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Alexander Group leaders Igor Uroic and Daniel Kraviz share some insight into the customer success role, archetypes for the role and even sales compensation best practices.

Deploying customer success roles evolves around maximizing the customer lifetime value. The best equation to achieve this is:

Usage + Value Realization + Customer Satisfaction + Renewal/Expansion = CLV

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Full Transcript:

Igor Uroic: This is Igor Uroic, principal with the Alexander Group. Joined by my colleague Daniel Kravitz. We’re both leaders within the organization and in our technology space. Today we’re going to talk about how and why organizations choose to deploy customer success roles regardless of what they call them typically customer success managers. So a couple of things we’ll start off with is what’s the sort of what’s the equation or what’s the reason for deploying one of these roles? Typically, the equation, if you will, centers around maximizing customer lifetime value. So in order to do that, we use these types of resources to do a number of things. One, drive usage, right? So make sure that your customers are using the solutions that they bought, make sure that the solution has a demonstrated value, right? That it’s solving a problem. So helping them realize the value out of what they’re using. So, use it, find the value, then entrench the customer satisfaction portion. Right? You want to create delight of customers out of folks that are using those solutions and offerings. And then lastly, you want that individual to also make sure that a renewal or an expansion opportunity is quickly identified and the right folks are brought in to secure that as it’s necessary. So across those four different things, your customer success managers, by doing those four things, are increasing customer lifetime value. Now, one of the things that’s interesting about customer success managers is that over the last five or so years, almost all organizations within the tech space have started to use some version of that role. However, there’s still some variance in how they’re deploying them and what part of the sales process they’re using these individuals. So there’s not a best practice quite yet, but there are some center practices of how folks are using these roles. And we typically think about these in three or four different archetypes.

Daniel Kravitz: So in our view, there really are three. And maybe if you break each of these archetypes into a couple of sub-archetypes, four or five different iterations of the customer success manager role. The first one that we’ll talk about is the adoption-focused CSM. This role is really focused on driving customer satisfaction, increasing Net promoter score, and driving technical adoption at the end customer and user level. This role is typically, and very commonly, deployed and consumption-based models. There’s usually continuous involvement with the end customer from adoption-based CSM, and they’re really taking these insights and feeding them back to the core seller. A lot of times you will see an adoption-based CSM with very technical sales cycles and technical customers. The second type of CSM is the adoption and renewal CSM and this CSM typically owns the adoption part of the ILAER sales process as well as has either total ownership or co-ownership of the renewal sales motion. This role typically is deployed when the renewal is more of a reorder and there’s less technical persuasion skills required at that point of the sales process. In addition, it’s very important when this role is deployed that the renewals would be linked to customer experience and value realization. That’s when it’s most typically applied. And really the third main archetype that we see for customer success is a customer success manager that is responsible for adoption, renewal, as well as upsell and cross-sell. So again, there can be archetypes where you just do upsell and cross-sell, upsell, or upsell and cross-sell. This role typically will act as a hybrid seller and support the core seller as part of the land and expand motion. It can vary a lot depending on the type of customer. For example, it can be very technical for infrastructure solutions or more business oriented for apps and services. There is not one right answer of which of the flavors and archetypes of customer success is right for each company. But it does depend on exactly what the strategy is, how long the sales cycle is, and really what those customer and customer needs look like.

Igor Uroic: Yeah, Thanks, Daniel. I’ll maybe give two examples and I’ll pick the bookends here. We’ll use an adoption-type CSM and then one that’s more full-service. So with this particular organization, one of the things that you want to think about is who else is involved in the sales process and what are their responsibilities before I assign too much or too little to my CSM. So in this adoption version, some of the characteristics of this organization’s business that led them to think, Hey, I really need a focus on just the adoption piece, is that that we’re still just building out this CSM function. So this group was fairly junior in terms of their skill set and tenure within the organization. They still had a fairly small install base and a lot of what they were doing as an organization was still landing new business or the AEs and sales engineers were primarily responsible for. They had some issues in terms of professional services teams getting the solution up and running quickly, right? So once that was done, they quickly wanted to get a CSM to start working on the adoption play and not get mired into some of the expansion, renewal, or any of those activities yet. They just move to this new subscription model, so there weren’t too many things up for renewal yet, particularly they were doing a lot of three-year contracts.

Igor Uroic: So again, some of those reasons chosen by this organization to say, Hey, look, the best place to deploy my CSM is actually only on the adoption portion. If you think about a different case example, an organization that chose to use a full-service CSM, some of the things that are different about this organization is highly established, huge install base, a lot of the selling is almost done at a self-service level at this point given how prevalent their solution was and how competitive was in the marketplace. So they really wanted to position the CSM as highly strategic resources that would essentially own almost the full spectrum along with the core sellers in terms of landing on the opportunities. So these were highly tenured, highly skilled CSM, They focused on a handful of accounts at the top of the pyramid, so really close to 1-to-1 coverage with their AEs and really working with only a handful of accounts. So they had the opportunity to go pretty deep with them. Regardless of where I choose to deploy my CSM more in a sales-type motion or more in a service-type motion, there are some prevalent ways that organizations compensate for those types of roles. So Daniel, can you maybe walk us through three or four different things we should think about in terms of comping CSMs?

Daniel Kravitz: Yeah, absolutely. And it’s important as you think about how different companies are deploying their CSMs that they also take into account how they’re paying them and how those things are tied together and interlocked. So there is really a continuum of CSMs that we talk about from the adoption CSM all the way to the full-service CSM that’s more service-focused to more sales-focused. As we think, start all the way to the left around service-focus, adoption-based CSMs, there is really two flavors of incentive plans that these roles can be on. Maybe, maybe a few others, but the most prevalent ones are either a service adoption corporate plan. So where it’s 10 to 20% of the base salary, it’s not at risk, it could be corporate-funded. Typically, these are MBO-based plans based on the number of active users, number of licenses, and number of tokens, but really things like that that are able to drive the performance of the CSM, although it’s as part of an overall corporate plan. The other flavor of incentive plan metrics that you see for more of a service-oriented CSM is if that role is billable role as opposed to a cost center role, then it could be based on more of a utilization type plan. You see this a lot when CSMs are built at the end customer on an hourly basis.

Daniel Kravitz: And for those type of roles, kind of the key metric that we use is either overall usage or utilization billings with CSM. What’s becoming much more prevalent practice for CSMs is being put on an at-risk bonus plan. We see that in general, 65% of companies have CSMs that are on at-risk compensation plans, and typically those plans would be for CSMs who are have renewals as well as upsell & cross-sell responsibilities. Typically, those plans have pay mixes that range from 70/30 to 80/20. There will be a series of metrics that they’ll use. Still, usage and adoption is a primary metric for each of the different flavors of CSMs incentive plans. But you also start to see more revenue-based measures as part of secondary and tertiary measures. A lot of times these could be individual measures, although that does depend on the deployment that the CSMs are on. At the end of the day, it’s very important that you align what the metrics are for the CSM role based on the archetype you’re trying to deploy in the sales strategy that you’re going after. Thank you for joining us today. If you’d like more information, please visit us at Alexander Group.

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