How do you fairly distribute accounts among CSMs when comped on renewals?

Hi All!

Hope to get some insights from this supportive group from other CS leaders on this ( stay with me here as I explain!)

My team is comped on a base + bonus ( 80/20). bonus paid out qtrly.

Bonus is based on, among other things, renewals. This is a large percentage of their bonus. Here is the dilemma:

I currently allocate accounts based on segmentation. Lets say for our purposes, commercial and enterprise.

Commercial customers are lower touch than enterprise ( i.e "less work").
Our contracts are ARR based ( that's the segmentation) and either 1 or 3 year contracts.

Here is the dilemma:
I am having difficulty allocating the customers in a fair and balanced way.

- We can have high ARR contracts coming in that are all 3 year renewals, resulting in having a CSM "stuck" with no bonus for 3 years.
- We can have one CSM with a high number of yearly contracts, resulting in more of a load.
- We can have one CSM with a low number of customers but high ARR, resulting of less of a load and more of a bonus

You get my drift....

How do you allocate your customers to CSMs?

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Comments

Effie Mansdorf

I was thinking about measuring relationship (ala Ziv Peled), however I am hesitant of attaching a financial compensation to something that is subjective and self determined.

I think @Kate Persons , that perhaps the number of BRs or other major important milestone may be the way to go.

Loving the feedback from the board ! Keep it coming!

Kate Persons

To add on to Russell's thoughts about non-financial metrics, we look at % of customers the CSM has had a substantial in-person or phone conversation with during each quarter, in order to incentivize them to be personal and not just rely on email. We have a very high-touch model with long contracts (5 years) so this may not be appropriate for other companies. We also look at % of upsell that are recurring revenue (vs. one-time revenue) -- we have products that fall into both categories. So a CSM could have a low overall sales number but have a high % of sales from recurring revenue.

A message from Finalsite.com.

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Original Message:
Sent: 10/6/2020 5:02:00 PM
From: Russell Bourne
Subject: RE: How do you fairly distribute accounts among CSMs when comped on renewals?

@Effie Mansdorf, too bad about lack of telemetry - hope that's something they'll invest in in the near future.

One thing I forgot to mention about comping on monthly RR: in our case the product had metered usage, so CSMs were incentivized to drive increased usage each month whether that meant a formal upsell or just simply an increase in the meter use. Obviously, the problem is increased usage doesn't necessarily mean true adoption, engagement, or health. It's a very, very nearsighted metric.

You're right that churn was a factor, and in our case, cancellations typically meant a revenue drop the very next month. So again, very much based on trailing indicators.

Taking a step outside of financial metrics, what about measuring relationships and/or communications as a larger comp factor? @Ziv Peled and @Star Hofer both shared ideas on that in recent webinars.

Russell Bourne

@Effie Mansdorf, too bad about lack of telemetry - hope that's something they'll invest in in the near future.

One thing I forgot to mention about comping on monthly RR: in our case the product had metered usage, so CSMs were incentivized to drive increased usage each month whether that meant a formal upsell or just simply an increase in the meter use. Obviously, the problem is increased usage doesn't necessarily mean true adoption, engagement, or health. It's a very, very nearsighted metric.

You're right that churn was a factor, and in our case, cancellations typically meant a revenue drop the very next month. So again, very much based on trailing indicators.

Taking a step outside of financial metrics, what about measuring relationships and/or communications as a larger comp factor? @Ziv Peled and @Star Hofer both shared ideas on that in recent webinars.

Effie Mansdorf

Great insights @Russell Bourne! I actually believe in comping based on adoption and usage. However, in my case we have no clear unbiased metrics to measure that ( no telemetry). Therefore I don't have much flexibility on measurements I can comp on a qtrly basis.

Interesting approach on monthly comp on active RR. On one hand it will get affected by churn. However, that can be compensated for when receiving a new account at the same time as the churn.

I would welcome ideas for other comp plan measurements that do not involve usage or adoption metrics.

Thoughts?

Russell Bourne

@Effie Mansdorf, I've dealt with this exact problem and although my workaround wasn't perfect, it was fair.

Basically, instead of comping upon explicit renewal transactions, we comped on the amount of recurring revenue that was active in that given month. In addition to smoothing out lumps caused by 3-year terms, it also smoothed out lumps month-to-month; for instance, where a rep had a large number of renewals due in December and then very few in January.

Does that make sense? If not, I'd be happy to hold a call with you (and anyone else interested) as a first resort before typing out what will be a pretty dry description of the nuts and bolts.

Having said that, I want to emphasize a couple things: first, the above applied to CSMs in our enterprise and mid-market segments. I comped the CSMs in the very small business (VSB) segment differently because I felt their segment was better served by different CSM activities. If you feel that way (and your note implies you might), I would really advise feeling free to comp based on different metrics for your commercial team.

Second, if at all possible, I would advise to really align with your exec leadership on their near- versus long-term targets. I now believe that comp plans based on things like renewals are decent at driving near-term revenue if your product is simple, but are prone to being dollar-foolish in the long run especially if it's a complex product. Is there any flexibility in the bonus plan structure?

Effie Mansdorf

The comp plan is the same for all. The percentage and weight is different. Cross sell gets a regional target and is shared.

Fair would be the right balance of comp. Again if one CSM has 5 3 year deal and only 1 one year deal, they will have to wait for 3 years to get comped on most of their renewals.

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Original Message:
Sent: 10/6/2020 11:58:00 AM
From: Kate Persons
Subject: RE: How do you fairly distribute accounts among CSMs when comped on renewals?

What would "fair" look like in your situation? Would that mean each CSM has the same number of renewals to handle in a given year?

Are upsells a potential source of revenue for your CSMs as well?

My company's CSMs handle both upsells and renewals. Some CSMs have portfolios with greater or less revenue potential than others, so we adjust their comp plans accordingly. Some CSMs have comp plans more heavily based on revenue potential and some have plans based almost exclusively on client retention rather than revenue.

Do all of your CSMs need to have the same comp plan structure?

Kate Persons

What would "fair" look like in your situation? Would that mean each CSM has the same number of renewals to handle in a given year?

Are upsells a potential source of revenue for your CSMs as well?

Do all of your CSMs need to have the same comp plan structure?