Today, customer retention is as critical as acquisition, making the role of Customer Success (CS) is more important than ever. Yet, as critical as CS is to the sustainable growth of any company, many CS teams aren’t tied to strategic metrics and aren’t compensated for the revenue they are responsible for. The challenge is often identifying the right metrics for success. 

In a recent session with 4 CS leaders, we dove into examining the importance of defining CS quotas, identifying the right metrics for CS compensation, aligning CS compensation to measurable KPIs, and making customer success your organization’s North Star. We also considered why Net Revenue Retention (NRR) should be everyone’s responsibility, not just the CS team’s. This blog pulls out the most impactful parts of the conversation. If you want to see the full conversation with Sydney Strader, VP of CS at Catalyst, Jeff Breunsbach, Director of Brand at Higher Logic, Georgie Papacostas, VP of CS at Sales Assembly, & Alli Sitkiewicz, SVP of Sales & CS at Built In, you can find the full session here, or find it on the Revenue Jam podcast here.

Why is CS Suddenly Getting a Quota?

Not so long ago, the focus was on rapid growth, even if it meant spending aggressively. Easy funding and high spending were championed in board meetings. But now, the tide has turned towards efficiency and cost reduction, with a strong emphasis on driving revenue growth from the existing customer base. 

This shift in focus to customer retention and expansion is due to several factors. For instance, marketing costs are typically high, but they often yield lower returns when compared to revenue growth driven by the existing customer base. Generally, it’s easier to get more money from people already paying you than it is to get new people to pay you.

This shift is highlighted by recent data which shows that SDR pipeline creation has significantly declined, dropping from 40% to 18%. This decrease in pipeline generation can have serious implications for a business. Financial plans are often based on these pipelines converting to closed-won revenue. However, when pipeline generation underperforms, businesses may face significant risks, even leading to layoffs or reductions in force.

The key to mitigating this risk and driving growth lies in the existing customer base. This means getting customers to value and aiding in their revenue growth. The focus is on Customer Success (CS) organizations. Which is why we have seen a rise in CS teams getting a quota added to their responsibilities.

Should CS Have a Quota?

Businesses are currently more focused on reducing burn and increasing profitability. The question of whether Customer Success (CS) teams should carry a quota has become increasingly relevant. With businesses aiming for greater sales and marketing efficiency, the responsibility for upselling, cross-selling, and maintaining net revenue retention (NRR) may be shifted to the CS team. This is to disperse the cost of customer acquisition more evenly across the organization.

However, whether this is a viable strategy will depend on a few factors. It is important to consider the experience and skill set of your CS team, as well as the complexity of your product. 

The experience and tenure of your CS team play a crucial role in determining if they are equipped to take on the responsibility of meeting a quota.

Some questions to consider before starting a quota rollout are:

  • Can your CS team balance the responsibilities of ensuring customer success with your product while also focusing on identifying expansion opportunities? 
  • Have they had similar responsibilities in the past? 
  • Does their skill set align with this new task? 
  • If your product is complex, does adding the task of upselling or cross-selling become an additional challenge?
  • Are your teams trained in contract negotiation?

On that last point especially, CS teams might find themselves negotiating against skilled procurement departments. This could put your CS team at a disadvantage if they’re not trained or experienced in this area.

So, while the idea of CS carrying a quota could be a strategic move toward greater profitability, it’s essential to weigh these factors carefully. It’s about assessing the overall context, the structure of your team, the product, and the nature of the negotiations involved. With a nuanced understanding of these elements, you can make an informed decision about whether a quota is right for your CS team.

Identifying Your Metrics for CS Compensation

If businesses didn’t find value in customer success a few years ago, they sure should now. In a climate where selling new deals isn’t as easy as it once was, retaining and growing your existing customer base is a strategic imperative. This shifting context underscores the importance of aligning your most customer-focused team — your CS team — with specific, strategic metrics. Failing to do so is a missed opportunity. 

One of the first things to reflect on when identifying the right metrics for CS compensation is understanding who is supporting the customer and whether they have conflicting or complementary KPIs. For instance, is there a clear delineation between the roles of Account Managers and Customer Success Managers? Are their KPIs creating competition or cooperation?

Additionally, there’s a need to focus on leading and lagging indicators for compensation strategies. For example, some companies showed a strong correlation between the number of seats adopted within 60 days of customer onboarding and customer retention. This correlation then directed the implementation team’s efforts toward achieving the necessary outcomes within the first 60 days, which subsequently improved retention and growth.

At Catalyst, this principle is termed “Moments of Impact.” It refers to those critical moments tied to why a customer has chosen a product or service. Identifying these moments and driving their usage and activation can help get customers to value, which in turn, leads to their desire to retain and expand their investment. Understanding and applying such insights can be highly impactful from a revenue perspective.

The objective is to identify the KPIs (Key Performance Indicators) that encapsulate what ‘good’ looks like for our CS team. For example, many companies have CS teams that target net revenue retention. To achieve this target, they would look at the activities that their best CSMs perform. These might include tracking health scores, activity metrics, and product utilization.

The approach would then include establishing the KPIs that will lead to optimal net revenue retention and then managing performance based on these KPIs. If the team achieves these KPIs, the ultimate goal of increasing net revenue will follow. 

