Early SaaS organizations have a number of priorities. There’s a product to build, a marketing strategy to implement, sales calls to make, as well as administrative requirements that pile up quickly.
An obsession with growth plus the operational functions that come with running a business lead many organizations to neglect customer retention. Econsultancy found that many organizations prioritize growth at the expense of retention.
Retention is so important that it requires a dedicated arm of your company. It’s too big to fall under the purview of another department. Enter the customer success manager (CSM).
Customer retention is so important that it requires a dedicated arm of your company.
The customer success manager is more than the traditional account manager. Their job is to help the customer realize value from the product. They do this by onboarding the customer, providing information and content that solves their problems, generating goals through quarterly business reviews, and helping the customer achieve those goals.
Your CSM should own the customer’s relationship with the SaaS from inception throughout the entire lifecycle, including renewals and upsells. In some cases, customer success should get involved before the sale to help close the deal, especially in the case of high-value enterprise clients (some customers like the assurance of knowing who will help them use the product).
In this sense, the CSM will become the face of the SaaS, as far as the customer is concerned. “Customer success has a much longer, and ultimately deeper, relationship with the customer than sales or anyone else in your company,” says SaaS founder and venture capitalist Jason Lemkin.
SaaS organizations resist hiring customer success early for two reasons:
- Early hires require sound justifications. When you’re only bringing in $20,000/month and you’re working with a short runway, no one should be on payroll unless they add a tremendous amount of value to the business’ growth.
- It’s hard to find a good customer success manager. The discipline is just so new that effective CSMs are valuable and expensive.
Nevertheless, startup founders need to bite the bullet and hire a CSM early. It’s a role with benefits that compound over time.
Customer success impacts your bottom line
You depend on renewals to protect your foundation to ensure that growth is possible. Over time, a majority of your revenue will come from renewals and upsells; from the same customers paying over and over. As the owners of your retention metrics, customer success managers will eventually be the biggest contributors to your revenue.
According to the Harvard Review and Bain & Company, a 10% retention increase raises an organization valuation by 30%. A 5% retention increase increases profits 25-90%.
Yeah, those are numbers you can’t ignore.
Furthermore, your best marketing tactics are referrals, recommendations, positive case studies, and good PR. Customers that come to you via these methods generate second order revenue. Your first customers often help you find your second customers via a loyalty/affiliate program.
If one customer is worth $200,000, but they refer another customer worth the same value, your overall customer lifetime value explodes and your customer acquisition cost plummets. (VCs love hearing things that like if you’re seeking another round of funding.)
If you’re working with a budget, these methods are cheap and effective, but only if you’ve pleased your current customers. The sooner you hire a CSM, the sooner your customers can achieve value with your product and pitch you to their friends and colleagues.
Hiring more salespeople just doesn’t have the same effect. “Hiring sales first will definitely get you to revenue faster, but it also has the potential for creating a shaky foundation,” says customer success strategist Derek Skaletsky.
You can push more signups, but if they don’t achieve their goals with the product, they won’t stick around. Customers who only pay for a short time damage the company’s financial health, as well as the team’s morale and public image – both of which affect the organization’s ability to grow.
Hire customer success early to get ahead of your fires
If you wait to hire your first team of CSMs until you have a retention problem, you’ll force them into a position where they spend a majority of their day cleaning up messes. Even if you hire people capable of thinking strategically over the long term, you’ll rob them of the opportunity to do so.
Every customer success program begins with an initial learning phase. The CSM has to learn as much about the customer as possible. They’ll pull data from various teams within your organization (which is why teams need to be prepared to work together), but they’ll get much of their information directly from customers.
A late-hire CSM who responds to emergencies every day until 4 PM will take ages to get through the learning phase. Building processes to get ahead of the retention problem will take even longer. During this delay, you’ll lose customers and wear down your CSM who doesn’t want to play a support role.
Hire a CSM early so he or she can recognize problems that affect retention before they damage your revenue stream. For example, if your tool caused customers to violate regulatory compliance, you would want to know and fix that problem quickly before too many customers abandon you.
Don’t hold out for the perfect CSM
For some positions, you should wait to hire until you have the perfect candidate. Your first CSM isn’t one of those.
I’m not saying you should hire a bad customer success manager. The discipline is so new, however, that finding that Holy Grail hire that will transform your business at a price you can afford isn’t likely (unless your first round of funding was lucrative). New customer success programs are typically built by transplants – people from other teams who understand customer success’ role and your organization’s mission.
Until you have a very clear understanding of your customer (or have found your product/market fit), the first CSM’s role is somewhat plastic. They might work with development teams to validate the product. They might work with marketing and the C-suite to develop the company’s roadmap. They might serve as an information gathering force that collects data from customers and distributes it to other teams.
You just need a proactive person who’s built to serve, appreciates metrics and likes to lean on process and automation.
Pull the trigger early and you’ll be rewarded
I strongly encourage you to hire a CSM as one of your first 10 employees. Each CSM should oversee no more than $2 million in ARR (with considerations to the number of customers they’re serving and the complexity of your product). Read more on expanding your customer team here: How to Run Customer Success at Scale.
The sooner you put someone in this role, the sooner you’ll begin to realize the compounding effects of customer retention.