Capacity & margins | Jeff Kushmerek

[Dillon] (0:00 - 0:14)

Oh, Lordy. OK. Yeah, actually, that sounds great.

What's up, Lifers? And welcome to The Daily Standup with Lifetime Value, where we're giving you fresh new customer success ideas every single day. I got my man Rob with us.

Rob, you want to say hi?

[Rob] (0:21 - 0:22)

What's up, Lifers?

[Dillon] (0:23 - 0:27)

And we have Jeff with us.

Jeff, do you want to say hi?

[Jeff] (0:27 - 0:28)

Hello. How are you?

[Dillon] (0:28 - 0:41)

He's just gesticulating quietly, slowly in the background. And I am your host. My name is Dillon Young.

Jeff, thank you so much for being here. You and your shacket. Can you please introduce yourself?

[Jeff] (0:42 - 0:53)

Absolutely. My name is Jeff Kushmerek. It's phonetically correct.

And I'm the CEO of a company called Infinite Renewals, where we help companies scale or fix broken processes.

[Dillon] (0:54 - 1:05)

Very cool. Well, Jeff, you know what we do here? We ask every single guest one simple question, and that is, what is on your mind when it comes to customer success?

So can you tell us what that is for you?

[Jeff] (1:06 - 2:09)

These days, it's been very focused on a topic of how many CSMs do we need and what's their coverage? How many customers should they should have? Probably because it's conference season.

Everywhere I went, people heard what I did, especially since they weren't CS conferences. People were like, oh, I got to ask you this question. And then it would start getting into math.

So that's been on my mind. We put together a report. I started doing a lot of analysis of what was out there and wanted to give something that I could answer without the classic, it depends, because there's a lot of factors that go into it.

So we took a look at the standard thing, which I call the Lemkin rule, which is, hey, every CSM should have two million for the book of business. I'm like, what if you're selling licenses at $500 a year? Like, how many does it take you to get to that?

So we just put this report together, and we've been talking about it a ton. So that's what's on my mind, because I'm of the mindset of, hey, I could answer that for you, or you could just go look over here. So I like to say, go read this book, or look at that podcast, or something like that.

[Dillon] (2:09 - 2:20)

Mm-hmm. Yeah, yeah. It's interesting, because I always err on the side of it depends, because I find that any other answer is missing something.

[Voiceover] (2:21 - 2:21)

Right.

[Dillon] (2:21 - 2:43)

I think anybody, and especially when you're consulting, which both of you guys do, it just feels like it's so hard to say, you know, to the Lemkin thing, like, it's got to be two million, right? I've done 10 million, and it's been fine. And I've done two million, and it's been really freaking hard, for the same reason you said.

So tell us a little bit about, like, maybe the methodology, and what the conclusion was.

[Jeff] (2:44 - 5:20)

Sure. So the first thing I said, we have a lot of data on our side, because of our client base. We had about almost $2 billion in revenue from AR, that we just started pooling through, where we had some people selling, right, $20 million contracts, and you had some people selling $500 a month, or monthly basis, things like that.

I've got somebody on my team who's amazing on that. Funny, that person, we both grew up in professional services. So we came up with, how many minutes of a day do you have in a month, and things like that.

So when we talk about the it depends, there were some factors that really went into it. First of all was, how much time do you want your CSMs to be spending with your customer? In the classic sort of chart about how many hours there are in a month, it was like, are you okay with your CSM spending only one hour a month with your customers?

Okay, so pick what your engagement model is first. Then you can start working in what your average contract values are, and things like that. There were some other factors that we brought into that, which are, are your CSMs doing one or two or both of these things, which are support and implementation.

So we did some polling, and the current polling showed that over 55% of CSMs were still doing implementation, and when they do, it takes up over 50% of their job. So if you get an implementation, or you're doing that, 50% of your time is spent doing that, instead of doing proactive CSM stuff. Will you even have time for an hour for each of your clients, basically?

Some people are spending 70% of their time on support tickets. Yeah, and obviously 70 plus 50 gets over the 100 mark, but it becomes impossible at that point in time. Then you start wondering why people can't do any proactive activities.

It's because they are just driving after fires all the time. So we put together, it's a classic, it depends, but we put together a choose your own adventure thing, what's your revenue, what's your number of customers, how much time do you want them to spend doing proactive work, and then looked at some stuff that was out there. Even Reddit had some great stuff, because Reddit's a little different than LinkedIn.

It's actual real stuff happening there. It's not this other thing. And then also factoring in the digital element, there are certain breakpoints where it just doesn't make sense to have a one-on-one interaction with your customers.

And so we got into the whole digital pool element as well too, and how that can balance out. What's your segmentation and service model? It is very data-driven.

I'm not going to lie, I bore the crap out of a lot of people, but it's also, I think, is very helpful in getting you right to the numbers that you need.

[Dillon] (5:23 - 5:33)

So there is no straight up answer, basically, like it is that you've got, is it an Excel sheet basically, or did you turn, it's probably, you turn it into the website where people can enter their information.

