Where should Customer Success sit on the P&L?

A common question for Finance teams at companies with a Customer Success function: should you categorize Customer Success in Cost of Goods Sold (COGS) or within OPEX as a Sales and Marketing expense (S&M)?

There’s an age old tension for CFOs to shuffle the costs into Sales, keeping it out of COGS and protecting the company’s gross margin. A higher gross margin indicates scalability and leverage in your operating model. And a lower gross margin drags down your customer lifetime value calculation.

If we’re being honest, costs in Sales aren’t scrutinized to the same extent as they are in COGS.

However, Sales and Marketing is not always the most academically honest place to put the group. We can delineate based on activities and goals. But first, let’s define the difference between Success and Support.

Customer Success and Support are often used synonymously, while their activities are very different.

Customer Success professionals are typically responsible for ensuring users get the full value out of the product so they retain as customers, and are well positioned for expansion and upsell opportunities. Who exactly performs these expansion and upsell opportunities we’ll get into momentarily.

Customer Support, on the other hand, is typically responsible for break / fix type requests. There are varying levels of Customer Support - Tier 1 being “I forgot my password,” and Tier 3 being “The recent update messed up my cloud configuration.”

Customer Support, unequivocally, belongs in COGS.

Customer Success, on the other hand, is more of a grey area.

Here are the criteria I use to assess where it should sit: