The Essential Guide to
Budgeting for Customer Success
Budgeting for Customer Success is not without its unique challenges. What goals will yield the biggest return? How do we rally support? And where is the funding even coming from?
Whether you’re supporting a growing Customer Success team or an established organization, it’s never too early to break out the spreadsheets and start planning.
But sometimes, securing the right budget for your CS team and organization can present unique challenges.
For example, how do you rally support from executive leadership? How do you prove the impact CS has on growth? And where should the funding come from? Whether you’re operationalizing or growing your Customer Success team, it’s never too early to break out your spreadsheets and start planning for what you need.
As you read through this guide, pull up our Customer Success Budget Calculator and get started!
Chapter 1
The Importance of a Customer Success Budget
Why are Marketing or Sales budgets important? The answer is simple—both budgets fuel fundamental revenue pillars that keep businesses, well, in business. The same is true for the Customer Success organization. In less than a decade, customer success has grown from a concept into a full-blown business imperative. It has given new life to how we interact with customers and acts as an essential growth driver for a fraction of the cost required for other departments.
The importance of CS only increases during tough economic conditions. According to Bain and Company, organizations are seeing more than half of their revenue come from current customers.
Despite today’s critical need for customer retention, CS leaders have often found it challenging to provide a data-driven case for their impact on revenue. Though businesses understand the importance of customer success conceptually, they need proven data and the right pitch to invest the necessary budget to CS Operations and expansion.
In this guide, we’ll cover the ins and outs of Customer Success budget strategies. From determining the source of funds to establishing goals, and getting buy-in from your C-suite, we will provide you with the best information so you can continue to strengthen and scale your business with strategic, effective Customer Success Operations.
Chapter 2
Determining the Source of Your Funding
When you bring up budgets and customer success in the same conversation, someone is bound to ask, “Which corporate budget will these dollars come from, and how will that affect our current budget strategies?” While money will have to be divided differently, this doesn’t necessarily mean that any singular department will suffer in the process. As mentioned before, customer success is a significant revenue driver. So, investing in it now could mean larger budgets for all departments as soon as next year.
There’s a long-running discussion in the world of customer success over whether funding should come from the Costs of Goods Sold (COGS) bucket or Sales and Marketing. One of the reasons this dilemma exists is because the job duties of a CSM fall into both the COGS and Sales and Marketing categories. Some of a CSM’s daily tasks fall into the COGS category, such as training and support. But activities like renewals and upsells make more sense labeled as Sales and Marketing. Because there is no one-size-fits-all answer to this question, many different methodologies have emerged.
We sat down with a diverse group of finance and Customer Success executives to hear how they tackle CS funding. Using the learnings from the discussions, we’ve compiled four broad strategies. While each of them are unique to the business that uses it, you may find that their approaches spark inspiration.
The Customer Success organization supports efforts such as renewals, upsells, and cross-sells. They answer direct questions about new features, industry events, and other marketing initiatives. In this model, their costs are associated with the Sales and Marketing budget. Most large companies with big budgets find this strategy to be the best path. If this strategy makes sense for your business, remember to position CS equal to the Sales and Marketing teams. The budget allocated for your CS Operations cannot be an afterthought but must be prioritized as high as the other two departments.
Because CS teams play an essential part in support, onboarding, and driving retention, their costs are considered COGS. As such, it makes sense to source the budget for CS from Sales. To maintain a clear dividing line, upsell or cross-sell opportunities are only identified by a CSM or CS Ops analysis and then handed to the Sales department. Of course, Customer Success Managers do more than just support, retention, and adoption. That should be a consideration when deciding whether this strategy makes the most sense to your organization.
As CS and CS Ops expand and integrate with more departments in your organization, it may make sense to map out all the responsibilities of your CS team to create a unique budget model. For example, at Gainsight, we see CS and Product work increasingly close together as each team drives the success of the other. That might inform the amount of budget pulled from COGS compared to Sales and Marketing. Create a master list of all the strategic efforts and identify which should be removed from which department. You may find that your allocation is 50/50 from both COGS and Sales and Marketing, or you might discover a different balance. But seeing the complete picture of impact and responsibilities is a tremendous help when deciding.
