The role of the Customer Success Manager (CSM) is crucial in every company, and for good reasons, they are involved in the commercial development of each company.
Of course, the objective of a CSM is not to acquire new customers, but to retain existing ones and to make additional (up-selling) and/or complementary (cross-selling) sales.
According to the organisations, CSMs are only responsible for identifying expansion opportunities but not for signing them, this responsibility being left to the Account Executives (AEs).
In growing companies, it is also common to see the emergence of the role of Account Manager (AM). Positioned between CSMs and AEs, their mission is to take care of all commercial operations (renewals and expansions) with existing customers. In this case, CSMs adopt a more product- and/or service-oriented role, seeking to ensure that each customer benefits from the product and/or service as a whole.
As an example, in SaaS companies, here is the distribution of roles for each of the previously mentioned positions:
In this article, we will show you how to compensate people in charge of customer renewal and additional and/or complementary sales, who can be, depending on the company, CSMs or AMs.
1. CSM & AM: The split between fixed and variable pay
Before looking at the indicators to be included in the variable remuneration plan for CSMs and/or Account Managers, it is first necessary to define the part that it occupies in the sales compensation package.
Of course, there is no single rule that applies to all companies, depending on their strategic and business objectives. However, the following are common practices:
- Fixed salary: between 80% and 90% of the package
- Variable pay: between 10% and 20% of the package
As mentioned above, these distribution rules are not universal, and it is important to adapt them according to the situation:
- The maturity of the market. In a highly competitive market with a high volume of sales, employers are predisposed to offer a larger share of variable pay.
- The stage of maturity of the company. In a situation of strong growth, it is common for companies to offer a higher commission share to their CSMs and/or AMs in order to increase their motivation.
- The seniority of the employee. Generally, employees at the beginning of their career are stimulated by a high bonus percentage. On the other hand, because of their family and financial situation (mortgages, etc.), senior profiles prefer a fixed wage. However, this is not a golden rule. In fact, given their knowledge of the business and/or the market and/or the company, which is favourable to them in terms of meeting their objectives, some more experienced profiles prefer a larger share of commission.
- The sales cycle. Often, the variable remuneration component is less important when the sales cycle is long because the volume of sales is lower.
2. CSM & AM: Indicators to be taken into account for commissions
"On the selection of indicators to determine variable pay, you really have to focus on simplicity and clarity. Otherwise, the employee doesn't know what to focus on to achieve his objectives."
Aude Cadiot, Revenue Operations Lead at Spendesk
As their name suggests, CSMs are responsible for building customer loyalty. Their variable remuneration depends mainly on their ability to renew a contract, but also to sell additional products and/or services.
There is therefore a strong interest in building a variable pay policy that encourages them to :
- Renew contracts with existing customers
- Make additional (up-selling) and/or complementary (cross-selling) sales
💡 Good practice
Basing the variable remuneration of CSMs on these two metrics can lead them to play two roles with their customers. To avoid customers feeling that they have two salespeople in front of them, it is wiser to dedicate an Account Executive to additional and complementary sales, or to create a CSM and AE duo dedicated to this type of contract.
So it's all about finding the balance between encouraging contract renewals and expansion!
CSM: the ideal commissioning formula
Variable remuneration CSM = 50% indexed on renewal + 50% indexed on additional and/or complementary sales
The logic is simple, from an Annual Recurring Revenue (ARR) point of view, £1 gained exactly offsets £1 lost!
On the one hand, CSMs are encouraged to renew customers. On the other hand, they are encouraged to generate additional revenue by making new sales to these same customers.
📌 Please note
Some companies commission CSMs on the basis of an overall growth target for the value of the customer portfolio (renewal + additional and/or complementary sales). This is a mistake that should not be repeated! Indeed, the value of the portfolio for the renewal objective is not equal to the value of the portfolio for the expansion objective.
3. CSM: Example of a variable pay plan
In order to project ourselves into the definition and calculation of a commission plan dedicated to CSM, we will take a concrete example, while detailing the calculation formula for :
- Contract renewal
- Additional and/or complementary sales
The quarterly variable for a CSM is €3,000, i.e. €1,500 indexed on each of the variables.
The renewal target is 90%, with a fee structure as follows
- < 80% renewal: 0€ commission
- 80-85%: €500 commission
- 85%-90%: €1,000 commission
- 90%-93%: €1,500 commission
- 93-96%: €2,000 commission
- 96%+: €2,250 commission
Thus, a CSM could earn between €0 and €2,250 each quarter depending on the performance achieved.
Above 93% contract renewal is considered as outperformance, and therefore the amount is higher than the predetermined variable for contract renewal, i.e. €1,500.
It is also possible to assign a different weighting according to the financial value of the client, his reputation or the country in which he lives.
💡 Good to know
To calculate the value of the portfolio in relation to the renewal target, the value of the contracts that are due for renewal in the quarter must be added together. In fact, only these contracts are likely not to be renewed in the coming quarter.
Additional and/or complementary sales
As with the contract renewal, the variable for additional and/or complementary sales is €1,500, with an expansion target of €100,000.
Here is an example of a variable pay plan:
- 0€ expansion: 0€ variable
- 30,000 expansion: €0 variable
- 100,000 expansion: €1,500 variable
- 200,000 expansion: €3,000 variable
In order to reward outperformance and penalise underperformance, below target, the CSMs receive no commission. On the other hand, if they exceed the target, they receive a proportionally higher commission, which is uncapped, thus encouraging CSMs to make as many additional and/or complementary sales as possible. To further motivate them, it is also possible to introduce bonus accelerators.
💡 Good to know
To calculate the value of the portfolio in relation to the expansion target, the value of contracts with a future maturity date must be added together, regardless of the timeline. This is because an additional and/or complementary sale can be made at any time during the life of the contract.
The final word...
Although there are many ways to compensate CSMs, it is important to define a commission plan that is aligned with the company's strategic objectives.
"There is no magic formula for building a good variable pay plan. Instead, there are key principles to keep in mind, and the first is alignment with the business strategy."
Aude Cadiot, Revenue Operations Lead at Spendesk
Finally, to motivate CSMs to achieve their goals and perform, it is essential to give them visibility and transparency on their commissions through a commission calculation and management software like Qobra!
As proof of this, 61.9% of employees using commission calculation and management software exceeded their targets, compared with just 30.1% of those using Excel or Google Sheets. (Qobra & Modjo study on variable commissions in France)
"Since we've had Qobra, we've seen between 15 and 20% improvement on target achievement."
Tomas Hons, GTM Strategy & Operations Manager at Make