DEAR STAGE 2: How should our Customer Success team be paid? CS team members have assigned accounts and manage implementation, adoption and renewal, and refer any upsell opportunities back to the Sales team. Most of our team has ~20% of the annual compensation set up as variable comp, but I don’t think we’ve found the right incentive program. Should their variable be commission? Management by Objectives (MBOs)? How do top performing CS orgs structure comp? ~QUESTIONING OUR COMP PLAN
DEAR QUESTIONING OUR COMP PLAN: It’s that time of year where companies are heading to SKO and rolling out new comp plans! I called on Jonathan Marek, Chief Customer Officer at Guild and Stage 2 Capital LP to weigh on this one and he shared three great tips.
1. Identify what’s wrong with your current plan
Jonathan notes, “You say you haven't found the right incentive plan yet. Why do you think that? Not driving the right behavior? Not driving the right customer outcomes? Can't attract the right CS managers, or can't retain them?”.
Just like my advice on updating BDR comp plans, Jonathan calls out the importance of solving the problem you have, and then digging a level deeper to align to your unique business goals.
2. Inspect your business with 4 questions
Jonathan shared 4 specific questions he uses to help determine what type of comp plan to put in place:
How large and complex are your customer relationships? And related, how many relationships does each CS manager lead?
How dependent is your 12-24 month growth on retention vs upsell vs new sales? Or are there other more specific acute challenges gating you (e.g., usage, adoption, launch success, etc.)?
How much do you believe your CS managers move the needle on these results?
How valuable is team vs individual achievement in driving these results?
3. Setting a comp plan
First, a bit of a disclaimer — “it depends.”
As with all comp plans, there isn’t a one-size-fits-all answer. BUT, you should be paying for the behavior that drives your particular business. Jonathan adds, “People will always game compensation. It's human nature. So make sure the gaming they do is aligned to what underpins your customers' success and drives the economics of your business.”
I would lean away from straight commission unless the CS managers play the central hands-on role driving the upsell.
With that in mind here are 2 unique examples Jonathan shared to help you apply your answers to the four questions in step 2:
The case for MBOs: “I've spent most of my career in B2B roles with large, complex, long-term, consultative customer relationships, with high ARR and high potential to grow those relationships, and team-based CS models. In those roles, what's imperative is: knowing/acting on the strategic objectives of each customer, building long-term relationships that sustain through the customers' org and strategy changes, and seeking a constant stream of win-win upsell opportunities with each customer. That world lends itself to a higher rate of variable compensation (for the CS team leaders, typically more than 20%) and a more MBO-based approach. I've had great success with MBOs aligned to account plans, including quantitative goals, but where the ultimate determination of individual performance is more qualitative.”
The case for a metrics-driven approach: “In a world of many lower ARR customers where a standardized scalable playbook for renewal or upsell is the key and an individual manages a large portfolio of customers, I'd lean into a much more quant-based approach. I'd set the rate based on two factors: how much influence you believe exists and what it takes to recruit/retain the caliber of CS manager you need to drive that amount of influence. Typically, NRR and ARR-under-management are great metrics - but you could decompose that into metrics for retention and upsell opportunities surfaced. If you believe implementation metrics or adoption metrics are specific problems that are holding your business back, by all means include those.”
So if you’ve made it this far, a quick summary:
CS should rarely (never) have a comp that is 100% commission based
MBOs should be set based on your unique business goals
Normalize adjusting MBOs over time as business goals change
Good luck rolling out your next plan. Until next week!