Customer Success is a young profession, with 95% of people entering CS from different backgrounds (source: 2015 Totango report). Companies are still learning how to structure their Customer Success Manager salary offerings.
The Totango report does not tell us specifically how Customer Success Managers were rewarded, as they made up only a third of the survey participants. Other participants included CCOs (16%) and CS Directors (35%), who could skew the data in favour of a bonus.
So, when you read that the most popular pay structure for Customer Success professionals is a base salary with bonus (54%), followed by base salary only (26%), you can only guess whether this is true across all Customer Success roles.
Using an online salary estimator tool, let’s look at Customer Success Managers only.
Their annual median pay in the United States is around $69,000 with compensation packages ranging from $44,000 to $121,000. The packages include bonuses that peak near $25,000, profit sharing schemes that approach $20,000 and commissions as high as $50,000.
Although we cannot see a breakdown of the percentages of people who receive variable components, we can see they exist in the pay structure. Is there a right way to reward Customer Success Managers? Should you include bonus and commission elements, or simply offer a base salary?
Let’s look at the definition of the terms: commission means paying employees a percentage of the sales they bring to the company. A bonus is awarded when goals have been met and are used to compensate employees who are not directly responsible for selling.
— Don MacLennan (@DonMacLennan) February 9, 2016
Customer Success Managers own customer communication, the customer relationship and have a deep understanding of their customers’ needs.
Even if the sales guy has a relationship with the customer, the Customer Success Manager is usually more adept at tailoring the presentation of features outside of the basic package. The extended demo comes easily to them, and so they can help plant the seed of an upsell opportunity.
But if you offer Customer Success Managers a commission, they will hang on to the opportunity for dear life. They might neglect their other duties and end up going head-to-head with every other commission-based, customer-facing individual who sniffs a deal.
Keri is clear about whether to include commission as part of pay structure for Customer Success Managers: you decide whether you want your Customer Success Managers to be responsible for revenue or not.
In a recent online discussion (now removed from LinkedIn group “The Customer Success Forum”), the consensus was that Customer Success Managers should not carry a quota. If your company is truly customer-centric, do the people you hire, and the processes you have in place, align with your ultimate purpose of making your customers successful?
If the ultimate goal of your Customer Success Managers is to put customers first, commission is best left out of their pay structure.
That said, you may have some persuading to do.
Given that 23% of Customer Success professionals come from a Sales background, they may want to keep a variable component of their pay alive when they switch to Customer Success. There is also a general shift for U.S. companies to put more budget into variable pay to reward performance without increasing fixed costs. Aon Hewitt’s 2015 U.S. Salary Increase Survey reports that more than 90 percent of companies are adopting this approach because: “pay is a top engagement driver for employees, and as the market continues to improve, organizations will need to differentiate through variable pay programs to attract and retain top talent.”
Reward your Customer Success Managers appropriately and they will hand upsells to Sales and focus on what they do best. There is no reason for them to hold on to a sale if there is no monetary reward for doing so. Not handing it over will cause tension with Sales, and could result in a lost opportunity. Customer Success Managers need to remember that there is a lot more to making a sale than giving a great demo.
Commission aside then, how about a bonus? Given a decent base salary, a bonus should be simply that: nice to have if it comes your way, but your employees should be financially comfortable without it.
I have worked with people who rely on their bonuses so heavily that they will steamroll anyone they believe is preventing them from getting paid. These people either need to ask for a raise or manage their finances better.
Companies like to reward their top performers and a bonus is a nice way to show their appreciation to non-commission employees. But what should you base their bonuses on? In a company where everyone is responsible for Customer Success, is it fair to pay everyone a bonus based on company performance? After all, Customer Success translates into increased revenue for the company as a whole.
Relating each person’s percentage share to their current salary and length of service helps ensure loyalty is rewarded and knowledge is retained. This approach also satisfies the Equality and Human Rights commission, which says that “the targets and objectives for teams should be equally achievable, in so far that it should be no easier for one team to reach their targets than another team.”
