Strategic CSM Comp Plans

Tahima Begum

Hello!

I have run into an issue recently that I am looking to solve and wanted to see if anyone has encountered the same and have come up with a solution.

My team is broken up into two segments - Commercial and Strategic and have a bonus that is paid out on renewals, upsells, and MBOS. This has worked well for a few years, but recently I have run into an issue where my strategic CSMs don't have any renewals next quarter (2021). This is going to become an issue because my Strategic CSMs manage a handful of accounts since they are larger. Has anyone encountered this issue? How did you solve? Or do you have a comp plan that does not measure renewals?

Would love your thoughts, thank you in advance!

Matt Myszkowski

Hi @Tahima Begum

I guess based on what you are saying your team are comp'd quarterly? Could you move the comp plan to an annual plan?

Are they measured on logo retention or revenue retention (I presume the latter)?

Tahima Begum

Hi @Matt Myszkowski

Thank you for your thoughts!

Yes, paid out quarterly, I am thinking of looking at renewals annually and then payout on a quarterly scale. For example, if they have no renewals in Q1 they won't get their bonus that Q for renewals. But if they hit 30% of their renewals in Q2 they will get paid out in Q2 at a percentage of their renewal goals.

Measured on revenue retention!

Melissa Litwack

Hi @Tahima Begum,

Another idea you could pursue is team retention goals vs. individual retention goals; I would imagine that while a single Strategic CSM may not have a renewal per quarter, the larger team as a whole does.  My previous organization pursued retention goals as a team to reinforce camaraderie and ownership of the entire book, not just their own. It was successful in CSMs helping each other out on tough renewals and can lead to strong retention outcomes across the company.

Hope that helps and have a wonderful day!

Ed Powers

If you're open to it, @Tahima Begum, perhaps rethinking CSM incentives entirely may be of interest. 

It's controversial, but eliminating pay-for-performance for most CSM roles is worthy of contemplation. It flies in the face of convention, but the science shows there are fundamental problems with typical schemes:

1. Mathematical. In complex systems, outcomes are most often determined by other factors, including chance, than by individual efforts. This is especially true when it comes to the CSM role. It's counter-intuitive, but mathematical laws demonstrate that this is indeed the case. 
2. Cognitive. Forty years of research into human motivation shows that people actually become less engaged, persistent, curious, proactive, creative, flexible and happy when extrinsic reward systems are used. Again, this is counter-intuitive, but the evidence is clear. 
3. Strategic. The end goal in Customer Success is to protect and grow installed base subscription revenue. Strategies to accomplish the goal include reactive (saving accounts on the brink of cancellation), proactive (ensuring good onboarding, value realization, satisfaction, etc. to improve the likelihood customers will renew and buy more), and preventative (perfecting products, services, and processes upstream so customers wouldn't dream of going anywhere else). This means we must get the most from our employees pursuing all of these strategies. Our motivational systems should support, not inhibit, these efforts. 

I presented these ideas a little over a year ago at a Colorado Customer Success Meetup and here's a video from that event. If an entirely different way of thinking appeals to you, then I would encourage you and others to watch it. The Q&A at the end of the session with Customer Success VPs added some interesting examples and practical approaches to deploy these concepts.

David Mangham

@Tahima Begum I was part of the discussion that @Ed Powers referenced above.  I took an alternative approach to the variable compensation plan for my CSM team.  Instead of focusing on renewals since there are many variables to the renewal that were out of control of the CSM we focused on measuring activities which would increase the probability of that renewal.  These included targets for execution of proactive business reviews, conducting regular health assessments and the identification of what I call Customer Success Qualified Leads (CSQLs) which would help the sales team in upsell activity.  These controllable actions by the CSM and lead to a better understanding of the health of the customer as well as identification of issues that the CSM would manage for the customer in order to make sure the customer is having a great experience.  Be happy to talk more about it.

Cheers,
David

Ed Powers

Glad you chimed in, @David Mangham. You talked about a lot of great ideas and applications you put in place with your team.

Renee Murphy

This is great.  I also like it because you can clearly articulate the value activities the team is doing to the rest of the company.   Adoption/retention is too nebulas for many and get asked "but what do they do".

Russell Bourne

@Tahima Begum the video @Ed Powers posted was eye-opening for me when I first saw it.  He nailed comp planning issues I've had as a leader, but could never quite articulate, backed it up with science, and offered an alternative.