Another way of looking at CS funding divides the Sales and Marketing category into three SaaS-specific cost categories. Breaking the mold of traditional finance strategy creates a new platform that can adequately fund Customer Success.
Budget Allocation Best Practices
Customer Acquisition Costs (CAC) are all costs, including Sales and Marketing, associated with acquiring new customers. Best practices suggest allocating 65% of Sales and Marketing costs into this bucket.
Customer Expansion Costs (CEC) are all costs, including Sales and Marketing, associated with expanding revenues within the existing customer install base. Best practices suggest allocating 15% of Sales and Marketing costs into this bucket.
Customer Retention Costs (CRC) are all costs, including Sales and Marketing, associated with renewing existing customers. Best practices suggest allocating 20% of Sales and Marketing costs into this bucket.
The beautiful, and often frustrating, thing about working with a new strategy is that it can take some tweaking before delivering the results you want. Keep that in mind as you work with your Customer Success budget. Be aware of the impact your funding decisions’ have on your company’s other departments overall. Consider having them work together cross-functionally to create methods that bring everyone success.
Assessing Your Customer Success Maturity
Many factors affect the needs of your CS team. The size of your organization, the number of customers you have, your growth momentum as you look to the next year, and the CS models that work best for your customers. For example, what is the ratio of clients that require a digital-first CS model to those who need a traditional model? That significantly impacts the budget requirements, particularly when it comes to growing those efforts.
We’ve developed a Maturity Curve made of four stages. You can take our Maturity Model Assessment Test to get your personalized Maturity Score. Once you know where your organization falls in terms of CS Maturity, keep reading to learn precisely what considerations your team should make when creating a budget for your CS team and the team’s broader goals.
Also, don’t forget to check out our Value Creation Plan, to assess and refine your CS strategy with Gainsight.
The Stages of CS Maturity
In this stage, your entire team spends the day fighting fires. Rather than addressing issues proactively or operationally, you tackle risks (and the rare opportunities) from your customers as they come. To graduate from this stage, your team needs ways to capture, visualize, and leverage the vast amounts of customer data available to be proactive about their CS efforts.
The biggest priority for your budget in this stage is to buy a software solution like Gainsight that can help provide the foundation your CS team needs to operationalize and grow. You want something that will allow you to take on more customers without increasing headcount spend. More effective CS models, as well as the opportunity to leverage digital-first models, will add tremendous value to your company, and make your team members much happier at work.
In this stage, you’ve taken the first steps to formalize your Customer Success team. The most important processes are standardized, and you’ve begun to track customer data. You’re clear about the metrics you want to keep an eye on, and you’ve thought about the new goals you have for the impact of CS over the next year.
The most critical investment to make at this stage is a solution that can help you make sense of the data. You want a single source of truth that tracks, visualizes, and shares data so that your team can track processes, establish specific goals, and formulate testing strategies to optimize for growth.
Invest in tools and resources that allow you to use the data in meaningful ways across departments, including Product, Marketing, and Sales. You also want simple, integrated methods to deploy surveys, track support data, and capture other signals that prove your impact.
In this stage, your team is focused on one thing: the customer’s desired outcomes. The foundation of your Customer Success team is solid and growing. Based on the data, you could automate some processes to free up time for strategic planning and implementation. Importantly, your team understands the need for your customers to be committed to their outcomes. You’ve instituted Mutual Success Plans as a way to keep both your team and your customers accountable for those outcomes.
If this sounds like your team, you need a way to scale these for every customer segment. You want the right pieces in place to strategically move customers towards adoption, renewal, and expansion. Thankfully, in this stage, you should have data to support your impact on Net Revenue Retention (NRR), which will prove to your team what budget you need and why.
Consider using your budget for building a formalized CS Ops team. These key players support your CSMs by focusing on the big picture and identifying new processes and systems that promote growth and happier customers who have reached their goals.
At this stage, you have a fully optimized, company-wide adoption of Customer Success across every customer-facing department. Your goals now have moved beyond implementation and towards integration. Your team should be searching for ways to keep Sales, Marketing, Support, Services, and Product teams aligned with customer goals and informed of customers’ changing demands.
