It’s really easy to get tangled up in the nitty-gritty when you’re building a new compensation plan for your CSMs. There are so many questions to answer. If you own renewals or expansions, which revenue goals make the most sense for CSMs? How do you tie your team to a meaningful revenue metric if you don’t? Should you focus on lagging or leading indicators? Most importantly, how do you choose a compensation model that will encourage your team to grow the business without losing sight of what makes Customer Success Managers so special – their ability to build trust that strengthens and deepens relationships with your customers?
To help start you out on the right track, I’ve distilled all the options down into four clear-cut compensation models you can use as a foundation to develop or revise your own CSM comp plan.
1. Base salary – i.e., the standard
Many businesses start with an exclusively salary-based compensation model for CSMs. This makes sense when you’re in the early stages of CS maturity because CSMs commonly get stuck in a general “duties as assigned” situation when Customer Success is new. They certainly do some CSM work, but they also often find themselves tackling activities like managing new customer onboarding or working on license activations and escalations versus doing proactive work on their named accounts.
Leading CS influencer, Ed Powers, is a big advocate of sticking to this model, even as CS maturity progresses. He believes that eliminating pay-for-performance in most CSM roles helps protect their status as a trusted, strategic advisor for their customers. If this path is something you want to look into, you can check out his presentation on it, Rethinking CSM Incentives. While the video is from 2019, the concepts he discusses still apply today.
This is not, however, universally accepted as the “right” model for all Customer Success organizations. ESG’s Director of Delivery, Colby Bock, explains the argument for moving away from this model as an organization matures, “As CSMs progress into more truly proactive CSM work, other models that include incentives can help them focus on things that are more impactful to retention and upsell. In my experience, CSMs at companies using a base salary only comp model still end up more focused on reactive work.”
2. Base salary + bonus tied to team goals
One strategy to uphold the principles of the CSM-customer relationship while still incentivizing revenue target achievement is to add a bonus based on team-level goals. This model encourages team collaboration, information sharing, and group problem-solving. The Harvard Business Review wrote a deep dive on this collaborative approach a while back, asking, “To what degree are our current metrics and reward systems stifling the kind of collective, collaborative work necessary to sell effectively as an organization? How can we signal to our reps that network performance is not only desirable but expected?” The answer, it seems, is by developing team-based objectives that motivate your CSMs to work together to continuously enhance the customer experience.
This is a good option for many businesses shifting toward company-wide goals tied to retention, expansion, and advocacy programs. These teams rise and fall together. However, there needs to be a level of sophistication to a CS program that enables the overall team’s success. I.e., can we present individual contributors with the account opportunities and data that enable their team’s success? Without this level of visibility, this model can lead to an inaccurate reflection of your CSMs’ level of performance.
3. Base salary + bonus tied to individual goals
This compensation model comes from sales organizations, and it’s the traditional approach to incentivizing up-selling, cross-selling, and renewal sales. This is tough to implement if your team doesn’t directly align with revenue (aka, have a quota). However, if you are one of the 55% of CS organizations that own renewals or 48% that own expansion as part of their CS charter, this comp plan might make sense for you. Individual goals could be tied directly to critical metrics like Net Revenue Retention or a combination of factors like usage and customer sentiment. It all depends on what’s most important to your team – just don’t forget about demonstrating your CS organization’s influence on overall company growth when you set your team’s individual goals.
Our own Colby Bock explains, “If the opportunity for renewal and growth exists for the CSM within their book of business, this can really work well. But you do have to be a bit careful with how it’s set up. For example, if CSMs manage renewals but not expansions, then within the breakdown of a CSM’s book of business, the CSM must have enough customers renewing in a given quarter for it to even be possible for them to hit their determined renewal target for that quarter. I’ve heard this debated, with some arguing that as long as they can be successful in the long-term, then the quarter they get paid out does not matter. But I believe the distribution matters to CSMs.”
4. Base salary + flexible factors
This option covers all the creative ways to add incentives on top of a base salary. From additional training and support opportunities to spot bonuses, there are many ways to motivate your CSMs while making them feel appreciated for all their hard work. A more traditional approach to this model looks like a base salary with additional variable comp split between different KPIs. A CSM might have a base salary plus 75% of their bonus tied to passing along Customer Success Qualified Leads (CSQLs) to the sales team, and the remaining 25% of their bonus tied to gross or net retention. Or, you might have different metric targets for different time intervals, like renewals as a yearly goal and product usage measured quarterly. Or, you might have individual bonus incentives and a team-wide objective.
I’d only caution not to go too overboard with KPIs and metrics. You don’t want your CSMs confused about their comp plan, not knowing which activities to prioritize. Keep your overarching CS objectives in mind and make sure the CSM targets support them.
Note that I didn’t include a completely bonus-oriented compensation model. Besides this being a pretty unfair way to pay anyone, it’s a particularly bad idea for CSMs to be paid purely on performance. CSMs must be able to focus on being an advocate for the customer – first, foremost, and forever.
KPIs to consider for CSM targets
- Net Revenue Retention (NRR)
- Customer Sentiment (CSAT, NPS, etc.)
- Product Engagement Score
- Renewal rates
- Churn rates
- Activity counts such as proactive reach outs, Success Plans created, Onboardings completed, customers converted to advocacy programs, etc.
- Quality – QBR/EBR observations
- Customer Success Qualified Leads (CSQLs)
For more inspiration on CS-specific metrics, check out Customer Success Definitions, Calculations, and Lingo…Oh My! But try not to get too bogged down in the particulars. When it comes to compensation models, it’s always better to err on the side of simplicity.