If you can measure your Strategic CSMs on something, maybe stick to leading indicators that they have control over?  The results will translate to good performance on revenue and upsell, which you can still report to your QBR audience.

If you really must measure them on revenue, you might try measuring the "active" revenue per month or quarter.  You can include monthly-paid subscriptions and pro-rate the monthly value of an annual or multi-year term.  The nice thing about that is it takes the focus off the renewal event - healthy both for your customer journey and your customers.

Tao Stadler

Hi David, I know this is way passed when you offered this, but i like your approach and am wondering if you'd be willing to share some details on how you structured this plan?

AJ Mackey

@David Mangham and @Ed Powers, like Tao, I am curious what it practically looks like when you focus more on CSM activity than the net number of did a customer churn.

What are some Activity metrics you look at when taking this approach?

AJ Mackey

@David Mangham and @Ed Powers, like Tao, I am curious what it practically looks like to focus more on the CSM Activity than the net number of did a customer churn.

What Activity metrics do you focus on with the approach?

Ed Powers

Hi @AJ Mackey--

In the past I've used a number of process metrics and shared them with my team at least monthly. Doing so helped them understand what they do is important and how it contributes to customers and the business. I also engaged my team in process improvement projects so they could contribute to making things better. All of this is independent of the question of incentives, discussed above.

To establish metrics, I generally start by understanding the customer's journey and what role the CSM team plays in it. Qualitative, and later quantitative, analysis helps to refine the metrics, ensuring that the set chosen has a measurable impact on reducing customer churn and increasing expansion revenue. Some of these metrics show up in the customer health dashboard while others are process metrics that contribute to them.  For example, delivering an outstanding onboarding experience has reliably shown to impact retention and growth. To support it, Usage, Realized Value and CSAT may be metrics in the health dashboard, while Onboarding Time, Time-to-Value, and Success Plan Compliance may be process metrics leading to them.

The choice of exactly which metrics to use and which impact your particular outcomes will depend on your unique business, so I don't recommend copying what others do. It's a process of selection, hypothesis testing (using factor analysis and regression when data are available) and continuous refinement. Most organizations start with too few metrics, then drown in too many, and then finally settle on just the right ones.

Happy to chat more about any of this. Feel free to shoot me an e-mail at ed@se-partners.com if that's of interest.

Ed

Bri Adams

Hi Tahima and others! I wanted to share an article our CCO (Abby Hammer) wrote this week based on a question from a customer of ours regarding variable compensation specifically, here is the article -- Compensation Plans for Customer Success - Abby covers a few specific "Dos" and "Don'ts" and a few tips of what we've learned from implementing our own plans. 

Internally, for anyone without a renewal in a specific quarter, we go by a "team" approach, where variable compensation is based on revenue retention, but at the team level instead of individual.

David Jackson

I would echo and strongly reinforce what Ed says: most comp plans are not effective long term and often do more harm than good. One of my favourite sayings is "Common practice is rarely best practice"; and this is case in point. Comp plans, particularly commission-based plans are to organisations what anti-vaxxers are to COVID; just wrong in 99% of cases and driven by emotion and misinformation, not fact.   Get comp plans right and they are largely ineffective; get them wrong and they are massively damaging.  

I was a founder and CEO of a SaaS company and following all sorts of disputes and problems, introduced a single bonus plan (paid quarterly) across the whole company.  It was paid on a simple formula: Revenue Growth x Customer Satisfaction, both of which were visible at all times across the company.

Intrinsic motivation is far more effective but gets a fraction of the attention. It also avoids the time-consuming complexity and disputes that inevitably go with comp plans.  It focuses on personal growth, control of work, engagement and being part of a bigger thing; all of which are positive actions and don't pit one team against another and foster collaboration, not competition.

On the associated topic of measurement, I use another, simple formula: Outcome = Activity x Quality.  Focus on the few key outcomes that drive success and then figure out what activities are needed to achieve them and how well you need to do them.  Track and manage activities and quality then, if your thinking is sound, outcomes will follow.  Remember, in any sport, you don't change the result by looking at the scoreboard.  You design the plays/tactics (activities) and coach players to do them exceedingly well (quality).  

Flame off!

tmnovello

Hey David! I'm creating a new structure for my Named/Strategic CSM's. I'm following a similar path focus on CS activities instead of logo/revenue retention. When you were creating this for your team, how did you define a business review or health assessment for your org? I understand this  can vary by company. I want to be super clear for my team so they understand exactly how they are compensated.