What is the average Customer Success Manager Salary?
More and more SaaS businesses are realizing the value of having a customer success team to ensure the continued success of their customers. Successful customers are more likely to renew and pay more through renewals and expansion, ensuring steady revenue growth for SaaS businesses. However, despite the increase in the demand for an effective customer success managers and teams, there is no standardized incentive model to compensate them.
In this guide, let’s explore the available compensation plans, the right framework for thinking about customer success manager salary, and best practices.
Popular Customer Success Manager Salary Plans
There is an ongoing debate in the customer success field around the best customer success manager salary structure. Most of the conversation revolves around these three compensation plans:
1. Base Only Plan
A fixed amount is paid in return for work performed without any bonus, commission, or variable element that can increase total compensation. The problem with this model is that it rewards the Customer Success Manager for maintaining the status quo. There is no motivation to overachieve the target performance standards, and there is no penalty for performing below standard.
The base only plan focuses on the Customer Success Manager on reactive responsibilities, such as customer support and training. It also indicates an overall lack of customer-centricity and KPI clarity for the organization.
2. Base + Bonus Plan
A fixed amount is paid with a bonus component for teams that complete set objectives or projects. Bonuses can be used to align Customer Success Managers and their teams with important company objectives and KPIs such as NPS, retention, expansion, and training.
Base + Bonus plans are better than base-only plans, but since it is better suited to teams, it does little to encourage individual excellence. Some Customer Success Manager salaries may be undeserved for the work given.
3. Base + Variable Plan
A fixed amount is paid with a variable component based on individual Customer Success Manager performance. There is more individual accountability for performance, and Customer Success Managers can be enticed to focus their efforts on core performance objectives. Incremental and easy-to-measure targets that are directly related to revenue are set to incentivize Customer Success Managers to exceed their goals.
However, the variable payment doesn’t have to be limited to revenue generation alone. Soft metrics like the number of advocates, level of adoption, and unpaid training can also be tracked and compensated.
What Is the Best Customer Success Manager Salary Plan?
The variable compensation plan offers more benefits for both the Customer Success Manager and the SaaS business. It is based on clear goals that are aligned with the company mission and can be used to drive proactive behavior in customer success managers. Customer Success Manager is more motivated and can predict precisely how much they earn based on how much retention and expansion they achieve for the company.
The variable model is becoming more commonplace, and according to Totango’s 2016 CSM salary survey, about 75% of customer success professionals received variable compensation. As the most effective and productive way to compensate Customer Success Managers, we’ll focus on how SaaS businesses and Customer Success Managers can get the most out of this model.
Designing the Perfect Variable Customer Success Manager Salary Plan
The primary objective of the Customer Success Manager is to retain and grow their customer portfolio over time. Hence, their compensation should reflect the fulfillment of these revenue-generating duties. A good compensation plan should be simple, fair, and easy to implement.
Below is a process for creating compensation plans that work for the Customer Success Manager in charge of revenue retention and expansion.
1. Determine the On-Target Earnings (OTE) Split for Customer Success Manager Salary Plan
Before deciding the base pay or commission rate for Customer Success Manager performance, you must determine the On-Target Earnings (OTE). On-target earnings is a realistic forecast of the total potential compensation that Customer Success Managers can receive if they meet their performance targets. It is usually the sum of the base salary and variable compensation.
The Customer Success Manager plays different roles at different levels in SaaS companies so customer success leaders must determine the ideal base-variable split for Customer Success Managers based on their roles. A good example of a base-variable split is 80/20.
In this case, if the OTE is $100,000 per year, the base salary is $80,000 (80%), and the variable compensation is $20,000 (20%). Variable compensation lesser than 20% may be too small to motivate the Customer Success Manager.
2. Identify the KPIs for the Variable Customer Success Manager Salary Plan
The Customer Success Manager is held accountable for many metrics, but no compensation plan can account for all of those metrics. To simplify things, SaaS businesses can provide compensation for the essential metrics that define the Customer Success Manager’s role; revenue retention and revenue expansion. In cases where other soft metrics are better indicators of value delivered, those metrics will be more appropriate for the variable compensation plan.
