Is your CSM compensation plan simple, scalable, and ROI positive?

One of the most important tasks for any leader is to build the right compensation model to motivate their team, while ensuring that the compensation model also yields meaningful and measurable returns for the business at large.

While this is obviously important for any function, we’d argue that it’s especially important for Customer Success: CSMs are notoriously pulled in many different directions and manage a myriad competing priorities across stakeholders and customers – and to make matters more difficult, CSMs work on metrics like Net Dollar Retention that are often difficult to measure or meaningfully move with conviction on a day-to-day basis.

In this post:

  • We’ll share 2021 benchmarks for CSM compensation and set the stage for what current CSM compensation looks like today.
  • Secondly, we’ll cover why applying a one-size-fits-all model for CSM compensation is potentially ineffective and misplaced.
  • Finally, we’ll outline a few main models you can use to structure a scalable compensation plan for your CSM organization, along with a downloadable worksheet you can use to calculate ROI and model forecasted costs/returns for your own team.

Already know what you're looking for? Jump straight to the commission template at the bottom of the page.

A quick review of current state

Customer Success models are heavily split between fixed vs variable/bonus plans – and total compensation varies heavily across experience, title and areas of focus.

According to a 2021 survey from Catalyst and Thrive Network:

  • 51.5% of Customer Success professionals are on fixed compensation models, while 48.5% have adopted variable compensation models.
  • For those who have variable compensation, 60% of respondents reported that over 15% of their total income is variable.
  • Due the still relatively new adoption of Customer Success as an independent function, only 42% of respondents indicated that they have been in Customer Success for 5 years or more.
  • More surprisingly, 30% of respondents indicated that they have fewer than 3 years of experience in Customer Success.

According to a survey of Customer Success professionals by Totango, eight elements were cited as the most influential components of their compensation plan:

  • Team/Company Performance
  • Renewals
  • Net Retention
  • Upsells
  • Account Health
  • NPS
  • Feature Adoption
  • Onboarding & Training Milestones

The debate on revenue ownership

Where CSM compensation plans differ often comes down to whether Customer Success teams are incentivized or responsible for a key metric – increasing revenue for the business.

Here are the key arguments and considerations for each model:

No, Customer Success should not be incentivized on revenue.

Primary argument: The primary charter of Customer Success is to make customers successful, and all inputs should drive towards that goal. To be a true partner and advisor to a customer, you need to develop trust. Introducing revenue responsibility by way of upsell/cross-sell and churn management-based compensation elements, effectively “muddies the water” and leads to a mismatch of incentives between the Customer Success team and your customer base.

Considerations: If you structure your compensation plan around this philosophy, your compensation plan will likely leverage a mix of non-revenue KPI’s such as NPS, implementation completion, feature adoption, and product engagement.

What this tactically looks like: Base + Bonus (determined from performance on OKRs or MBOs)

Yes, Customer Success should be incentivized revenue.

Primary argument:  When Customer Success owns the customer account immediately post-sale, the customer now has a one-stop shop for onboarding, implementation, account management, upsells, and renewals.

Additionally, by aligning Customer Success with the revenue line, the team (and therefore the customer) hypothetically get a better seat at the table. In theory, a Customer Success team that owns revenue will get easier access to internal resources such as product, engineering, and the executive team. In turn, this will generally lead to a better customer experience, and ultimately more revenue for the company.

Considerations: If you choose to structure your compensation plan around revenue KPI’s, it may be easier to justify headcount, tooling expenses, and team expansion as the return on investment becomes much more visible.

What this tactically looks like: Base + Commission (determined from performance on upsell and/or renewal)

What do these models look like, really, when implemented?

Most commonly recommended for Enterprise: Sales owns new logos, expansion, and renewals

In this model, the sales team owns all commercial aspects of the relationship with the customer. A collaboration forms between the account owner on the sales team and a CSM as they work together to win expansion and renewal opportunities. The CSM is the point-of-contact for the customer on a day-to-day basis and has the primary responsibility of driving adoption and implementation on the way to value delivery.

When does this work well? Model 1 tends to work well for complex, long-cycle, sales that require intense negotiations and high average contract values. If this is the case, you most likely have a highly trained and capable sales team that is well-versed in navigating customer procurement processes, RFP processes, c-suite negotiations, and competitive opportunities.

