Customer Success in SaaS: the 80:20 effort

Customer acquisition is challenging. However, in Software as a Service (SaaS) businesses, interestingly, the real challenge starts after the customer is acquired. Customers want their SaaS providers to solve their problems without the “legacy” of managing the SaaS provider’s system. Therefore, after the initial agreement, they start with a prototype or proof of concept (POC) with a bounded customer commitment, also called a trial or limited usage plan. Then, as they realize outcomes, they start paying more with increased adoption, while others, due to various limitations, stay with the Basic or lower-end usage models. Accordingly, SaaS providers serve a broad revenue range of customers from very low to high revenue streams with this approach.

The customer success manager (CSM) is critical to make the SaaS deployments successful and push their customers to higher-paying usage models. On the one hand, the 80-20 rule, also known as the Pareto principle, will urge the CSMs to focus on the customers that generate the most revenue with optimal effort. However, the other 20% is still a substantial revenue for the SaaS provider and offers a nurturing base to convert those customers to higher-paying models. So how should SaaS providers distribute their work effort to manage both these customer segments?

Team Setup for 80% Accounts

The actual breakdown will vary from one SaaS company to the next, but let’s call the two segments 80 and 20 %, respectively. SaaS companies manage the former segment by the traditional approach with accounts assigned to CSMs based on experience, skillset, and existing relationships. They establish sub-teams based on strategic, growth, enterprise, or other such variations.

I recently talked with an Asia Pacific region CS leader of an NYSE-listed company. He assigned accounts to his CSMs such that each was responsible for about $4M revenue. That number could come from 2 or more than 40 accounts. The work involved for each CSM, irrespective of the number of accounts, was equally intense given the nature of his company’s business. Bringing in another Pareto rule, the critical point he made was to be in front of customers 80% of the time – talking and interacting with customers meaningfully. The rest, 20%, was administrative, preparation, and record keeping.

Another global leader of a European finance company mentioned that his team is currently evolving and consists of both farmers and engagement managers with technical skills. Since his company’s platform is heavy on the technical aspects, his group focuses on retention. He expects a dedicated sales team to own the upsell/cross-sell elements of the job eventually. These conversations finally zeroed in on their respective efforts and experimentations to increase every customer’s lifetime value, a very sensitive topic with investors, driving SaaS company valuations.

Labor Challenges

Both these individuals also reiterated the importance of outcome-based interactions. But the maturity required from CSMs to be effective in this measure is simply in short supply. The former CS leader mentioned that he expects all CSMs to have some sales experience to appreciate acquiring and retaining customers. He said that a good CSM might need more than five years of sales experience as a farmer.

Given the ease at which customers can switch their SaaS usage on and off and move to competitive solutions, assigning a CSM to every customer account, no matter big and small, is not an option. Companies can no longer offer their customers just a help desk contact number and address. Support staff cannot be good CSMs. But amongst this demand, there is limited CSM supply, and asking salaries have gone up a lot. Today, the job boards display an insatiable need for CSMs with hundreds of thousands of open CSM positions worldwide.

Managing 20% Revenue Base

SaaS CSM leaders are struggling to manage the lower 20% revenue customer bracket. For example, a third CSM leader I talked with mentioned his 20% bracket comprises accounts that pay $150 a month, among others at $10K or more. So collectively, this 20% revenue is not pocket change. But it is distributed across so many accounts that CSMs cannot spend more than, say, 30 mins a month calling/texting / persuading customers to use SaaS products more and buy more.

My take is that CSMs should provide adequate attention to these accounts. If labor is limited, perhaps explore automation to congratulate on usage intelligently, suggest tooltips for product use, and share availability to arrange 1×1 meetings. The key is to convey the importance of this segment to the SaaS provider. This customer segment’s journey could start small, but with efficiencies can be a profitable standalone group.

The Way Forward

SaaS trend has evolved fast into a significant tech business with huge potential, fuelling the global startup ecosystem. To take India alone, Bain & Company projects the estimated revenue by Indian SaaS companies to reach USD 18-20 billion by 2022. In addition, NASSCOM projects the Indian SaaS ecosystem is estimated to create USD 1 trillion in value and nearly half a million jobs by 2030, driven by accelerated digital transformation and automation in business.