As presenters at ChurnZero’s BIG RYG 2022, Jordan Olivero and I discussed segmentation, tiering, and capacity planning in our session: Financial Modeling for Customer Success: From the Top Down and Bottom Up. The question 100+ CS leaders showed up to answer was: “How do I cover my entire install base of customers in the most efficient way possible?” Our recommendation is to focus on the fundamentals. Far too often, we see companies lured into the trap of advanced capabilities without having a strong foundation established. We get it. The basics don’t quite have the same appeal as that shiny new tool you’ve had your eye on. And we suspect that’s why most leaders tend to gloss over this topic. But mastering the fundamentals is a proven way to move the needle. In fact, organizations that establish effective segmentation and tiering tend to see an average retention rate improvement of 9% and an average expansion rate improvement of 7%. So back to the big question: “How do I cover my entire install base of customers in the most efficient way possible?”

Segmentation and tiering both look to answer this question from a top-down perspective. Grouping your customers by common characteristics drives efficient engagement and enables a more personalized scale strategy. For example, you might want to consider interacting with your customers in manufacturing quite differently than you would with your customers in the government sector. They have different personas, needs, wants, budgets, etc. Once the right engagement strategy is determined, financial parameters must be established so that we know what level of engagement is actually feasible from an economic standpoint and what return to expect from that engagement.

Capacity planning is where the rubber meets the road. Chances are, you’ve made some assumptions based on your top-level data and financial metrics, and now you have to reconcile them against the actual level of effort it’s going to take to execute your customer engagement strategy. Capacity planning is the other side of the equation – the bottom-up foundation you build to make your goals a reality.

In our free Tiering and Capacity Planning Workbook, we’ve outlined all three capabilities to help Customer Success leaders advance their understanding of these foundational elements of scale. The workbook is meant to serve as a launching point for these exercises within your own CS organization. In this article, I want to draw your attention to capacity planning and how CS leaders can begin estimating their efforts in a more data-driven way.

Capacity planning turns squishy guesswork into strategic decision making

One of the biggest challenges we see CS leaders face is the dreaded annual ask to Finance for more resources to achieve the lofty goals that continue to grow year-over-year – and coming out of those conversations empty-handed or with only a fraction of the requested headcount.

Part of the problem is that these discussions are often based on soft logic or guesswork on the part of the CS leader. You know in your gut that you need more CSMs if you’re going to reach your NRR goal. But without hard numbers, it’s challenging to make your case.

Capacity planning turns squishy speculation into concrete data. Using a tool like the Tiering and Capacity Planning Workbook, you can break down the activities of each customer engagement tier into actual hours of CSM time and estimate the yearly capacity you need to hit your growth targets. Not many Customer Success organizations are taking the time to map out these numbers, but it’s an exercise you should seriously consider, especially if you’re aligning your organization’s goals closer to revenue. Many are – 61% of CS charters include expansion as an area of responsibility. If you want to speak the language of Finance, proper capacity planning is a must.

To build from the bottom up, you need to get granular

The good news is that it’s not difficult to quantify these numbers. You just have to take the time to do it. You’re essentially deconstructing all the time your CSMs spend executing your operating model. So, the first thing you have to do is make sure you have the right operating model. It’s less about what you’re doing today and more about the model that will get you to your NRR goal.

Start by breaking down all the proactive tasks your CSMs need to accomplish in order to meet the NRR commitments you’ve signed up for. We recommend categorizing this into lifecycle phases so you can calculate level of effort by phase. Finally, how many hours of effort does each of those activities actually take? Include all the steps of the activity, like prep time, execution, and follow-through.

Lastly, you need to map out all the reactive time CSMs spend in their day-to-day work. Internal meetings and training and development will also impact a CSM’s capacity, as will any time they’re spending pulling reports, developing processes, or enabling other teams. A big part of this breakdown will also include escalation management. No matter how much we wish it, no CSM gets to spend all their time being purely proactive. There’s always a balance.

Once you’ve calculated the total number of CSM hours you’ll need to execute your model, you can compare it directly to the actual number of hours a CSM will work in a year. You’ll see precisely how many CSMs you need for each customer segment to scale your customer growth. Needless to say, this exercise can be pretty eye-opening!

By the end, you’ll be better equipped with the tools you need to have strategic conversations with Finance. With real numbers and hard data to back up your resource requests, you’ll be able to see eye-to-eye. You’ll develop a stronger relationship with Finance, and you’ll be more prepared for higher-level discussions with executive leadership.