Choosing a CSM Compensation Plan

By Kristen Hayer

One of the questions I hear most often from customer success leaders is, “What kind of compensation plan should I provide for my CSMs?”  My answer is always “It depends.” – the typical non-answer you’ll get from any good consultant or MBA!  However, here’s what it depends on, and a framework for thinking about compensation in general.

Variable Comp vs. Salary Only

Many people argue that as trusted advisors, CSMs should not have a variable component to their compensation plan.  I disagree.  I think that most CSM teams benefit from a variable plan as long as it is based on clear goals that align with the company’s mission and initiatives.  People are motivated by money (see my recent post on variable comp), and variable plans can be one of the best ways to drive the behavior you want from your team.

That said, if either of these things are true you should avoid variable comp: 1. Your metrics and goals are unclear or 2. Your executive team does not support variable comp in general.  A team with unclear goals will be frustrated by having a portion of their compensation impacted by something they can’t influence, and if you try to push through a variable plan with an unsupportive executive team you’ll end up fighting for every penny your team earns.  In both of these cases you should offer a salary that is slightly above average (in order to compete), and consider contests or SPIFs as ways to drive desired behavior on your team.

Bonus vs. Commission

Let’s assume you have made the decision to have a variable component as a part of your team’s comp plan.  The next decision you need to make is whether it should come in the form of a bonus or commission.

Commission is terrific for things that are incremental, easy to measure and directly related to revenue (cross-sell, add on features, paid training).  To work well, commission should be a logical percentage of the value of what was sold, and should be uncapped.  The best commission plans reward employees at a higher rate once they have exceeded their goals.  Keep in mind that commission doesn’t need to be limited to things that are sold for money:  If the value of getting customers through an unpaid training program is that they stick around for an extra year, it’s valid to pay commission to the CSMs that sign them up.

Bonuses are a good option for goals that are challenging to measure, project-based or team-based.  In order for a bonus plan to work, the expectations for earning the bonus should be clearly defined and communicated to members of the team at the beginning of the bonus cycle.  Since bonuses are often paid on a quarterly or annual basis, it is also important to regularly communicate with team members about how they are pacing against their bonus plan.  This helps to keep the good behavior you are trying to drive top of mind.

Some of the most effective compensation plans for CSM teams include a combination of commission and bonus, because CSM goals tend to include a mix of selling and project-based work.  If you have a blend of goals consider a variable plan with a blend of commission and bonus.

Annual vs. Quarterly vs. Monthly

Once you’ve decided how to structure variable comp for your team, you’ll need to decide on the term of your plan.  It helps to think about 2 factors as you make this decision – the plan structure (commission vs. bonus) and the seniority level of the role (CSM, lead, manager). 

The structure of the plan can help you to determine how often it should pay out.  In general, commission plans are based on short-term goals like sales this month or renewals this quarter.  If your plan is primarily commission-based, choose a term that corresponds with the goals it is based on.  Bonus plans, as I mentioned earlier, tend to be based on goals that are quarterly or annual.  Again, choose a payout timeline that corresponds to the goals you’re trying to drive toward.

Another factor to consider when deciding on the term of your plan is the seniority of the role.  Front-line employees (CSMs, account managers, support reps) are expected to drive short-term wins and typically have short-term goals.  In order keep these team members focused on and excited about their goals, the variable payout should be more frequent.  On the other hand, more senior team members are often driving toward long-term goals (improving customer satisfaction this year or decreasing churn this quarter).  To keep these team members focused on the big picture, the payout timeline for their variable comp should be longer.

Once you make these decisions, you can move on to deciding on dollar amounts and writing up the plans.  This is also a good time to have a chat with your finance team about your ideas.  They can help you understand how other teams in your organization have set up their compensation plans, and will often have great feedback on things that have worked (or not) in the past.

