation structures of both sales and the CSMs. If your sales team is responsible for all of the commercial relationship, that's okay. Because CS again, still drives the behavior of the customer, the likelihood to renew, but you have to consider and understand the sales team's compensation structure.
If they're comped a lot more heavily on pursuing new business than on stabilizing the recurring revenue that's very important to understand and consider for your organization. Because we all know we prioritize and focus on how we're rewarded.
Train and hire for the skill sets your CSMs need to have
Be realistic about what your organization expects, what that role is, what the various roles are. If you have a technical account manager and a customer success manager, you need to be clear about the roles and responsibilities.
In particular, if CSMs do manage the renewal process, are responsible for expansion, you need to make sure they have the right skill sets to be able to perform those tasks as well. Be realistic about the strengths of your team and what they need to be able to be successful.
Reward expansion with spiffs; do not assign quotas
I'm a firm believer that CSM should not be assigned quotas, that we can reward expansion with spiffs, that you can have that type of reward for a cross-sell or upsell. And you can do it within ranges that a certain reward would be if, for a certain threshold of ARR, a certain reward is added for their bonus, but not the idea of being required.
Be very sensitive before assigning a quota.
Consider where CSMs would be competing against one another for customer assignments
Another important piece is to consider where CSMs would be competing against one another for customer assignments.
First, this would happen with opportunities - if a lot of their rewards have to do with cross-sell/upsell but some customers are obviously going to continue 'coming back to the well' as we say, coming back and wanting to grow and wanting to do more and they're very positive.
Hopefully, there are so many of those that that's the type of account that a lot of your CSMs are serving. But we also have some difficult customers where we need to make sure we balance those across the CSMs because it can be discouraging if one CSM has a number of frustrated customers, they're spending their time focusing on that and don't feel they have the opportunity for cross-sell and upsell.
Similarly, if you have a newer solution or something that's very complex in your product portfolio, consider the CSMs who served those customers and the difficulty they would have as compared to CSMs in another maybe more stable or easier to expand business model.
Consider how you assign those accounts or what rewards you would put in place for those team members.
Limit CSM ownership to upsell lead generation - pipeline - not closed deals
Because it can't be the responsibility of the CSM whether or not sales actually close the deal. They can only ideally deliver the pipeline of opportunities.
Clarify the lead tracking process to remove competition with other teams
On a related note, make sure to clarify the lead tracking process to remove competition with other teams.
This sounds straightforward, but I've seen it happen where if inside sales are rewarded for a certain activity, and then maybe you have a CSM who's also generating, makes sure it's clear across the organization, not just what you're building in customer success, that there aren't any conflicts when it comes to how opportunities are generated and passed along to sales.
Perform NPS/CSATfor existing customers and gather feedback and gather feedback from outbound customers
I have to pop in a reminder that performing NPS and CSAT, engaging with your existing customers, and also gathering feedback from those who are no longer going to be staying with your company is valuable feedback.
Make the relationship part of that - you're not asking them who should be responsible for the revenue but don't be afraid of asking questions and engaging to understand how the engagement model is working for your customers.
Allow for exceptions outside of the CSM’s control
Finally, allow for exceptions outside of the CSM’s control. If for example a CSM is assigned to an account that had a merger acquisition, if there were two companies who own your solution, and now one of them is churning - that's outside of the CSMs purview.
That's something entirely that happened to the business even if the CSM was doing a great job delivering value. Make sure when you're doing these measurements you consider where the CSM had influence or where something was totally out of their control.