The budget requirements for your team at this stage revolve around scaling and increasing your company’s value overall. Look for line items in your budget that will yield the highest return. Look for programs and processes that will drive exponential growth. Are there new data and reporting solutions that you can add to your software suite or tech deck to improve your insights? Think about your 5-year goals and figure out where you need to invest your money to reach those targets with the support of your entire organization.
Chapter 3
Defining Your Customer Success Goals
Ask any Customer Success veteran which departments should be involved in customer success, and they’ll probably answer, “Every single one of them.” Most of us see customer success as a company-wide effort. And, it should be added that this philosophy goes both ways. Just as a company
Just as a company supports its CS team, the CS team should have initiatives that drive success for the entire company. As you craft your budget, remember to apply this “Success for All” ideology to your strategy. Take the objectives your company has set for itself and make them the primary drivers for your CS goals.
The first two steps of your budget planning process should be:
- Determine the primary objectives of your CSM activities
- Understand how those objectives will help your business
Goals of CS
- Reduce churn
- Improve Time to Value (TTV)
- Standardize processes
- Scale your CS efforts
- Expand revenue
- Raise customer sentiment
We love it at a meeting when a CMO or VP of Sales/CS says, “I need additional heads and I can commit to additional revenue in the process. Here’s how I’m going to do it.”
Reduce Churn
All CS teams are, at the core, focused on reducing churn. To be a genuinely effective CS team, you must first determine what is avoidable churn and what is unavoidable.
The answers may be different for you than your competitors. This discussion is essential for you to have as an organization. Most commonly, company buy-outs or a company going out of business fall into the unavoidable category.
Historically, CS professionals would consider an advocate leaving the company a sign of unavoidable churn. But in today’s world, it’s much less threatening. Using tools that allow you to track your advocate’s career moves and connect with others in their current organization helps expand your relationship with your customers while also providing value every day.
Once you know what is unavoidable, you can focus your CSMs’ efforts on events that create avoidable churn, creating a more effective team. Best practices also suggest dividing your avoidable churn by segment (i.e., Enterprise, Mid-Market, Small) to understand better how churn spreads out among your customer base.
Strategies to Reduce Churn
Your customers rely on CSMs to guide them through the product and help them uncover new value consistently. But your CSMs are humans, which means they have a limit to the amount of work they can do every day without feeling adverse effects. If you notice that your current team of CSMs is spread too thin, and your customers are suffering because of that, consider allocating a budget to hire more CSMs.
Figure out what workload a CSM should handle for your list of clients and budget for the right size team. You may also need to consider a Digital Customer Success model that can provide value and attention to your customers without additional strain on your team.
Customers don’t churn in a day. Usually, there are indications that they don’t understand your value, aren’t using the product as much, or in the way they hoped to. Not only are these warning signs easy to track, but they also provide an opportunity to create customer journeys that solve for them.
Customer sentiment surveys that track satisfaction and invite feedback are invaluable to CS Operations, for example. A reporting center that tracks product usage, support tickets, and other behavior-based data will give your team a real-time understanding of trends as well as individual customer warning signs.
If you want your team to invest in CS, give them a plan for the metrics you want to start tracking, the trends you hope to identify based on that data, and how those insights will impact annual revenue. It is much easier to invest a budget in more tools or resources with clear metrics and goals.
Customers spend the most time inside your product. If they don’t understand how to use features or why it’s impossible for them to attain total value. As the direct line between your customers and your internal team, the CSMs are in a prime position to communicate growth opportunities based on feedback.
Use part of your budget to create scalable systems that boost adoption but also equip your CSMs with resources to communicate opportunities to your internal team to reduce avoidable churn.
Although CSMs contribute to adoption and expansion throughout the year, their chief focus remains on renewals. It’s the primary metric when measuring their impact on churn. However, a successful renewal happens over time. To build a strong relationship with your customers, one that reduces churn, your CSMs must be equipped with playbooks and processes to create an exceptional customer experience.
What are the strategies you’ve outlined for them to follow around renewal time? What are the strategies you’ve built for each new customer milestone? If you don’t have any playbooks, you need to invest the time and budget into creating them. Give your CSMs a path to follow so that no customer goes unnoticed. Plus, with a standard procedure, you’ll be able to create different tests that help you optimize and identify early warning signs.