Need help building a highly effective compensation plan for your CSM team?  The Success League is a consulting firm that works with executives who want to unlock the retention and revenue a top performing customer success team will bring to their business. www.TheSuccessLeague.io

The Math of Customer Success - Part 1

By Jeremy Gillespie

“If you can’t measure it, you can’t manage it”

This quote is generally attributed to Peter Drucker (although apparently he didn't actually say it) and has become a part of corporate lore.  Regardless of its origin, it does apply to Customer Success.  Many customer success leaders are comfortable with the people side of their role, but are unsure of how to measure key metrics.  If that's true for you or even if you just need to brush up on commonly used ratios, this series of practical posts on customer success metrics is for you.

I’ll start with some basics and build to more advanced metrics in future posts. These posts will cover how to measure the performance of customer success, retention and engagement, as well as red flags.  This post is focused on the top line metrics that every customer success team should consider.

Churn & Revenue Retention

Lets start by taking a look at the overall health of the business. You can go into much more depth (and we’ll get into that in a later post), but here are two top-line metrics to measure churn and retention.

CHURN RATE = [# of customers who cancelled in a period] / [total # of customers at the start of period]

The opposite of the renewal rate, the churn rate measures how many customers are leaving in a given time period. For most SaaS companies, this is the metric that is reported to the board and investors.

REVENUE RETENTION RATE = [[Start of period MRR + MRR from up-sell + MRR from price increases] - [MRR from churn + MRR from price decreases]] / [Start of period MRR]

Want to see how you measure up to all-star SaaS companies? Measure the net monetary impact Customer Success is having on revenue growth using the revenue retention rate. If you’re at 100% or above, give yourself a pat on the back.

Customer Success Performance

Once you have the high-level metrics down, you need to measure the role Customer Success is playing in driving retention and growth.

RENEWAL RATE = [# of customers renewed in period] / [# of customers up for renewal in period]

Pretty straightforward, this formula measures the percentage of customers are renewing their subscription. Most companies track this ratio on a monthly basis, and this is a common ratio to build team or individual goals around.

HEADWIND = [Churn + Downgraded MRR in period] / [MRR at start of period]

Just like the wind slowing your plane down, the headwind metric uncovers the impact downgrades and churn are having on your growth. Rule of thumb: 20-30% headwind is detrimental to growth.

TAILWIND = [MRR of pricing increases + upgrades] / [MRR at start of period]

The opposite of headwind, this metric measures how pricing and upgrades are accelerating your growth. Both headwind and tailwind are useful to report on a monthly basis to see changes over time, especially if you're making changes to your team or pricing.

CUSTOMER RETENTION COST RATIO = [Annual Cost of Customer Success Team + Customer Success Tools + Customer Success Programs + Customer Marketing] / [ARR]

This ratio is similar to customer acquisition cost ratios seen in marketing and sales, and is an indication of how much it costs to serve customers relative to how much revenue they produce.  Another way to measure cost relative to revenue is the Magic Number, which is also used to determine whether a success team is ready to scale.

These metrics should give you a good sense of the state of customer success in your company. Be sure to track these on an ongoing basis to see historical changes and trends. In my next post I'll discuss how to measure customer engagement as well as some red flags to watch out for. 

Need more math?  Here are some additional resources for customer success metrics:

• Totango - The Missing SaaS Metric

• Gainsight - Customer Success Metrics

• Groove - How We Measure and Optimize Customer Success Metrics

Need to know how to improve your metrics?  The Success League is a consulting firm that works with executives who want to unlock the retention and revenue a top performing customer success team will bring to their business.  We transform support into success by building metrics, goals and processes that enable customer success teams to perform at their peak.  www.TheSuccessLeague.io

Jeremy Gillespie - Jeremy is a growth-oriented marketing geek, technology enthusiast and customer evangelist. He loves using complex data to build creative retention solutions. By leveraging technology, Jeremy excels at creating scalable retention marketing programs.  He works for LinkedIn, holds a BA in Communication from the University of Pittsburgh and MBA from Point Park University.  He is a proud former Pittsburgher, but currently lives in San Francisco, CA.

