Customer success management means many things to many people. Its practitioners defy traditional distinctions and workloads within an organization.
In one sense, a customer success manager functions as a customer service representative, helping customers solve problems and win with the vendor’s products.
In another sense, they act as account manager, closely monitoring a customer's business and standing ready to connect them with new products and solutions.
The goals of a customer service manager (CSM) are numerous:
- Churn Reduction
- Customer Onboarding
- Product Adoption
- Customer Support
- Customer Advocacy
In achieving those goals, a CSM is about as far removed from a production worker as you can get. CSM-work is “people” work par excellence. As a result, it requires an unusual mix of in-depth product knowledge, technical expertise, relational acumen and emotional intelligence.
Here’s the rub. How do you compensate such a jack-of-all-trades? How do you pay someone to cover such a wide span of ground where wins and losses aren’t so easy to identify?
In this brief guide, I want to help you get a handle on the various models of compensation other organizations have used to compensate their CSMs.
My anticipated audience here is two-fold:
- For CSMs who may come across this post, I want you to have a good sense of what options there are and which one will be best for you.
- For executives looking to expand on your customer success operation, I want to give you an important foundation on which to build.
In the end, for organizations, a well-conceived compensation plan can serve as a valuable strategic tool in motivating customer success priorities. For CSMs, the right compensation plan can handsomely reward you for excelling in your work.
First, the Numbers
Before we look at specific plans, we should consider the current salary levels for customer success professionals. Thankfully, Totango surveyed 1,000 employees working in customer success across a wide range of companies.
Here are the salary figures they came up with (by title):
- Customer Success Manager: $77,000
- Senior Customer Success Manager: $110,000
- Customer Service Engineer - $90,000
- Director of Customer Service - $126,000
- Chief Customer Officer/Vice President of Customer Success - $158,000
These figures represent total compensation. But as we’re about to see, the way these employees earn that money can vary widely from organization to organization.
Fundamentally what a person makes isn’t the only question. How they make it also matters . So without further ado, let me present to you the three different models for compensating a CSM.
Three Basic Models
What follows is a relatively standard breakdown of the 3 models organizations use for CSM compensation: base salary, base + bonus, and base + variable compensation. Each has its own advantages and disadvantages. Let’s take a closer look.
1. Base Salary
This model is about as simple as it gets. Organization X hires CSM Y to handle Z number of customer accounts. The CSM works 9-5(ish), Monday through Friday. At the end of every week, the same amount of cash hits his bank account, regardless of what he’s accomplished and how his customers have performed.
The advantages of a base salary lie primarily in the realm of stability. For the organization, it’s easier to budget for an employee when you can reliably predict what you have to pay him or her every year. For the employee, as well, it’s nice to know what you’ll be taking home every week so that you can budget accordingly.
Unfortunately, stability is a double-edged sword. As an employee, a steady paycheck will motivate you to show up every day, but will it motivate you to go above and beyond the regular call of duty? What incentives are there for exceptional performance?
For the slacker, this is a feature, not a bug. Go to work, do the bare minimum, collect your paycheck, rinse and repeat. For his or her employer, however, this is the fly in the ointment that will prevent their customer service operation from going anywhere.
On the flip side, while the organization reaps the benefits of payroll stability, over-achieving CSMs may quickly become disillusioned as they watch their heroic efforts go unrewarded. Consequently, they’ll either become a slacker or move on to another job.
2. Base Salary + Bonus
In seeking to overcome the drawbacks of the base-only model, a base salary + bonus arrangement offers the motivated employee an incentive to make that extra effort.
Bonuses are generally awarded for exceptional performance in the following areas:
- Team/Company Performance (most common)
- Meeting Retention/Renewal Goals
- Increasing Up-Sell/Cross-Sell Volume
- Successful Onboarding
- Improved Net Promoter Scores
The base salary + bonus model has the upper hand on the base-only model in that it provides clear and compelling incentives for the CSM to do more than the bare minimum.
A strategic bonus structure will also allow the organization to control which aspects of the customer success process it wishes to emphasize.
Worried about NPS? All you have to do is increase the bonuses paid out next month for NPS improvements and trust your CSMs to adjust their approach accordingly.
It could be argued that the base salary + bonus model doesn’t do enough to “punish” underperforming CSMs. By definition, a bonus is gravy, so what do you do when one of your employees is perfectly content with their bowl of plain mashed potatoes?
For the over-achiever, too, the bonus model may not always be sufficient. Imagine putting in hundreds of long, hard hours over several months to secure a multi-million dollar renewal, only to be rewarded with a paltry $2,000 bonus check.
Extra cash is always nice, but it can also be perceived as an insult when not kept in proportion with the actual value of the CSM’s added efforts.
3. Base Salary + Variable Compensation
This model takes the base + bonus model one step further by indexing a larger share of the CSM’s compensation towards benchmarked customer outcomes. With nearly 75% of CSMs reporting some form of variable compensation, this appears to be the most common pay arrangement.
According to the model, compensation is indexed to four measurable categories:
- Portfolio Score
- Use Case Production
Here the CSM’s base salary generally represents about 70-80% of their net income. This leaves 20-30% up to variable compensation.
The balance here is delicate. If too much of an employee’s earnings depends on salary, then they won’t feel the force of incentivization. Tip the scales too far in the other direction, however, and the CSM transforms into something more like a commission-based sales representative than a customer success professional.
You can find a more in-depth look at variable compensation here.
The variable compensation plan amplifies the effects of the base salary + bonus model by making even more of the CSM’s income dependent on his or her activity.
This holds employees accountable on both ends of the spectrum; productive employees are rewarded while unproductive employees are penalized.
One man’s variability is another man’s uncertainty. From an employee’s perspective, variable compensation plans cede too much control of their income to external factors.
Imagine for example, a hard-working CSM who, through no fault of his own, suffers a number of downgrades and cancellations in his portfolio this quarter. As a result, he takes a 20-30% ding on his income.
For some, this will be a risk worth taking. For others, not so much.
- An important question to ask, for the executive reader, is whether you want to encourage your CSMs to think and act like entrepreneurial risk-takers.
- For the CSM reader, you need to ask yourself whether you want to take on the added risk/reward of a variable compensation model or push for the consistency of the base salary + bonus arrangement.
Along similar lines, some worry that variable compensation puts the incentives for a CSM in the wrong place. To correlate a high proportion of the CSM’s salary to his ability to upsell encourages him to think and act more like a glorified sales representative than a true customer success specialist, or so the reasoning goes.
This can be counteracted through steady and persistent attention to the primary function of a CSM. In other words, the answer is cultural. CSMs have to be nourished by an environment which encourages them—not to sell, but to serve.
If they focus on the former, they’ll not only shirk their responsibilities as a CSM, but they’ll end up being less productive than they otherwise would have been. If however, they focus on the latter by devoting themselves to helping customers succeed, they’ll find that the selling part (along with the pay incentives it brings) will ultimately take care of itself.
In this short guide, I’ve shown you the three most common models used for compensating your customer success managers: base salary, base salary + bonus, and base salary + variable compensation.
Model #3 (base salary + variable compensation) appears to have won the day, albeit with a few important caveats.
What matters most is that you consider your business’s mission, vision and culture to ensure your model clearly incentivizes your CSMs to work in harmony with your organizational objectives.
Whatever you decide to do, make sure to revisit your plan and adjust regularly.
Are you a CSM? Which of these models describe your pay situation?