Commissions for CSMs: Best practice

As competition intensifies, more and more companies are losing some of their customers. In 2023, for example, there was a sharp drop in retention figures for listed US companies, sometimes by as much as 20 points. To remedy this, it is therefore crucial to focus on developing and retaining the customer base.

And to achieve this, the remuneration of employees responsible for developing and retaining the customer base, i.e. the CSMs, is a powerful lever.

However, building a commission plan for CSMs is a complex task that requires specific skills and knowledge.

In a webinar on the topic, Aude Cadiot (Co-founder of Ocobo), Valentin Lejot (Head of CS at Planhat) and Antoine Fort (CEO at Qobra) got together to share their advice, methods and tips for drawing up a good commission plan for your CSMs teams!

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1. Defining the missions of the CSMs

Before getting to the heart of the topic, it is important to take a step back and redefine the missions inherent in the CSM role. What's more, each organization has its own interpretation of the role of the CSM, so it's important to clarify these missions and their impact.

The different missions of the CSMs

• Onboarding: This concerns the process of implementing the solution and/or service with customers. In concrete terms, this involves guiding customers through the first stages of their experience, training them in the solution and helping them to achieve the first value gains.
• Retention: The aim here is to minimize the churn rate by maintaining a high level of customer satisfaction and ensuring that they achieve the results they set themselves when they purchased the solution and/or service.
• Expansion: This involves maximizing and increasing the revenue generated per customer by identifying new opportunities for additional sales. For example, adding new functionalities, increasing the number of users, expanding the scope of the project to include subsidiaries, etc.
• Advocacy: The aim is to turn satisfied customers into ambassadors for the company, so that they can share their successes and positive experiences with other prospects through case studies, customer testimonials, speaking at events, reference calls, etc.

The different organizations of the CSMs departments

As mentioned above, each company has its own vision of the CSM department and will adapt its organization accordingly. As proof of this, according to a study by The Bridge Group, the people responsible for renewal and additional sales are, depending on the company, CSMs, but also AMs or AEs!

"Depending on the organization, the responsibilities of the CSMs vary according to a number of criteria: complexity of the product, type of customer, business model, length of sales cycles, size of the company, etc."

Aude Cadiot, Co-founder of Ocobo

Today, there are 3 types of CSM profile:

• CSM full stack: Responsible for supporting the customer throughout its life cycle in the 4 CSM missions (Onboarding, retention, expansion, advocacy).
• CSM & AM/AE: Responsible for retention, ensuring that the expected value is delivered. The CSM can identify opportunities for expansion but must work in conjunction with an AE or AM, who is responsible for sales reps.
• CSM & Onboarding Manager/Professional Services: Responsible for supporting the customer, in conjunction with an Onboarding Manager/Professional Services during the onboarding phase, so as not to be in charge of the technical aspects. However, the CSM remains the guarantor of the project and ensures that it runs smoothly.

It is important to note that there is no one organization that is better than another; it must be specific to each company, and the model can and should evolve over time as the company grows.

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2. Commissions for CSMs: Mistakes not to be made

"Just like sales reps, to encourage CSMs to perform well on their renewal and/or expansion assignments, it is essential to offer them a share of commissions."

Antoine Fort, CEO at Qobra

As we will discuss a little later, this remuneration will depend on their tasks. However, there is a generic list of mistakes to avoid when designing a commission plan for your CSMs teams:

• Aligning the CSMs' commission plan with the company's overall strategy
• Bringing the CSMs' commission plan into line with those of other teams, such as the sales reps.
• Constructing a complex and incomprehensible remuneration plan with numerous rules, KPIs, etc.
• Indexing CSMs' commission to KPIs where they have no direct impact
• No visibility for CSMs on the progress and achievement of their objectives in relation to their commissions

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3. Commission plan for CSMs: 6 steps to follow

When it comes to commission plan schemes, companies tend to want to reinvent the wheel and be highly imaginative, both in terms of the operating rules, the indicators indexed to the commission plan and the calculation formulas.

However, before embarking on the selection of these parameters, it is essential to define the basics. There is a simple 6-step method for doing this:

1. Define the target variable remuneration (at 100% of target achievement) and its proportion in relation to the fixed salary. Experts on the topic recommend a split of 80% fixed salary and 20% commissions.
2. Define the upper and lower limits of commission pay, in other words, the trigger threshold and potential sales accelerators.
3. Define the KPIs linked to commissions, their importance and the way they are calculated. This is a crucial stage, as it determines the areas on which CSMs need to focus in order to do the extra mile and outperform. It is important to remember that a commission plan should not cover all the CSM's functions, as that is what the fixed salary is for.
4. Define SMART objectives and share them upstream. With the help of the Finance team, the aim of this stage is to distribute the global objectives to all the populations, in a cascade. It's important to note that this is an iterative process, as it requires a combination of historical analysis, market potential over the coming months and years, the financial budget and team development.
5. Define the frequency of the commission plan (annual, quarterly, monthly, etc.). The business model, the seniority, the length of the sales cycle, the type of customer, the maturity of the market... are all parameters that should help to define the right frequency to adopt. The more senior a population, in a stable market, with key account customers and long sales cycles, the less regular the frequency of the commission plan will be.
6. Measuring the effectiveness of remuneration plans. A few months after implementing a commission plan, it is essential to look in the rearview mirror: is the plan working? Has it made it possible to achieve the objectives set at the global level? Does it reward the best and penalize the worst? Etc.