Time Management for Customer Success

One question I always get from customer success professionals is “How do I organize my time so that I can get to everything?” Most are trying to balance inbound calls and emails, reaching out to customers, and facilitating scheduled meetings.  CSM’s are busy, busy people: Prioritizing the needs of sometimes hundreds of customers is a serious challenge.  I’d like to offer a few tips to help you make the most of your day. 

Before I do that, I want to call out a great resource for managing not just your time, but also your priorities.  Stephen Covey’s “The 7 Habits of Highly Effective People” is an older book (I’m looking at the 25th anniversary edition as I write) but I think the content is still very relevant.  I’ve used this book to manage my own time and help my teams manage theirs for over a decade.  As I was writing this post I realized that 2 of the 4 suggestions I’m going to share originally came from it.  If you haven’t already, I would recommend carving out some time to read it.

Important vs. Urgent

This is from Habit 3 in Covey’s book, and whenever I’m overwhelmed I refer to this concept to help prioritize my work.  The idea here is that important is different from urgent, but sometimes the two get muddled up in our minds and on our schedules.  Important things are the things that are going to help you achieve the results you’re after.  Urgent things are the things that require immediate attention.  Items can be either, both or neither, and there is a handy chart in the book that helps you figure out what’s what:

You should tackle the Quadrant I stuff quickly so you can focus the bulk of your time on Quadrant II activities that actually help you achieve your goals.  Minimize Quadrant III and IV activities – they are time-wasters.

Keep your Inbox Clean

For a CSM, email can be a real issue.  A full inbox can be overwhelming, stressful and lead to missing communications from customers.  Another problem is that email likes to present itself as both urgent and important.  It’s right there in front of you and needs to be responded to right now!  In reality, a lot of email isn’t urgent or important and can wait until later, but a lot of success professionals let email eat into their time. 

One way to combat this is to treat your email like you treat your snail mail.  Sort it when it comes in and deal with it in order of priority.:  Open bills first (urgent and important), then read letters from friends and family (important), then quickly sort through ads and catalogs and throw out anything you won’t use.  Do the same for email – sort it quickly into order of priority.  I like to use different colored stars and folders for this, but do what works for you.  Then tackle the important/urgent stuff immediately, but save the rest for a more convenient time.  Bonus:  If you're one of those people who lets their snail mail collect in a pile I just solved that problem for you too.  You're welcome!

Schedule Outreach Time

Success activities generally fall into 3 categories – inbound customer inquiries, scheduled meetings and outbound calls.  Naturally the ones that are driven by other parties (inbound calls and meetings) will tend to eat away at the time you have to make outbound contact with your clients.  The problem here is that one of the best ways to build a relationship with your customers is through regular outreach.  It’s one of the most important things you do as a CSM.

The best way to get outreach back on your priority list is to carve out time to focus on it.  If you have a geographic territory, choose a block of time when your customers are most likely to be in their office.  Otherwise, choose a block of time that works best for you – a time when you tend to be alert and personable (post-coffee.)  It should be the same time every day.  Shut off your email and chat tools, and focus on calls.  Over time, this will become a habit and for many of you, the best part of your day!

Take Time to Learn

Habit 7 in Covey’s book is called “Sharpen the Saw” (It’s easier to cut down a tree if you stop every once in a while and sharpen your saw.)  For CSM’s this means take the time to develop yourself as a customer success professional.  With everything that is on your plate it is easy to see things like training meetings, networking and reading as a waste of time.  However, this is exactly what will build your skills and help you do your job better and more efficiently.  Here are a few ideas to help you learn more about your field:

• Attend a Success Meetup – they are already going in most major cities, but if your area doesn’t have one, consider starting it!

• Go to a Conference – success conferences abound and are a great chance to network with other CS pros.

• Join a LinkedIn Group – there are many customer success groups on LinkedIn, both independent and sponsored by vendors.

• Read a Book – better yet, start a book club with your co-workers so you can all learn together

• Read a Blog – like this one. Good job!

Together, these tips can help you prioritize your time, make the most of your day, and achieve your goals.  Do you have other ideas for organizing your day?  Share them with The League!

The Success League is a customer success consulting firm based in San Francisco, CA.  

