ARR per CSM: Industry benchmark and how to improve it

Written by Yuya Takada, Founder & CEO at Commune

“How efficient is our customer success?“ This is a question customer success leaders are often asked by the board.
ARR/CSM is one of the most important KPIs when we talk about the efficiency of customer success.
Here’s what it is, how much should it be, and the way to improve it.

What’s ARR/CSM?

ARR/CSM is the metric used to estimate the efficiency of customer success activities.

The larger the number is, the better from an efficiency perspective because it means a CSM can manage more revenue.

How do we get the number?

The way to calculate ARR/CSM is really simple.
You divide the total ARR today by the number of CSMs you have.
If you want to get a more precise number, you may want to exclude the CSMs not ramped up yet.
Typically you include Senior CSMs that are in customer-facing roles, but not CS directors that supervise the CSMs

How much should it be?

It all depends on your industry, pricing model, business phase, and so on.

However, from our experience supporting a lot of customer success professionals, we share the industry benchmark.

ARR$1M per CSM is the first milestone for high-touch customer success(≒enterprise customers) and ARR$2M per CSM for low/tech-touch(≒SMBs) oriented customer success.

You don’t have to be at this level in the early phase. Ideally, you meet this level of scalability when you hit $10M of ARR.

If the total ARR you have is <$1M, don’t be bothered by the efficiency. Your focus should be solely on your customer’s outcome and the quality of customer success activities.

Also, the appropriate number to achieve varies depending on the average salary per CSM because it all circles back to the profitability of your company.

Let’s say you have to achieve ARR$1M/CSM if the average compensation is $100K/year for a CSM.

You can target $0.9M ($1M multiplied by 0.9x) if the average comp is $90k/year per CSM.

ARR/CSM can vary within the organization

ARR/CSM is a metric to estimate the efficiency of the company/business as a whole. It doesn’t have to be the same across the organization.

For example, a senior CSM handles selected customers in a difficult situation (e.g. not enough value perceived) intensively. Their ARR/CSM might be lower than the company average or even than new joiners, and it’s OK as long as it aligns with the company-wide customer success strategy.

In my opinion, ARR/CSM is a metric that CS directors should be cautious about and improve, but not CSMs.

How to improve ARR/CSM

There are a couple of ways to improve ARR per CSM at your business.

Prioritize customers

Not every one of your customers gives you the same value. Some pay you $10k/month while others pay $1k.

It sounds so boring and basic, but are you sure the time spent on each customer correlates with the revenue/customer?

The answer would be no in most businesses. CSMs often prioritize customers that speak out loud, that they are familiar with the business model, that they find it unstressful to chat with the person in charge of utilizing your solution, etc.

This often includes adjusting the expectations of your customers. If your customer believes they deserve a weekly 1hr call with your CSM though they pay only $100/mo, you have to fix this.

Identify what takes time of CSM in a customer journey and improve it

It’s highly recommended to draw a customer journey along with how a CSM takes part in it, to start with.

Then, figure out how much time is spent on each step of the journey on average.

Now you can identify which step/task takes too much time. That might be a bottleneck.

Figure out how to improve the time spent on it. Possibly by…

1) Delete/reduce the task: Some tasks are done just because it’s historically done so although the value to customers is limited.

2) Downgrade the employee level for the task: Does a senior CSM work on a basic task? You may be able to ask junior CSMs or interns to take care of it.

3) Create a playbook/template: Does a CSM work on the task from the scratch every time? 3 is a good number for considering creating a playbook. If a CSM does exactly the same thing three times in a quarter, you definitely should consider creating a playbook/template.

4) Improve tech-touch/digital customer success communication: see below

Reinforce digital customer success communication

Effective tech-touch (digital customer success communication) is a key to scaling customer success and improving ARR per CSM.

This includes setting up a knowledge base, building a forum, and creating a place where customers can self-learn, but those are not enough.

You have to keep in mind that digital customer success communication isn’t as effective as a high-touch (labor-intensive approach), in general.

The key to successful digital customer success: Provide a one-stop-shop to your customers where all the customer communication is personally optimized.

To make tech-touch customer success more powerful than high-touch, you should provide one place where your customers can enjoy all the customer success communication and where all the customer success communication is optimized based on the customer persona/activities.

Many SaaS companies are now turning to Community Portals to solve customer success problems. Community portals help SaaS companies realize impactful customer success in an affordable and scalable way.

Community portals are a seamless, one-stop shop for customers.

With community portals, customers no longer have to get lost using ten different communication channels. From product feedback to live chat support, customers can find what they need quickly and easily without having to search through multiple channels.

A community portal unlocks the power of VOC (voice of customers).

A community portal is a perfect platform to collect customer feedback and ideas. A community portal provides a space for customers to give feedback, upvote ideas, and vote on features — all in one place. When customers feel like they are part of a community and have a say in the product, they are more likely to be loyal to the brand.

Additionally, a community portal enables SaaS companies to build strong relationships with their customers. By engaging with customers on the platform and responding to their concerns, SaaS companies can show that they care about their customers and are invested in their success.

Companies can provide a personally optimized experience to each user.

Community portals provide an opportunity to get to know your customers on a deeper level. By understanding their communication needs and preferences, you can optimize the user experience for each customer. Companies can create custom groups and give customers access to content tailored to their needs.

Let Commune Transform Your Customer Success Story

Commune is a leader in customer success community portals.

We support hundreds of customers and help SaaS companies seamlessly scale their customer success. We offer no-code, customer-status-based community experience control, a communication workflow, and a 24/7 monitored secure platform — an exceptional value for our customers.

Curious about whether a community portal can work for you?

You can sign up for free right here.