For additional churn reduction strategies, check out our Essential Guide to Churn.
Metrics to Track Your Efforts
To help you track these strategies and their effectiveness, make sure you’re tracking the following metrics:
- Net Retention Revenue (NRR)
- Customer Churn Rate
- Revenue Churn Rate
- Customer Health Index (CHI)
- Net Promoter Score (NPS)/
- Customer Satisfaction (CSAT)
Improve Time to Value
One of the primary goals of customer success is to help customers discover the ROI of your product. Strong communication strategies, strategic customer journeys, and skilled CSMs all contribute to customer sentiment. However, none of it will matter if your customers don’t like the product or can’t recognize the value.
Increasing Time-to-Value (TTV) is just one example of why Sales and CS need to work closely together. During the Sales cycle, your team likely gathered information about each customer’s goals, what they hope to get out of your product, and on what timeline. Using that information, your CSMs can create a Mutual Success Plan, which helps clarify what is valuable to the customer.
Much of the budget allocated to improving TTV will support strategies and playbooks based on customer data. Ensure that your team has the reporting and engagement tools necessary to implement the processes born out of these strategies.
Strategies to Improve Time to Value
The onboarding process is critical for the overall success of a customer, especially in regards to TTV. This is the point where customers are most likely to feel overwhelmed, confused, or resistant to the value of your product to their organization. Because of this, successful CS teams create as many opportunities for feedback as possible during this period.
Create a Voice of the Customer strategy and send surveys after a customer has finished onboarding. Get a sense of broad trends, such as the features they were most (and least) excited about. Focus on their specific experience. Try to understand whether they feel onboarding spoke directly to their Success Plan and associated goals.
Over time, you can use data from all customers to improve your onboarding playbooks and devise a way to address your less confident users.
Quarterly Business Reviews (QBRs) are strategic, face-to-face meetings involving CSMs and individual accounts. Implementing this practice will allow CSMs to talk with customers about their business goals and how your product can support them. Our Essential Guide on QBRs provides insight into this strategic post-sale touchpoint.
If you are tracking data correctly, the QBRs should not reveal any surprises. The state of your relationship with your customer or their enthusiasm about the value of your product will be apparent. And these should be times to refine Success Plans and talk through opportunities. The CSMs may use this time to note any expansion opportunities to pass to your Sales team or ideas to your Product team.
When a customer asks your CSM for guidance, typically, the question is specific to their business model. The answer involves more than a simple yes or no. To answer the questions thoughtfully and accurately, your CSMs must know all the ins and outs of your product. The more they know, the better help they can provide, and the more confidence your customers will have in the value of your product.
Ensure that you spend time training CSMs on the features and functions of your product regularly. This training includes everything from understanding the ins and outs of each new release to seeing how other accounts are using features of your product successfully. It can be challenging to take time away from managing accounts to train CSMs, but the investment is worth it to prove your value to every customer.
As you roll out more and more capabilities, make sure you provide documentation and notifications so customers know how your product can help them.
Metrics to Track Your Efforts
Here are the metrics your team should track to understand the average TTV, as well as what additional budget is necessary to reach your overall goals:
- Customer Satisfaction (CSAT) scores
- Net Promoter Scores (NPS)
- Customer Health Index (CHI)
- Customer/Revenue Churn Rate
Operationalize Customer Success
Whether your Customer Success team is well-established or brand new, now is the perfect time to operationalize your processes. Strategic processes, standardized playbooks, and repeatable procedures all make it easy to scale your business.
Many companies wait to think about CS Ops. They focus on the most immediate issues first. But even if you don’t have the budget to establish an official team with a CS Ops leader, you should still invest in operationalizing your procedures. Identify opportunities to invest in data tracking and reporting at the very least. That way, when you are ready to hire a CS Ops lead, you have historical data to help inform strategy.
Customer Success software provides frameworks for processes, keeps track of customer health, automates activities, and much more. Your team will waste precious time piecing together information from different solutions without dedicated CS technology, often missing critical details. Improve visibility, ensure everyone understands the needs of each customer, and make the daily lives of your CSMs easier by investing in the right technology.