The Critical Sales-Success Handoff

By Natalie Macks

Ring that bell! Sales landed the deal and another customer is ready to be gently ushered into the sweet embrace of Customer Success. A good deal of customer churn happens in the first 90 days, so how do you make sure that your customer sticks around long enough to becomes a brand advocate? And just as important, how do you make sure that your sales and success folks are engaged and working together, instead of shooting death-ray stares across the office?

Data 

Your sales team is already working on the next deal before the ink on the contract is even dry (or the DocuSign page refreshes). Yes, the deals need to keep rolling in, but you also need to make sure that critical customer information is captured during the sales process, so the success team can spring into action seamlessly. Items that need to be documented:

• Customer demographics and contact info (contacts, phone, address, company size)

• Copy of signed agreement (with any special items noted)

• Unique requirements that could make implementation tricky

Sales and success leadership should be in agreement on this process. Ensure that it’s part of your sales and success playbooks, and that there is a central customer record where the information gets stored and everyone has access. 

Relationship

Sales teams often have a territory map that clearly defines responsibilities. While you may not set up your customer success managers (CSMs) the same way, it is still very important that you have set expectations about where a customer will land. Sales needs to know which CSM will be catching their potential customer so they can help to kick off the relationship.

A signed agreement is wonderful, but it’s impossible for the success team to know every little detail the customer and salesperson discussed (often over multiple calls and emails) to get to that agreement. Don’t assume that all customer expectations were captured in the contract. A call between the salesperson, customer success manager and customer to confirm all the particulars can save your organization from problems down the road and prevent a game of he said-she said. 

Encourage your CSM’s to chat with the salesperson offline to get an idea of any potential customer quirks or communication preferences. They worked hard to land that deal and likely have a wealth of information. Don’t underestimate the power of flattery here. What salesperson doesn’t like to be recognized for their deal-landing prowess?

Expectations

Once the CSM is working one-on-one with the customer, they should come to an understanding about how quickly the client expects to be up and running. Things like importing data, integrations and training should be taken into consideration. The customer and CSM should build a realistic timeframe that takes into account both people and resources that need to be involved in the process. Once this is complete, the CSM should loop back around with the salesperson to let them know about anything that doesn’t match the agreement or that they might want to adjust on the next sale.

Outcomes

It’s all about the outcomes. You know what success for your company looks like in terms of incoming revenue and low churn, but it’s a win for the customer that makes for long-term success. Knowing what the customer expects as an outcome is key. The expectation may have shifted from when they first started talking with the salesperson, so it is critical for CSM’s to ask customers, point blank, what business outcomes they expect from the solution or product. Is there a metric they are trying to hit? Are they expecting your solution to help them with a major initiative? If the CSM knows the expected outcomes they are in the best position to help the customer achieve them.

Is the sales team making any promises or setting expectations around customer outcomes? Success needs to be aware of any marketing or selling techniques being utilized so they can follow through with customer on these specifics. 

Feedback

Data-driven reporting on your customers provides insight into the effectiveness of both your sales and success teams.

• Are the right customers funneling through? Consider churn and average spend based on the industry and company size.

• Where should you focus sales training? CSMs will have suggestions about areas in the product where customers could benefit from additional information to get a better understanding of your offering.

• How effective are support and professional services? Customers often reach back out to their sales rep when they feel that on-boarding wasn't thorough or that support should be better.

Regular reporting in these areas helps to educate your teams and uncover processes that need attention. Visibility and open communication across sales and success ensures that the customer experience continually improves. 

…and Sales and Success lived happily ever after (or at least limited the shooting to Nerf battles!)

Natalie Macks - Natalie builds a culture of dedicated customer evangelists, as well as the systems and processes required for success.  Her award-winning leadership expertise coupled with integrity and passion produce increased customer retention and generate revenue.  With over 15 years in customer-facing roles, Natalie excels in bridging the gap between business technologies and the user experience.  She holds a BA in Zoology/Genetics from Michigan State University and resides in San Francisco, CA.