3 Keys to Customer Success Compensation

I just got off the phone with an executive who needed some quick advice on improving their compensation plan for CSMs. While it’s fresh on my mind, here are my key compensation principles for customer reps…

PRINCIPLE 1: MOTIVATE EFFECTIVE ACTION

The purpose of the compensation plan is to MOTIVATE reps to engage in THE MOST EFFECTIVE ACTIVITIES. If we know what activities produce retention, then we should pay reps to do those activities.

Think about it this way…

When variable compensation is based only on retention, what you are effectively saying is, “We don’t really know what customer activities work, so figure it out on your own and we’ll pay you for the outcome we want.”

APPLYING PRINCIPLE 1:

• Establish the most effective customer activities and use variable compensation to reward reps for their execution of those activities.

• For example, one of my clients reserves 50% of the variable component for key activities defined usually on a quarterly basis. In the first quarter, the goal was to ensure 80% of their customers have a written Results Strategy. In the next quarter, the target was 95% and they added completing an Executive Business Review for 70% of customers, and so on building up the layers of sound practice that ultimately yield exceptional retention and expansion.

PRINCIPLE 2: INCENTIVIZE WHAT REPS CONTROL

Prioritize compensating for things the rep/CSM can actually CONTROL. Nothing is more demotivating than having your compensation rely on things you can’t control.

For example, my client this morning is being pressured to compensate based on customer adoption. The problem is that pushing adoption is like pushing a piece of string - it’s mostly dependent on the customer picking it up and deciding to do it. This is also the problem with compensating entirely for retention.

APPLYING PRINCIPLE 2:

• It’s best to limit the share of variable compensation dependent on adoption or retention to no more than 50% of the variable component. Use the remaining 50%+ for the key activities, as well as potentially for Expansion which is often more under the rep’s/CSM’s control than retention, and which has the benefit of producing retention for free!

PRINCIPLE 3: COMPENSATE FOR CUSTOMER RESULTS

The fundamental driver of customer retention is CUSTOMERS ACHIEVING MEASURABLE RESULTS. Reward customer reps for what they exist to do: make customers successful.

For example, the same client has started reaching out to all their customers to identify what results matter most to them. The next step is to start measuring and helping customers achieve those results. This is the single most impactful customer playbook we have ever seen for systematically radically transforming customer retention and expansion.

APPLYING PRINCIPLE 3:

• This activity is the perfect application of the first two principles: it represents a highly effective activity and is something that is much more directly under the control of the rep.

• But you can’t add this to your comp plan until you have trained your reps on the Customer Results Strategy, and found ways to track your customers’ key results. So, that’s the place to start. When you are ready, I recommend making RESULTS the primary component of variable compensation for customer success managers and account managers.