Tapped Out
By Russell Bourne
I’ll never forget the exasperation I heard from a Senior CSM on my team: “These accounts are all tapped out.” He handled an account list from our strategic customer segment, which meant he had a small handful of high-revenue accounts.
The good news? He was an outstanding CSM with high customer retention to show for it. These customers had been with us for years, and moreover he’d been their CSM for years.
The bad news? He was also an outstanding expansion salesperson and had already sourced, and won, expansion sales opportunities with these accounts. And they were legitimately tapped out. There was simply nothing left to sell them, until our company released new products or the customer companies made acquisitions of their own. Of course, he could control neither one.
The ugly news? It was January, and executive leadership had issued fresh quotas that still mandated 110% net revenue retention. It was an impossible goal to reach. Our net new sales team wasn’t necessarily targeting whale-sized customers anymore, so his list was static.
He felt completely demoralized, and as a leader it was my responsibility to properly manage both down and up. Here’s how.
Managing Up
For the purposes of this article, “managing up” essentially means reporting an accurate forecast to your company’s CFO. Regardless of how many layers of people exist between you and them, it’s worth your time to talk with them about how they create forecasts so there’s mutual understanding that both parties know how it’s done. They’ll trust your numbers if you use their methods.
A quick refresher for the uninitiated: here’s how most corporate finance teams use your CRM to forecast revenue.
They choose a time period, usually something like “now through the end of the current quarter”, “some future quarter”, or “now through the end of the current fiscal year”.
They sort opportunities by stage, i.e., they group together all deals at 90%, 75%, 50%, and so on. Correct CRM hygiene means that each deal is staged at its likelihood of being won by its close date.
Within each stage group, they add up the deal sizes and then multiply by the stage percentage. For example, if all the deals at 50% stage add up to $1m in revenue, and by definition all those deals are 50% likely to be won, then they can expect $500k in revenue to come from those deals.
They may have final details to tweak with respect to term length, time to revenue recognition, and so on, but that’s the basic gist. As you can tell from step 2 above, a CS team must correctly manage renewal opportunities as well as expansion ones.
All of the above in place, here’s how to tie it all together.
First, and most obviously, your team’s pipeline has to be in good shape. This can be problematic. Every individual contributor knows what it’s like to have a manager nag them for pipe updates, and every manager knows the other side of it. The missing piece of change management leaders need is to explain the “why” to their reps. Forecasting isn’t your corporate overlords micromanaging you; it’s deciding when and how to invest more where it’s needed. Sometimes people think it’s good to beat your forecast; it’s not. A CFO may see a certain forecast and then decide to pause hiring, or even lay people off. How disastrous that would be if it turned out the money would be there the whole time. I digress.
You can certainly save yourself a lot of time on pipeline accuracy on renewals by having your renewal opportunities auto-created at a stage that is your average retention rate. You could even customize the stage number by segment. That way, your pipeline isn’t flooded with 10%-stage renewal opportunities that might give a CFO the idea that you’ll only be winning 10% of those dollars.
Second, whatever your forecast is, be loud and proud about it. Don’t assume someone in finance is as close to the reports you are, or is in the weeds with what’s behind it like you are. Make sure your forecast is front and center in any internal forecast call, and socialize it appropriately outside of meetings with key finance and revenue folks.
Managing Down
As this article started, the CSM on my team was not only being honest with me, but he was also demoralized at the idea of an unrealistic quota. Just because he had 20% dollar expansion 2 years ago, doesn’t mean that’s possible this year. In fact, because he did it 2 years ago, it’s less likely this year. Even worse, the blind corporate expectation of perpetual growth was going to hit the CSM directly in the wallet; his variable income would be less year-over-year.
As a leader, it’s tempting to offer the idea of a lower quota. You should not make that offer unless it’s in stone. It’s also tempting, and would be completely correct, to use the sports analogy to do your best, and let the score take care of itself. If 98% NRR is the best possible outcome, you could reasonably feel good about hitting it. Again though, if your quota was an unrealistic 110%, the pat on your back didn’t backfill your income.
This is where outside incentives start to play a part. We often hear about them in the context of negotiating an offer for a new job, but they can be used here too. A short list of ideas would be extra time off, an extra benefit, freedom to explore areas of interest, possible company sponsorship into those areas, SPIFs that are actual money, and so on. Back to managing up for a moment, as you seek approval for these things you can certainly compare their cost to the cost of employee turnover.
A bonus tip: at year-end planning time, make a whitespace chart for a better view of what’s possible, before quotas are handed out.
Looking for ways to manage up to finance and manage down to a rockstar rep? The Success League is a customer success training and consulting firm that helps build exceptional CS teams. Visit TheSuccessLeague.io to view our full offerings.
Russell Bourne - Russell is a Customer Success Leader, Coach, Writer, and Consultant. In a Customer Success career spanning well over a decade, his human-first approaches to leadership and program management have consistently delivered overachievement on expansion sales and revenue goals, alongside much friendship and laughter. Russell serves on the Board of Gain Grow Retain as co-lead for Content Creation. He is passionate about equipping individual contributors and business leaders alike to lean on their Success practices to grow their careers and help their companies thrive. He holds a BA from UCLA, and in his free time plays guitar semi-professionally.