Thinking through this process and separating the concepts of KPIs and targets offers a promising strategy for determining CS compensation. It provides a clear focus and encourages the right activities for customer retention and growth.

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Align CS Compensation to Measurable KPIs

If you’re considering rolling out a quota to CS, it’s crucial to assess the existing compensation structure and ensure it encourages the behaviors you desire from your team. You should then connect these behaviors to the KPIs you plan to use. 

Tactically, it’s critical to ensure that whatever you ask your team to do is measurable. If you cannot measure it, you should not introduce it as a metric or goal. 

For instance, if you intend to move towards net revenue retention as a target, you need to provide clear guidelines on what activities will help achieve this goal. Absent such guidance, you risk creating a chaotic situation where team members pursue this objective in varied ways, potentially clashing with other teams in the process. Common KPIs for CS include activity metrics, Net Promoter Score (NPS), Customer Satisfaction Score (CSAT), and account health.

Communicating about this process is equally essential. Whenever considering significant changes to implement, it’s recommended you follow a “leaders go first” approach. Seek feedback and buy-in from the team’s leaders, whether they’re managers or highly tenured individuals. This approach helps you identify potential oversights and gain insight into how the team might react to the new goal. It’s also beneficial in avoiding situations where team members publicly critique your plan due to unaddressed issues.

Once you introduce new KPIs or targets, be prepared for your team to delve into them extensively. This scrutiny can be beneficial, as it often uncovers issues with reporting, efficiency, or existing processes. It’s critical to remain open to this feedback and communicate to your team that the process will likely need refinement. Explaining the rationale behind the changes can help facilitate this dialogue.

Finally, always remember to be prepared to course-correct if necessary. If your team fails to meet the new KPIs, don’t let them bear the consequences alone. You need to advocate for your team and, if required, amend the targets to ensure you retain your team and maintain their motivation.

NRR Falls on Everyone, Not Just CS

One of the most impactful strategies for true success is a cross-functional collaboration between marketing, sales, customer success (CS), and engineering/product organizations. 

For example, Catalyst has ‘at risk’ meetings where they identify every account that could potentially be lost and associate it with a certain department. Within customer success, there are areas where the CS team is directly responsible like if a customer is not extracting value from Catalyst. 

However, there are other areas, such as the absence of critical product features that customers need to derive value from Catalyst, which also needs to be addressed for successful customer retention. These are matters discussed with their leadership team, deciding where in the product roadmap they should prioritize these features. 

Since implementing this process, they’ve seen significant improvements across their gross retention metrics, including a 20% increase in gross retention during a particularly challenging period.

Therefore, it’s crucial to move beyond viewing customer retention as solely the responsibility of a creative CS team. Instead, it’s necessary to ensure cross-functional transparency and visibility, because in reality, gross retention and net revenue retention (NRR) are company metrics, not just CS metrics.

When organizations view NRR as exclusively a CS problem, they overlook the wider picture. While it is a CS problem if they fail to communicate risks and necessary support to the broader organization, customer retention is a collective responsibility. Your efforts as a CS team alone can only move the needle so much. However, by driving visibility across the organization and rallying support from cross-departmental partners, you can make a significant, more holistic impact on customer retention.

Making Your North Star Customer Success

Driving customer success should be the primary aim of every organization, as it can significantly impact various metrics. To illustrate this, consider Judy’s example mentioned in the live session. They focused on the impact on care recipients as their central metric. This focus means that everyone in their organization, from engineers to sales teams, is dedicated to enhancing the impact on care recipients. If they are successful in improving the care for these recipients, it generally means that they are making their customers more successful as well. This, in turn, drives revenue growth. 

Organizing metrics around leading indicators in this way is powerful because not everyone in an organization necessarily relates to financial metrics such as ARR. How can you create a metric around tracking moments of impact that drive the success of your customers?

Another crucial aspect is reinforcing these key moments through team behavior. This could be through simple actions such as verbal recognition or using platforms like Slack to share success stories. For example, an open channel named “Stories Worth Sharing” where anyone in the organization can share customer success stories, celebrate team members, or any other noteworthy stories. This not only helps reinforce our team culture but also serves as a reminder of why we’re all doing what we do, centered around community. 

So, when you’re looking to enhance your customers’ success and rally your team around this mission, these are some points you could consider. The focus should always be on creating value for your customers, driving their success, and reinforcing these achievements within your team.

Get Started Today

Creating a quota for Customer Success is not just about numbers; it’s about defining the value and the impact of your CS team on your organization. It requires strategic thinking about the roles, responsibilities, and desired outcomes of the CS function. Balancing the dual focus on both retaining and expanding customers necessitates a clear and aligned compensation strategy. Further, making customer success a North Star means your organization is truly customer-centric, which can serve as a powerful competitive advantage. 

Remember, customer success, and by extension NRR, is not the responsibility of the CS team alone; it’s a collective effort that should involve every function in your organization. By doing so, your company can foster a truly customer-centric culture that will not only increase retention rates but also drive your overall growth. The journey to defining CS quotas is unique to each organization, and these insights provide a starting point for that exploration.

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