TechVidvan

How Many Accounts Should A CSM Manage?

There has been confusion in the industry over how many accounts a customer service manager (CSM) should handle. While the consensus seems to be 1 CSM for every $2 million ARR, that coverage ratio is not an accurate assessment. Before implementing a practical solution, it’s advisable to understand all aspects of customer success.

Why the Popular CSM Coverage Ratio Is Obsolete

The $2m per ARR ratio is not feasible mainly because it implies customer success is particular to SaaS businesses. The fact is, it’s also applicable to non-tech, transactional businesses that don’t necessarily have a recurring relationship with clients.

Other than debunking this SaaS-specific myth, we must also differentiate customer success from traditional account management. The latter used to treat clients as a number and nothing more. Although it seems logical to segment your customers by the revenue they bring in, this strategy is a trap with potentially adverse long-term effects.

Therefore, if the dollars-per-ARR ratio is a legacy of the obsolete traditional account management, we should stop using it as a CSM model.

What is the Best CSM Formula?

In the modern segmented business setting, you can’t have a single CSM-per-customer model. The appropriate formula will depend on your unique situation after accurately evaluating the relevant analytics and insights.

You’ll need customer success practitioners (CSPs) for various customer segments. A practical solution involves two steps, the first being a logical segmentation of your customers based on their relevant experience.

The second step should be to identify the ideal coverage level for every logical segment. This coverage should be from the customer’s point of view and not what you wish to deliver.

For instance, you may discover that a particular segment requires a close consultative experience. Figuring out the specifics of that coverage model helps you identify the CSPs who will handle those customers. This approach also makes it easy to know how many accounts every CSP can cover at that level.

If you project 50 accounts in a given segment and each CSP handles five accounts, then you’ll need to recruit at least 10 CSPs. Over time, you’ll increase efficiency by hiring additional CSPs for more demanding segments until you hit an optimum ratio.

Although you might start without support staff such as analysts, they might become necessary once you achieve a certain number of customers across various segments. This consideration should be an aspect of your customer success management expense.

How to Provide a High-Quality CSM Experience without Overspending

The following elements will help you implement an ideal number of CSMs within budget:

1. Identify each CSM’s capacity

It’s advisable to plan your CSM time every month. This approach helps account for internal activities such as training, meetings, and vacation time. Ideally, your CSM should dedicate at least 100 hours a month to direct service while allocating the rest to the aforementioned non-core activities.

2. Choose the desired service level.

While this decision is unique, it makes sense to define the type of service your business should deliver. Depending on the product, it could be a fully loaded, mid-level, or low-touch service.

The premium package could include onboarding, regular account check-ins, quarterly business reviews, and quick response time to tickets. The mid-level and low-touch services offer slower responses and minimal contact with clients.

3. Deliver within budget

Once you have a suitable CSM-to-accounts ratio, the next step is to ensure your budget meets your customer success expectations. For example, if each CSM requires $100k annually to cover salaries, benefits, and other costs, how much do you allocate each account?

If the figures don’t add up, you can either change the service level or increase your prices to align with your budgetary needs.

CSM as a Fraction of Revenue

According to industry analytics and insights, full-service customer success management represents 15 to 25% of annual income. In this regard, it’s comparable to other essential business functions such as sales and marketing. However, the following caveats apply to these research findings:

  • There’s no universal agreement on what fully-loaded service entails regarding salaries, infrastructure, and other costs.
  • Avoid including too many items in your CSM costs. An example is customer support costs, which often fall under operations.
  • The percentage of revenue in the first year is likely to be higher than in subsequent years. That’s due to initial CSM costs such as training, onboarding, and implementation.
  • Your customers should ideally pay more via cross-sells and upsells as your relationship grows over time.
  • If you’re implementing customer success management for the first time, you might have to spend more than the industry average. The objective is to collect valuable long-term insights rather than reduce costs.

A well-run business implements a fully loaded service as a percentage of annual revenue instead of the staff-per-revenue model.

Conclusion

Once you have a practical and scalable model, test it until you achieve a desirable account average per CSM. The best solution is to watch engagement levels in different accounts and change the variables until your business realizes value for its products.