David Sacks argues for this approach in Simple Math to Set Up a Sales Team:

AEs are much more likely to maximize the value of the renewal or to save a troubled deal. Thus, I prefer to see CSMs partnered with AEs and bonused based on customer retention, rather than owning the renewal themselves.

Most commonly recommended for SMB or Mid-market: Sales owns new logos / Account Management or a Renewal Specialist owns expansion and renewals

In this model, the sales team handles all new logo sales and a separate “Account Management” organization owns expansion and renewals for the existing customer. The Customer Success team is not tied to revenue and focuses on driving customer value and adoption.

If you have a mid-marketing ACV or more straightforward sale and both pre-sales and post-sales velocity is increasing, you may feel like your sales team is spending too much time focused on expansion and renewals at the detriment of new logo acquisition. In this scenario, this is likely because your expansion and initial sale ACVs are both meaningful, and you’ve run into bandwidth issues, and it may make sense to split the sales team into a “new logo team” and “account management team” to ensure that the business is focusing on accelerating new logos while also putting experienced sales reps on the front lines of expansion and renewal opportunities.

Startups and transactional sales: Sales owns new logos; Customer Success owns expansions and renewals

In this model, the sales team is focused on new logo sales, closing the first deal with a new customer before transitioning the account to the customer success team. The Customer Success team is still responsible for driving value and adoption, however, they also own all expansion opportunities and renewals and draw the sales team back in only as needed.

When does this work well? Model 2 works well if your product, pricing, and sales motion is pretty straightforward and simple and your resourcing is lean. By separating out the revenue responsibilities in this fashion, you allow your sales team to focus squarely on new logo acquisition — which may be a strategic priority for the business. But we typically don't recommend this approach unless your resourcing is thin.

Cassie Young writes more about why in Use the CURE framework to figure out who owns contract renewal:

Some early-stage companies will task their customer success managers with renewals; this approach works in the days of the generalist “Renaissance CSM,” but should be sunset as the broader CS org evolves to specialization.

Asking CSMs to negotiate account commercials can and will jeopardize their strategic partnership with clients, so a CSM ownership model should only exist when teams are still very lean.

A framework for developing your own model

The truth is, there isn’t a “right” or “wrong” cookie-cutter model for Customer Success compensation. Customer Success compensation models vary by design, because what makes customers successful will vary from business to business. But there are some clear patterns you can use to guide your own team’s structure.

Here are the 3 factors to consider:

Sales process and deal size

Is the sale large, multi-stakeholder, and relational – or relatively transactional?
  • If your sale is transactional, renewals can present a distraction for AEs when you need them closing new business volume, and you can potentially achieve more efficiency by creating a Renewal Specialist role (at later stage) or having CSMs support/cover renewals (for lean, early-stage companies.)
  • If your sale is multi-threaded and relational, your CSM is a valuable partner for establishing trust with customers post-sale, but bringing them in to close or upsell large renewals can create conflicts of interest or mixed incentives; you may want to consider having an Account Management role that works closely (or reports) to the CSM function; or have AEs close renewals with close pairing and alignment with CSMs.

Scale and maturity of the business

  • If you're an early-stage startup, you likely don't have the headcount or resourcing to create specialized responsibilities for post-sale coverage across multiple different teams. In many cases, your CSMs will be the natural owner of renewal conversations, because they're also the primary points of contact that customers have had since the initial sale.

Complexity of product, value, and solution

  • If your product is extremely feature-rich and there are multiple phases of adoption, you want to make particularly sure CSMs are focused on driving value for customers throughout the lifecycle instead of on individual renewal/contract events. In these cases, an MBO/Bonus structure for CSMs that rewards them on revenue health of the account can be a cleaner way to align Customer Success with dollar growth for the business than a traditional commission model.

Commission model template

If you’re looking to develop your own commission model for Customer Success, or simply looking to pressure test your existing model, we’ve included a downloadable template to get you started here 👇

Channeled's Customer Success Commission Template

Psssst. This template is free to access and distribute, but please be a good human and credit us if you find it helpful 🥰

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