What’s more, CS software will boost your organization’s momentum no matter what stage you’re in. Many successful companies invest in software that can execute digital-led CS models to support their staff and scaling efforts simultaneously. For more on evaluating CS software, check out our guide.
Clearly defining each CS function’s mission metrics, and activities will help your team understand and adhere to the responsibilities and expectations required from each role. Years ago, when CS first began, it was critical to define how it would impact the business as a whole.
Now, we know the impact that CS has on reducing churn and improving customer sentiment. We also know it can do so much more. Working across departments, CS is now considered an essential growth driver that can support everything from Product development to Sales. Ensure that you have clear expectations and metrics that prove the value of CS and the reasons for an appropriate budget.
One of the most important processes you establish is your engagement model. Each customer will require different levels of communication at various times. But, your CSMs will likely not have the time to dive into which customer needs what kind of outreach model every day.
With pre-populated, strategic playbooks that provide emails, slide decks, and other resources to your CSMs, you ensure that you’re always saying the right thing to the right customer at the right time.
Invest in different communication models as early as possible, with a focus on what will scale. Then, learn to leverage a combination of personalized and digital-led communications from your CSMs, and other team members.
Metrics to Track Your Efforts
Here are just a couple of metrics to help you measure the success of your operational efforts:
- Team Performance Metrics
- Customer/Revenue Churn Rate
Scale to Expand Revenue
Once your CS team reaches the final levels of maturity, it’s time to focus on being a growth engine for the company. CSMs can look for opportunities to upsell, cross-sell, and expand customer accounts using the solutions, strategies, and scaling processes.
Much of the foundation for this work will already be in place. The only thing you need to do is create the correct NRR targets based on your data from each of your customer segments (Enterprise, Mid-Market, Small) and the available budget. Read through our 10 New Laws of Customer Success to learn more about how to leverage CS as a growth engine at your organization.
Strategies for Revenue Growth
Understanding the customer journey is the first step to a highly strategic upsell/cross-sell process that delivers true value to customers. Use data on a customer’s health, product usage, advocacy, and other indicators to mark the optimal times to engage in conversation with them about upsells, cross-sells, and expansion.
Your CS software can be a valuable asset when expanding revenue, as it automates these processes and gives CSMs full visibility into a customer’s activity.
Hiring a CS Ops leader is a critical investment at this stage. Once you have more than 5 CSMs on your team, it’s time to look for a leader who can guide them and help optimize their work.
Your CSMs have specific skills when it comes to supporting your customers. But, to make the impact they are capable of for your business, they need additional support.
Provide your CSMs with the training and resources they need to succeed. Give them opportunities to learn sales skills through online courses or onsite education, and create an upsell and cross-sell workflow that will take the guesswork out of processes. An excellent education system is Gainsight’s own CSM certificates accessed through the Pulse-Plus program.
These investments in your team will empower them to approach upsells with confidence, which means higher returns for you.
Metrics to Track Your Efforts
These metrics will tell you how well your scaling efforts are performing:
- NRR by segment
- Team Performance metrics
Chapter 4
Getting Buy-in From Your C-Suite
So, you’ve set your goals and created a strategy. Now the fun part begins—getting buy-in from your C-suite.
You can research strategies all you want, but they’ll boil down to one point: know what your C-suite wants and prove you can deliver it. Pop on your salesperson hat and turn the things you want into something they will want by offering actionable steps that directly link to ROI. You’re on the same team and share the same goals, and it’s up to you to explain that.
This leads us to our first point, which may sound familiar. Align your initiatives with the company’s initiatives. Prove how the investments you want to make will lead the company to reach shared goals. In a recent Gainsight blog, 5 Steps to Secure the Right Budget for a Well-Resourced Customer Success Team, we suggested that to get the budget you want and need to be ready to answer questions like, “What did your team do to impact the NRR of last year? What did it cost? What growth is possible with your proposed budget?” Why?
Compelling answers to these questions, along with the data to support your proposal, will help illustrate the ROI your organization can expect. Provide this information, and it will be easier to advocate for and receive the budget you need to create a fully resourced CS team.