[Jeff] (5:33 - 6:33)

I didn't do the benchmarking. I could, if I immediately got a request for that afterwards, but it's more of an Excel thing at the end of the day where we show you how to run that calculation. And yeah, I think there's a Lemkin rule.

And then the Gainsight team did some stuff and they actually have a site where you can go and do some configurations, but they don't bring in some of the other factors that we talked about. But, oh, if you're running out, like I think the Lemkin stuff was based on, okay, we're selling average deals of 50 to 75K a year, X, Y, and Z, that's when those numbers work out. I think why it's dangerous to go with blanket statements and numbers is because most companies sell to different segments and you should have delineated different service level tiers.

Sorry for being commercial here, but if my average contract value is 75K and then we sell a bunch of things at 3 million, those people at 3 million are gonna get treated a little bit differently than the people at 75K and also the people at 5K.

[Dillon] (6:34 - 6:37)

So, yeah. Rob, why don't you jump in here?

[Rob] (6:38 - 6:47)

I'm thinking about a conversation I just had just before we started recording today because I got this exact question. Jeff, I'm sure you get this question all the time too.

[Jeff] (6:47 - 6:49)

It's literally like every day, yeah.

[Rob] (6:49 - 7:15)

Isn't it crazy? Because everybody thinks there is this North Star. And the conversation that we had was actually, it was reminiscent of my last full-time job.

I got frustrated with the question coming from my CEO and I eventually was just like, why do you care? Why do you care so much about how many accounts and how much revenue CSM is owning? Take that a step further for me.

What are you actually reporting to the board on that they care about that you need to prove? And he was like, it's margins.

[Jeff] (7:16 - 7:25)

I was like, ah, okay. I feel like in the last 14 to 16 months, they've been really looking at the revenue per employee number.

[Rob] (7:25 - 8:47)

Yeah. Well, and that was problematic for me because when I was at that company, we did this rapid shift as most companies did from this growth at all costs mindset to the margin focus. I happened to not be in those board meetings where that shift changed, which was a bit of whiplash for me.

But then I was like, okay, scrap all these models that we've made around headcount planning. And basically what we discussed was, anyone listening who's new to some of these more financial metrics, when you're thinking about margins, really like the thing that you have most control over in customer success is your cost of goods sold, your cost of revenue, which is inclusive of not just like the cost of the team, which is support and CS, but it's other things too, like service consultants like you and me, Jeff, it's inclusive of things like server costs, some software providers. And so basically, if you look at this Northstar metric of where most companies want to show that they've got only 20% of their revenue is going towards those costs or they have 80% margins, then it starts to trickle out.

Okay, when we factor out all these other costs, we subtract out all these other costs, these supporting costs of revenue, then how much does that leave us to pay our CS team? And if the numbers work out with five accounts per CSM or 150 accounts per CSM, still getting you to those margins, most leadership teams I've worked with, they're fine with that outcome.

[Jeff] (8:48 - 9:42)

So if we're talking startup, like it's a much different game. And we actually put something, some of that in the report, because you are making up for things that aren't in there. Most companies typically don't have admin interfaces when you're at the 5 million range, right?

So your team's going in there and doing a lot of that stuff. You know, when you're in those early days, I also like to say, be on the lookout for these warning factors, right? Because what happens is people read a report and they get told something at the board and then they're like, we got to go do this.

And what are the warning factors, right? Are your customers churning? Are people getting failure to launch?

Are people burning out and leaving? And so the cost to replace them is getting high and you're bringing in recruiters and all that other stuff. Those are factors that you need to really look at in your first 10 million there.

And so those types of reports, not really the greatest for that. Everybody's going to be doing all the jobs for the first 5 million and then you start splitting up after that, hopefully.

[Dillon] (9:43 - 9:49)

This is cool. Jeff, that is our time. But where can folks get this report or learn more about this research you did?

[Jeff] (9:50 - 10:02)

Oh yeah, look at my profile on LinkedIn, which you might have or whatever we post. But it should be one of those highlighted posts there. They can just click on that and grab it there.

And it's all yours from there. You know, fire questions away after that.

[Dillon] (10:03 - 10:23)

Sounds good. Well, thank you so much, Jeff. I do think that this is interesting if we could get more scientific about the way we do these things.

And to the point Rob was making around the board, right? Because that's typically where this is coming from, right? Is the board is handing down these mandates.

If we had more ammunition to have more informed conversations.

[Jeff] (10:24 - 10:43)

And instead of a motion in the boardroom when you're making these arguments, you typically hear, oh, what was me? We're so busy, X, Y, and Z. You can break that down into the numbers and show everything that you're looking for.

That's how you win these arguments, these cold numbers. So hopefully people can take that. They can start working with their bosses and go from there because they should be able to make these arguments.

[Dillon] (10:45 - 10:50)

Very cool. Jeff, we'd love to have you back in the future when you do another backbreaking report like this. We can educate you.

[Jeff] (10:51 - 10:57)

So we'll definitely, we'll chat about that. Back to back here. Thanks for having me.

I appreciate it.

[Voiceover] (11:25 - 11:32)

Until next time.