Capacity Planning for Customer Success: A Practical Guide - SmartKarrot

Capacity Planning for Customer Success: A Practical Guide

Customer success capacity planning is not rocket science if you keep things simple. All you need is a simple formula that works for every situation.

Customer Success Capacity Planning

Simply put, to calculate customer success capacity planning, you basically need just two information:

  1. Number of hours needed per month for all your customers (A).
  1. Number of hours a CSM can allocate to customers in a month (B).

So, the number of CSMs you need (C) is:

C = A / B

Is it that simple? Of course not. There’s so much more to it. Let’s explore!

Companies often look at the customer success capacity planning in two more ways that include:

  1. How many customers a CSM should handle?
  2. What is the total ARR a CSM should manage?

The problem with starting with these approaches is that there is no definite answer to it. Many considerations must be made based on different factors. E.g. if a CSM is expected to handle 30 customers then how many of them should be high-value, mid-value or small-sized? Or, if a CSM is handling $10 million ARR then how many customers of different sizes fit into that? What are the different levels of engagement needed for different sized customers?

So, the point is, the above two perspectives make it more complex if you start with them. Hence, to simplify things, we must talk in hours, which is the common thread across all kinds of customers as well as CSMs. And based on that, if customer success team allocation is done, it gives us a more realistic picture while also answering the above two questions.

Calculating hours needed for all customers

To begin your customer success team set up, you need to calculate your total customers’ hours separately for three segments – small, medium and large – availing low-touch, mid-level and full service respectively.

Full service

A full-service package that an enterprise customer success manager would be offering may include the following services:

Full-service package for customer hours calculation to set up customer success team

Note that all the activities listed above may not be happening every month. Few might be once a quarter, while others might be once in six months. Yet an average monthly hour is included here by breaking down the overall time required on a monthly level.

Mid-level Service

A mid-level service agreement for mid-size customers may include the following activities:

Low-touch Service

A low touch customer success service package would mostly have automated communication mode directed from 1: Many. The in-person meetings or calls would not be a part of it and there would be very low levels of personalization for the customers falling in this small-size bucket.

Aggregating hours for all segments

So, assuming you have 50 large, 100 mid-sized and 500 low-value customers, then your total hours needed for entire customer base (A) would be:

Total hours for all customers (A) = (50 x 24) + (100 x 14) + (500 x 6) = 5,600

Calculating hours per CSM

Assuming a CSM works 40 hours a week, their monthly hours at work would be 160 hours. All these hours cannot be assumed to be put into direct service to the clients. They have various other activities too in their daily routine, that include:

Hours per CSM calculation

So, approximately 60 hours are spent on internal activities which leaves them with:

Total hours a CSM can spend on clients (B) = 160 – 60 = 100

Total number of CSMs and CSLs required

So, the calculation becomes simple now. Total CSMs required would be total hours needed for all clients divided by total hours per CSM:

Number of CSMs required = 5600 / 100 = 56

Assuming a CSL can manage 14 CSMs, then the total CSLs required would be:

Number of CSLs required = 56/14 = 4

Customer Success Capacity Planning according to Economics

So far, we saw the customer success capacity planning based on hours. But it won’t make sense if the revenues from your customers don’t leave enough margin after considering customer success cost.

Assuming a CSM’s annual CTC is $100K, then cumulative value of the customer’s ACV they handle must be somewhere around $1 million to $1.5 million to leave a scalable profit margin after considering various other costs like company’s running expenses, CSL’s cost, customer success tool cost, etc.

To compensate for overspending

If CSMs are not available to handle more accounts than their monthly customer success capacity, then, for a profitable margin, you need to either shrink your services or hire more CSMs.

For the former case, you may do the following:

  1. Improve or automate your onboarding, or may use onboarding templates.
  2. Simplify your product for the customers to require less support.
  3. Provide more training assets
  4. Create self-servicing tool kits

In the latter case where you cannot shrink your service but rather have to hire more customer success managers for dedicated service, it is advisable to charge your clients. You may offer different service packages at different rates and make your customer success service chargeable.

To start off with charging for customer success service, you can do the following:

  1. Create different packages for each customer segment.
  2. Translate each activity into customer value that they would understand
  3. Set up a price for each service package
  4. Start testing this with a small set of customers to avoid any possible damage

Increasing price for existing customers must be done strategically to avoid attrition.

Wrapping Up

Customer success capacity planning is a crucial stage in setting up your customer success team. This is not a onetime process because the employee-base and customer-base are always in a state of flux, at least a fraction of it. Hence, you need to always keep improvising to meet your needs. Yet, the core calculation remains same and simple if you talk in hours rather than in ARR or number of customer accounts.

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