Strengthen your side of the discussion by establishing an advocate for your initiatives. Proving that someone will take ownership of an investment, such as a new software tool, will provide accountability and give your executives peace of mind. One of the biggest struggles when establishing a solid CS strategy is creating cross-functional dependencies that you can count on. Do the legwork beforehand to get buy-in from your peers before proposing your budget to the higher-ups. When you show up with proof that someone will own the project and everyone is on board, you’ll be able to breeze over any doubts your executives may have.
Last but not least, don’t try to wow your executives with unobtainable results. There’s nothing like proposing that a new tool will shave 35% off your churn rate. Then, you break your back all year to end up with a result far below that estimate. Just imagine how they’ll react next year when you tell them another new tool will bring them great results. Spoiler alert: they won’t believe you. Instead of going the show-stopping route, offer realistic ROI and a concrete plan of action. Not only will you get what you want, but you won’t be losing sleep when the time comes to deliver on your promises.
Questions your C-Suite Will Ask
Assuming you’ve followed Tip #5 of our CEO’s Guide to Under-budgeting for Customer Success and Destroying Shareholder Value in the Process, you’ve put together a polished deck for your budget pitch, and all that’s left is to prepare for is the inevitable wave of questions. While the first thing on your C-Suite’s mind is the bottom line, how you leave them feeling at the end of your presentation can go a long way. Answer these questions with confidence, and you’ll confirm that you’ve done your research and can deliver the promised results.
- How will your goals drive the vision of the company?
- What do you have to trade to get them done and back up your vision?
- How much do you really care about your goals?
- Who are you dependent on?
Chapter 5
Widening Your Budget with Paid Services
Once you’ve tackled churn and set your sights on revenue expansion, you might consider providing professional services separate from your current Customer Success offerings. While this step isn’t exactly an easy one, these paid services can become a valuable source of revenue. However, there’s a lot of strategy involved.
At Gainsight, our professional services offering is not only a critical function that delivers meaningful results for our clients. It serves as an engine of growth for the company. By assuming the role of both solutions provider and tool vendor, you can offer prescriptive solutions using the tools your software already provides. You are in an ideal position to show customers direct applications of your product.
What will differentiate the paid services from our existing offerings?
To set your strategy up for success, align your offerings with your expertise. However, your paid services should differ from the ones offered by your client services team. For example, Gainsight focuses on helping companies establish a CS strategy or carry out the execution in our paid offerings. While our existing client services focus on a client’s success using Gainsight, our paid or professional services are more tactical, offering on-site workshops, requiring in-depth interviews, and involving the creation of strategy and collateral. In fact, in a recent blog, 5 Ways We Improved Onboarding NPS from +14 to +85 in One Year, Gainsight’s VP of Professional Services and Upgrades, Peter Wride, stated succinctly the importance of paid and professional services and how your offerings differentiate you from your competition.
Our professional services team, alone, has delivered +45,000 man-hours of consulting and onboarding services across hundreds of CS organizations.
Nobody – and I mean nobody – comes even close when it comes to working with the top customer-centric organizations, teams, and leaders in the world. If you have a question, chances are we’ve blogged about it. Hosted a webinar about it. Or presented about it at our annual Pulse conference. And if we haven’t – well, I guarantee you that someone in our community has the answers you’re looking for.
A useful method for developing your paid services is to look for patterns in the questions asked by your customers. In Gainsight’s case, questions fell into two buckets:
- When can we start?
- How do we execute?
So we created service offerings that helped clients achieve those goals. And one step further, we make our professional services second to none.
How will this org live within our existing framework?
Create a clean divide between paid and complimentary services by establishing two organizations, Professional Services, and Customer Success. While the two may share specific skills, the organizations will grow to look very different and be measured in totally different ways.
Once you’ve established the two groups, take some time to think about what role each will have in a customer’s lifecycle and assign metrics that align with those duties. Most importantly, provide your team with the resources and education they need to sell and execute your services.
At Gainsight, we worked cross-functionally and leveraged resources with strong consulting backgrounds to create compelling thought leadership and strategic assets. It’s critical that your team is armed with the skills and resources necessary to deliver on the initiatives paid for by customers.
