Designing the Perfect Compensation Plan for Account Managers and CSMs

Introduction: Compensation Shapes Behavior

All compensation plans have a message. When Account Managers and CSMs are compensated only on expansion revenues, they focus on sales. However, when their compensation depends solely on customer satisfaction, they avoid business discussions. The best performing companies understand that compensation drives behavior and affects relationships with customers.

The Customer Success field has changed drastically. Now account managers and CSMs are supposed to not just manage relationships but also retain customers, promote product usage, find possibilities for expansion, and create value for clients. Thus, their compensation plan must take all those aspects into account rather than concentrating on one metric.

Creating a perfect compensation plan for Account Managers and CSMs means finding the balance between advocacy and commercial performance.

Rewarding Customer Retention

The perfect compensation program design process starts with customer retention because retaining customers can be more profitable compared to bringing new ones into the company. Renewal is an essential key performance indicator that should be considered during the process.

Renewal on time should be included in every compensation plan because there is too much risk for both parties if the discussion of renewal takes place in the last weeks of the contract period. Thus, the compensation program should encourage Account Managers to manage renewals in advance in order to solve arising issues and show business value to the customer during their whole lifecycle.

Another key metric to consider is Gross Revenue Retention (GRR). GRR should be taken into account because it evaluates the ability of teams to keep recurring revenue from customers, unlike the customer satisfaction survey, which indicates whether customers are satisfied or not. If GRR is included in the compensation program, it will motivate Customer Success professionals to care about their customers and their success.

Customer health is another factor to include in compensation plans. With the help of customer health, teams will see all possible risks to prevent renewal of the contract.

Incentivizing Expansion Revenue

Though retention is key, creating the best incentive scheme for Account Managers and CSMs must also incentivize sustainable account growth. Expansion revenue is key in increasing net revenue retention and maximizing customer lifetime value; however, it must always come after realizing the value first.

Upselling incentives must only be offered once the customer has realized tangible business outcomes from their current product offering. It is much easier to sell an extra product or service to a customer who has already realized value from the current solution they bought. Not only will it build trust, but it will also increase the chances of successfully expanding.

Cross-selling must be seen as an extension of customer success and not sales. Growth opportunities present themselves once the Account Manager sees other issues, departments, or needs that exist within the organization. The incentive schemes must encourage consultations that will help the customer solve their problem and not just try to sell them products.

The end goal of sustainable account growth must always remain the same. Organizations will gain the most from customers who have expanded because they see more value in doing so, and not because they were forced into buying more software.

Balancing Individual and Team Incentives

Another key thing that needs to be considered when designing the ideal compensation scheme for Account Managers and CSMs is balancing individual and teamwork. Customers require a coordinated effort from several departments to succeed, making incentive programs ineffective without such balance.

Both sales and customer success teams must be involved in delivering results for the customer. The sales team creates customer expectations during the buying process, whereas customer success teams ensure that the customer achieves the promised results. Shared ownership is essential in building better handovers and communication processes, which will improve the customer experience.

Customer success ownership will decrease internal friction as well. When all teams work towards the same objectives of retaining and growing customers, customers will get the most consistent advice on how to accomplish this. Cooperation will become more valuable than the fight for the ownership of results.

Compensation schemes with balanced incentives will avoid any conflict between the teams. If some teams are being rewarded, whereas others are not getting anything for helping the customer grow, such collaboration is hard to achieve.

Avoiding Compensation Mistakes

Companies find it difficult to design the ideal compensation scheme for Account Managers and CSMs, as they reward the wrong things unknowingly. Poor incentive schemes can harm relations with customers and lower revenues in the future.

First of all, there is a tendency to focus too much on expansion revenue. While expansion is important, rewarding upsell results in aggressive selling before customers have seen some real value. It reduces customer satisfaction and negatively affects relations between them and the company.

Not paying attention to retention can also cause severe problems. Incentive schemes must include renewal rates, customer health, and Gross Revenue Retention metrics. Otherwise, Account Managers will care only about new revenues, forgetting about existing ones.

Rewarding short-term performance is also a pitfall in compensation schemes. If they emphasize quarterly contract value and do not take into consideration customer outcomes, the performance will be transactional, as Account Managers will try to meet their quarterly goals instead of helping customers.

The best compensation schemes reward balanced performance. They focus on retention, value realization, and expansion based on trust and teamwork.

Conclusion

When creating an ideal compensation package for Account Managers and CSMs, there is more than just figuring out how much they should earn. The goal is to determine what behaviors can help build sustainable and enduring customer relationships.

Successful compensation packages motivate renewal, good customer relations, Gross Revenue Retention, and value-based expansion. In addition, they incentivize Customer Success specialists to focus on customer success, while appreciating the business aspects of account growth. Moreover, they promote cooperation between Sales, Customer Success, and all customer-centric departments without promoting competition inside an organization.

There should be no incentives to push customer success specialists to generate sales instead of providing customers with value. Expansion revenue must be earned based on trust, value, and the impact of the solution on the customer's business.

In the end, the best compensation plans are those that motivate people to focus on customer success. When Account Managers and Customer Success Managers have incentives to build long-term value for customers, companies reap the benefits of better retention, Net Revenue Retention, loyalty, and revenue growth. These are the same measurable outcomes that distinguish top-performing Customer Success professionals. Learn more in our guide on High NRR and Long Tenure: Deconstructing the Perfect CSM Resume.