Apart from retention and revenue expansion, other KPIs that can be tracked and compensated include:
- User adoption
- Number of advocates
- Number of bookings
- Customer Health Score
- Number of case studies generated
- Portfolio Growth
- Activity goals such as logins, meetings, or EBRs
In essence, select two KPIs that reflect the company’s objectives to incentivize the Customer Success Manager to deliver on those objectives.
3. Determine the Variable Split for Customer Success Manager Salary Plan
Once the right KPIs have been identified, a portion of the variable compensation should be allocated to each KPI. For example, variable compensation can be split 60/40 between retention and expansion. More quota should be allocated to retention since it is an essential responsibility of the Customer Success Manager.
Using our previous example of an annual OTE of $100,000 with an 80/20 split, the total variable compensation is $20,000. If we have a 60/40 variable split, $12,000 is allocated to retention targets while the remaining $8,000 is allocated to expansion targets.
4. Set Targets for Customer Success Manager Salary Plan
Determine the targets that the Customer Success Manager needs to achieve for them to receive 100% of their payout. This is an important part of the compensation process so I would recommend working with the CFO to align Customer Success Manager targets with company targets.
I. Retention Targets
More retention indicates that more value is being delivered to customers. To compensate the Customer Success Manager for revenue retained, set a target for 90% retention or a more suitable target based on recent trends. If the Customer Success Manager retains 90% of the renewable revenue, the payout is the full portion allocated to retention, $12,000 in our example.
II. Expansion targets
Customer Success teams can partner with the Sales and Marketing team to estimate the expansion opportunity and set targets. Hitting expansion targets is considerably easier if the Customer Success Manager is proactive, has access to better tools, and has the right champion.
If the Customer Success Manager manages strategic cohorts using a high-touch approach, they can be more aggressive with expansion efforts. In this case, a lower quota, say 20% instead of 40%, would be more appropriate since huge customers usually have more opportunities for expansion.
If the variable quota for expansion is $8,000 and the company’s goal for expansion is $800,000, you can use these figures to calculate a Base Commission Rate (BCR).
Base Commission Rate (BCR) = Variable Split for Expansion / Company’s Goal for Expansion
In this case, BCR (%) = $8,000 / $800,000 = 1%
Each Customer Success Manager has its own BCR based on the size of the account the Customer Success Manager manages and the company goal for those accounts. The Customer Success Manager receives 1% of every dollar gained through expansion sales on the accounts they manage. For example, if the company gains $400,000 in expansion revenue, the Customer Success Manager receives 1% of $400,000, which is $4,000.
This approach to expansion sales compensation allows CSMs to receive benefits even if they don’t meet the complete expansion target. Account executives and sales executives that contribute to expansion efforts can also benefit from this compensation. This way, there is a smoother collaboration across different teams to accomplish the company’s goals.
When Not to Use Variable Customer Success Manager Salary Plan
As effective as it can be, the variable should not be used in these situations:
1. Unclear Goals
Variable Compensation plans can quickly become a distraction if the company or customer success organization is too young. This is mostly due to a lack of clearly defined company objectives and the impact of unforeseen factors on the Customer Success Manager’s salary.
2. No executive support
It is best to have executive support for variable compensation to prevent issues with payment when the Customer Success Manager achieves their goals.
Best Practices for Variable Customer Success Manager Salary Plans
Keep these in mind when you implement your variable compensation plans:
- Clearly define company objectives and how variable compensation facilitates it.
- Be clear about how to earn variable compensation and who is eligible to receive it.
- Maintain total transparency with Customer Success Manager when compensation strategies change.
- Have an open line of communication so the Customer Success Manager can ask questions or suggest improvements to the compensation plan.
- Align with the Sales or Marketing team to discuss working models and opportunities for collaboration on expansion.
Variable compensation plans motivate the Customer Success Manager, and it increases the likelihood of reaching goals and objectives. It challenges CSMs to overachieve on set goals and provides rewards for doing so. If the company’s goals are customer-centric and the CSM is provided with the right tools, variable compensation provides a win-win-win situation for the Customer Success Manager, the company, and the customers.
You can reach out to us at CSM Practice if you need help creating a compensation plan for your Customer Success Manager or migrating to a variable compensation plan.
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