How We Structure CSM Bonuses
May 17, 2017
(Originally posted on Gainsight.com | Read original article)
One of the most common questions I get is: How do you compensate your CSMs?
Discussions about compensation inevitably lead to existential questions -- particularly, why are you investing in this function in the first place? We should compensate folks based on the ROI that we expect to achieve in hiring them.
I described our framework for the ROI of Customer Success here. The image below captures the ways that CSMs drive 3 types of ROI, or revenue.
You’ll notice that each of these metrics under the 3 columns are leading indicators of the revenue outcome. These are the primary metrics for which CSMs should be held accountable, because CSMs have the highest degree of influence over these metrics relative to any other department. These are also the metrics for which CSMs should be given credit and recognition. (You can read more here about the importance of holding folks accountable for metrics that they influence.)
Even though we hold our CSMs accountable for a sizeable list of metrics, we can’t possibly create an incentive plan that incorporates all of them. If a bonus plan has too many components, CSMs won’t know how to focus their time. I’ve found that the limit is 3 components.
Below you’ll see the 3 metrics that drive our CSMs’ bonuses.
The first component of CSMs’ bonuses is the net number of “Wins” -- specifically, Net New Green/Lime Habits Customers. As described in a prior post, each CSM has a quarterly target to move a certain net number of customers into a state of Green or Lime Habits, which is an indication of sticky adoption and a proxy for whether the customer is getting value from the product.
At a high level, our Habits Scorecard tracks daily active users as a percentage of the total. We believe that most users who get a ton of value out of our product will use it daily.
Habits (a type of “Win”) is a predictor of renewal as well as expansion. Customers that are getting value from their current deployment are more likely to be amenable to expanding your product’s scope.
For companies that don’t track adoption data, you can use other metrics for this bonus component. Examples include engagement with your online community, logins to your online portal, or another metric that assesses whether the customer is getting value from your product or service.
CSMs also get credit toward this target by driving Net New Green/Lime Deployment Customers. We have a Scorecard Measure that tracks the percentage of licenses that have been assigned to end users. Deployment is a complementary metric to Habits. Value for the client can be driven in 2 ways:
Deepen the value that active users are getting (by helping them become daily actives)
Grow the number of users that are getting value at all (by deploying more licenses)
The second component is CSQLs, or Customer Success Qualified Leads. Our CSMs partner with Sales by identifying opportunities to expand the scope of our engagement with clients, via upsell expansion or services. You can learn more about CSQLs here.
The third component is CSQAs, or Customer Success Qualified Advocacy. You can read more about this term here. CSMs have a quarterly target for the number of advocacy engagements they secure – which can include the 5 types listed in the infographic above. We’ll publish more about this in the near future -- stay tuned!
Whether to Incentivize CSMs Based on the Renewal
Depending on your particular situation, the CSM may or may not have the additional responsibility of executing the renewal or expansion. At Gainsight, we assign that responsibility to either a Customer Account Manager or an Account Executive, for reasons I describe in a past post.
We didn’t include the renewal rate in our bonus plan for the following reasons:
For a high-touch CSM (which most of our CSMs are), renewals happen infrequently. The sample size in any given quarter would be too small to warrant a target.
CSMs are already motivated to manage renewal risk, via non-bonus incentives. More on that below.
Whether to Incentivize for Managing Risk
We want CSMs to manage risk, but we don’t compensate them based on their risk resolution (aka “Saves”). That’s because we don’t want to create the incentive to ignore a customer until it enters a Red state and then turn it around to Yellow or Green. I don’t think our CSMs would ever intentionally do that. That said, you should design a bonus plan for devils, not angels :)
There’s enough environmental pressure at Gainsight to resolve customer concerns that we don’t worry that CSMs will fail to turn around struggling customers just because they’re not compensated for it.
Whether to Incentivize for Driving NPS
NPS Promoter Ratings are intensely celebrated at Gainsight. That’s a victory!
At the same time, we decided not to include them in our bonus plan, at least for now, for a few reasons:
If a customer says they’ll recommend our product (by giving us a Promoter rating), we’d love for them to go do it! So we incentivize CSMs based on their customer’s actual advocacy rather than their willingness to be an advocate.
It would be hard to argue that CSMs have the most influence on NPS of any other department; certainly, Product, Engineering, and Onboarding / Services, among other departments, have significant influence over NPS. Again, we want to hold CSMs accountable for metrics for which they have principal influence.
If a CSM is moving customers into Green/Lime Habits, managing risk effectively, and also following our company values (i.e. showing respect for the customer), then we believe a high NPS will naturally follow.
Other Functions within our Customer Success Organization
I’ve posted before that all post-sales functions are “customer success” functions. Whether you’re closing tickets or running an EBR, you’re helping to make the customer successful.
You’re also generating the same 3 types of ROI that CSMs are contributing to. That’s why we rolled out the same target structure across all our post-sales functions. Each function has a target that contributes to Retained revenue, a target that contributes to Expansion revenue, and a target that contributes to New Business revenue.
Here’s the structure for 4 other customer-facing functions:
*If clients get value faster, they’ll be more likely to expand their engagement with us. Our definition of Initial Value Moment is in this blog post.
**We don’t want to penalize folks for doing great work for clients that for whatever reason we are doing for free. But, we do have an internal request process for free hours to ensure we’re managing our Services P&L.
***I’ll be honest: ticket quota doesn’t really help us drive new business. But we needed to include that metric as a target.