But what if you want to reward your Customer Success Managers on their individual performance? Sounds like a nice idea in principle, doesn’t it?
If you go with this approach, it makes sense to look at the goals of your Customer Success team. From the same Totango report we see they are typically:
Although it’s not a bad list, the last two goals reiterate the notion that companies are still figuring out what Customer Success Managers are actually supposed to do.
Let’s compare these goals to the role description on the PayScale site that told us the average pay for Customer Success Managers in the U.S.:
We have already concluded that Upsell is best left to Sales, and there is no clear fit in this description for Customer Support. Given that Customer Success Managers should be kept out of day-to-day Support, it is inappropriate to base a reward on the number of tickets they close. Any interaction with Support is simply to keep pulse of the customer and escalate where necessary.
Checking in with Totango’s report, we see what the survey participants base their bonuses on. Looks like we were right to exclude Customer Support from the equation, as it does not appear in this list:
The most popular bonus component is based on company performance, which agrees with what we have already said. The next most popular component is the Renewals Goal, which is the same thing as Churn Reduction. Whether a customer churns or renews is not the sole responsibility of the Customer Success team. It seems fair to remove Renewals Goal from the bonus calculation.
If you want to include Churn Reduction in the bonus calculation, just be aware that the Customer Success Managers involved in Onboarding will probably enjoy a lower churn rate than those involved in the later lifecycle stages. This has no relation to the skill of the Customer Success Manager, but is simply due to the customer being contractually obliged to complete an Onboarding period.
Speaking from personal experience, if Churn Reduction forms part of how your performance is reviewed, have a field in your CS Platform that describes the reason behind the churn, and ask the customer to explain the circumstances in an email that you tie to the account. Make sure you generate this report whenever your performance is being assessed.
Based on previous arguments against commissions, we can also strike the Upsell goal from the bonus calculation. The remaining components that survive elimination are then:
Okay, now we are getting somewhere!
A former Director singled me out as a top performer, but had me in second place to a colleague who just did onboarding. Because my Director’s performance calculations were based on churn rate, I was at a significant disadvantage. In my mind, I deserved first place.
After what I considered to be a public humiliation at the annual company meeting, I resolved to move out of that team and work for a Director who had more idea about what his team actually did and how to reward them.
Remuneration is a serious issue. You could end up insulting the very people you wish to reward and create resentment within your team. I think we expect too much from C-level executives, with no background in remuneration to properly set up performance-related-pay. If you are unsure, ask an expert.
In the case of Product Adoption, not every customer will need to use every feature within a product. You can get a good idea of the average use for a core set of features using in-product analytics. Customer Success Managers can then be measured against how many of their customers achieve minimum usage. You can award bonus points if their customers have integrated the product into their everyday workflows.
Deep and frequent product use forms the basis of great Case Studies. Your Customer Success Managers should be first in line to hear these stories. Unless they are also dab hands at writing marketing material, they will need to get Marketing involved. Credit can be awarded to the Customer Success Manager who suggested the Case Study and continued to help Marketing get the story signed off.
Customer Advocacy can be measured by the number of support tickets and product requests that the customer feels have been satisfactorily handled. This does rely on Customer Success working effectively with Support and Product. Any weaknesses in inter-team communication that hampers this process should be minimized.
The final component, NPS, is similar to Renewal Rate / Churn Reduction in that it is not just the responsibility of the Customer Success team. Asking the simple question “How likely are you to recommend us?” tells you nothing about the performance of the Customer Success team unless it is followed with “Why did you score us this way?”
Ultimately, the Customer Success Manager should be rewarded on the success they have brought to their customers.
If you hired right, your Customer Success Managers have a clear understanding of the role their service plays within the customer’s company. They will ask themselves: “What is my customer trying to achieve, how am I helping and what is the outcome?”
The people with the answers to these questions are the people who deserve the highest rewards.