4 Keys to Building Customer Success

Support and service organizations are being pressured to cut costs as chief financial officers scrutinize resources in response to continuing economic uncertainty. As a result, customer success leaders are looking to make sure they are leveraging all resources efficiently and delivering business value. Even well-performing programs are looking for ways to insulate the customer success teams from economic uncertainty.

Before we dive into how to establish a customer success foundation, here's a quick history lesson on the business function itself: It got its start with the emergence of software-as-a-service, as B2B technology organizations started shifting from perpetual license models to subscription business models. This shift in business model required organizations to treat customer adoption of products and services and customer retention as full-time jobs because of the ease with which customers could switch providers when their needs were unmet.

Fast forward to today when industries such as media and communications, education, and financial services have the highest concentration of customer success managers, or CSMs. Long gone are the days when the discipline was confined to merely B2B technology SaaS companies alone.

With any discipline's maturation and expansion comes growing pains. Organizations looking to create and scale customer success struggle with realities such as how to best fund it or how to standardize the delivery of customer experiences at key moments along the customer journey.

Gartner recommends focusing on four key pillars to address some of these struggles and build a strong foundation that scales:

1. Craft the Charter.

Initiating customer success begins with establishing a charter that will provide directional guidance on critical decisions regarding the function's goals, funding, service delivery activities, and measures. The figure below provides a framework to get started.

The charter will clarify roles and responsibilities to prevent redundancy in activities and misallocation of resources, which is essential to delivering long-term value to the customer and the company.

Start by asking questions such as "How familiar are our customers with our product/service offerings, features, and benefits?" or "How much of our company's revenue goal will need to come from the expansion of existing customers vs. new customer acquisition?"

These probing questions will assist in defining the charter and prioritizing objectives accordingly.

2. Establish the Funding Model.

The customer success budget should be based on its charter (AREA) and allocated both appropriately and proportionately based on the percentage of time the customer success team spends in each activity under the AREA charter.

A scalable funding model must be able to address considerations such as how many CSMs to add or by how much to increase technology investment for every new client and/or incremental increase in recurring revenue. One that solely relies on sales and marketing (S&M) costs or cost of goods sold (COGS) will limit the organization's potential scale and integration into the post-sale delivery lifecycle.

Instead, spread where the wealth originates. For example, if 25 percent of the CSM's time is spent helping customers adopt and realize value, 25 percent of the funding should come from COGS. If 50 percent of the CSM's time is spent renewing and customer success carries a renewal target, 50 percent of the funding should come from S&M costs.

Ensure the funding model evolves over time to align with the charter and natural expansion of surrounding functions like customer support.

3. Develop a Customer Segmentation and Capacity Model Framework.

Most organizations have customer segmentation models as part of their marketing and sales go-to-market strategies that should be leveraged for their customer success programs. Usually these models are determined by unique attributes like customer spend, size, geography, or product. Segmentation can also be designed around customer lifecycle phases, such as onboarding or customer maturity. Segmentation provides the customer success organization the proper framework by which to align the engagement and capacity model.

Once the segmentation model is determined, leaders should design a capacity model. The capacity model exists to determine how many customer success managers are required to support an activity by customer segment. This model directs customer success resources to the right customer at the right time focused on the right set of tasks.

4. Define Measures of Success.

Establishing the right measures of customer success is critical to proving impact on financial objectives and gauging the overall effectiveness of the team in accordance with its charter.

Service and support leaders are continuing to gain responsibility for management of retention and growth. The most important customer success metrics should include annualized recurring revenue (ARR), net dollar retention rate (NDRR), customer acquisition cost (CAC), Net Promoter Score (NPS), and customer health score (CHS).

The customer success function continues to grow in importance in the midst of change and uncertainty: Organizations are introducing new business models that require a dedicated focus and set of resources aimed at both helping organizations drive their revenue and growth objectives, while helping customers achieve their value-realization outcomes. These four pillars can help get them there.

John Quaglietta is a senior director analyst in the Gartner Customer Service and Support practice, covering topics such as CRM strategy and customer experience, service and support strategy and leadership, and more.