CS is not a profit center
CS is not a profit center
Why it’s important to understand that and what you should do about it
👋 Hey, Toni from Growblocks here! Welcome to another Revenue Letter! Every week, I share cases, personal stories and frameworks for GTM leaders and RevOps.
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The title of this article is going to make a lot of CS folks out there very mad.
But before you unfollow and block me, give me a minute to explain.
The current narrative in SaaS is that Customer Success should be treated as a profit center.
And it makes complete sense.
Sales cycles are finite (as in they’re won or lost, and the AE moves on), but CS can perpetually hold that account through renewals and expansion.
Past 50M ARR, you will earn more revenue through expansion than newbiz.
A 5% increase in retention can mean up to 95% more revenue.
And through the power of compound interest, just a 1% increase in renewal and expansion can make a huge difference in terms of CLTV.
All absolutely valid points that I 100% agree with. And it’s why CS plays such an important role in every SaaS company (are we friends again, CS folks?).
In a perfect world, we should treat CS like a profit center, exactly like we do with Sales and Marketing.
But we don’t live in that perfect world.
And there are a few key problems that hold the right side of the bowtie back.
Where does upsell come from?
Let’s do a thought experiment.
Imagine that you hire 100 CSMs to cover your 100 customer accounts.
What would happen?
Would they get more upsell out?
Would you get more money out of these accounts?
The answer is, maybe a little bit.
For example, if I 10x my SDR team, I can predict that we’ll 10x-sih our opportunity production.
But at the same time, if I 10x my CSMs, it would be crazy to say that I’d 10x my upsell (or renewal for that matter).
So why is that?
Most companies don’t really understand where upsell comes from in a bottom-up fashion.
We know we want to help customers get more value and ideally pay for it. And that starts with the customer having a great experience with the product and the CSM having great coverage to engage with those customers.
But beyond that?
“Who knows!”
Frankly, upsell deals are finite
How many deals can you even upsell?
Let’s say you have 1000 customers, and you’re able to upsell 10% of that.
If we never change those customers, how long can you realistically keep upselling?
Maybe once or twice… but can you do it 5 or 6 more times?
The answer is no.
(Unless you’re selling to Uber in 2008 or Snowflake in 2011, but only the rare companies have that kind of growth).
Eventually, you are going to run out of stuff to sell. Whether it’s seats, credits or features.
Just give me a reason
My VP of CS used to hate it when I asked her this:
“Can you give me a reasonable explanation of why I should hire one more CSM instead of ____?”
It could be another SDR, more marketing spend, or really anything on the newbiz side.
Admittedly, it's a shitty question because it's difficult on the CS side to prove it.
And that is because cause and effect for most teams is very, very murky.
And that is a HUGE problem.
CS is missing Go-to-Market Fit
If we want to treat CS as a profit center, we need to treat upsell like the motion it actually is.
The hard truth is if you were to apply these problems to the left side of the bowtie, then people would immediately go, “Oh, you don’t have go-to-market fit.”
If you want to get to GTMF, you need to prove that what you’re doing can be done scalable, repeatable, and profitable.
Or in other words:
Can you spend more to expand more accounts? (scalable)
Can you expand accounts predictably? (repeatable)
Can you prove that you will make money on it? (profitable)
I would challenge that most folks don’t have Upsell GTM-Fit. We simply don’t know where to spend another dollar to get another dollar out.
And it’s not only about which role to hire. But also, what is it that they do that drives upsell? And how can you get them to do more of that?
These are all very difficult questions to answer (which I think the best companies out there have to a point).
But at the end of the day, until you have the input & output logic of your right side of the bowtie, It will be incredibly difficult to meaningfully increase your NRR.
And as long as that is the case, your CS team will land in the bucket of being a cost center that needs to be chipped away from year over year.
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