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4. Commission plan for CSMs: KPIs

"The choice of KPIs is a crucial stage in the creation or redesign of a commission plan for CSMs teams."

Antoine Fort, CEO at Qobra

However, as we saw earlier, CSMs can have very different roles and missions, and therefore as many KPIs on which to be remunerated.

So we're going to take a look at the main and most common ones, and observe their various benefits and drawbacks.

Net Retention Rate: Advantages and disadvantages

The Net Retention Rate measures the percentage of sales retained by existing customers over a given period, including churn, expansion and contraction.

Formula: [(Monthly Retention Rate (MRR) at start of period - MRR lost due to churn - MRR lost due to contraction + MRR gained due to expansion)/MRR at start of period] X 100

💡 Good to know

An NRR above 100% indicates that the expansion of the MRR is sufficient to compensate for churn and contraction. It highlights the company's ability to generate additional revenue from the existing customer portfolio.

Net Retention Rate: Advantages 

• Directly linked to the company's performance, it enables the work of the CSMs to be associated with the Annual Recurring Revenue.
• Encourages up-selling. In the long term, this is a major source of growth, and less costly than acquisition.

Net Retention Rate: Disadvantages 

• If it is used as the only KPI, retention is discredited.
• Requires maturity in terms of organization and processes, and seniority within the teams.
• There needs to be a KPI monitored by the whole organization to have a greater impact and drive alignment between the Sales, CSMs and Product teams.

Churn rate: Advantages and disadvantages

The churn rate, which mirrors the retention rate, is an indicator that measures the rate of customer loss per period. The lower the churn rate, the more revenue the company will generate over the long term.

Formula: Number of customers lost over a given period/Total number of customers present at the start of the period

Churn rate: Advantages

• Fundamental function of the CSM role. Recurring income is vital to the company.

Churn rate: Disadvantages

• Strongly linked to the health of customers (bankruptcy, merger, etc.) against which CSMs have no impact.
• Impossible to weight according to the size of customers and the revenue they generate.
• Complexity of predicting churn without dedicated tools.

Net Promoter Score: Advantages and disadvantages

The Net Promoter Score (NPS) is a measure of customer loyalty and satisfaction that involves asking customers whether they are likely to recommend the product and/or service to others on a scale of 0 to 10. 

Formula: % of promoters (9-10/10) - % of detractors (0-6/10)

Net Promoter Score: Disadvantages

• Perhaps unrelated to the health of the customer account. Satisfaction is not necessarily linked to the financial health of the company, and therefore a potential obligation to stop a product or service for budgetary reasons.
• Strongly linked to the product and/or service itself and not to the quality of the work or the relationship with the CSM.

Time to value: Advantages and disadvantages

Time to value measures the speed with which customers expect to benefit from the value provided by the product and/or service. For example, if we assume that value is achieved at the end of the onboarding phase, then Time to Value can be interpreted as the duration of onboarding.

Time to value: Advantages

• This is an excellent way of pacing the onboarding phase and avoiding onboarding sessions that take too long. The methodology must be based on the customer journey and take into account the adoption of the product in terms of usage.

Time to value: Disadvantages

• Often correlated with project complexity and allocated customer resources. 

Customer satisfaction post onboarding: Advantages and disadvantages

Customer Satisfaction (CSAT) measures customer satisfaction through the onboarding phase. It provides an indication of the extent to which the onboarding process meets customers' expectations and needs. A high CSAT score indicates a positive onboarding experience and increases the likelihood of customer loyalty.

CSAT post onboarding: Advantages

• Ensures the right level of customer satisfaction at a key stage: onboarding. What's more, this KPI can be correctly associated with Time to Value.

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5. Examples of CSM commission plans

Commissions for CSMs at Qobra

The commission package for CSMs at Qobra

• Fixed salary: 80% of salary
• Commissions: 20%

KPIs of the commission plan for CSMs at Qobra

• KPI #1: Gross Retention
• KPI #2: Upsell

Methodology for calculating the commission plan for CSMs at Qobra

• Less than 80% Gross Retention: 0% of commissions
• Between 80% and 85% of Gross Retention: Between 1% and 50% of commissions
• Between 85% and 90% of Gross Retention: Between 50% and 100% of commissions
• Between 90% and 95% of Gross Retention: Between 100% and 200% of commissions
• Between 95% and 100% of Gross Retention: Between 200% and 300% of commissions

Commissions for CSMs at Planhat

The commission package for CSMs at Planhat

• Fixed salary: Between 70% and 80% of salary
• Commissions: Between 20% and 30%

KPIs for the commission plan for CSMs at Planhat

• KPI #1: Gross Churn
• KPI #2: Expansion
• KPI #3: Onboarding
• KPI #4: Key meetings

Methodology of the commission plan for CSMs at Planhat

• Gross Churn:
  • < X% : Tier 1 Bonus
  • < Y% : Tier 2 Bonus
• Expansion:
  • < X% GC: Y% commission
  • < W% GC : Z% commission
• Onboarding:
  • +X%: Tier 1 Bonus
  • +Y%: Tier 2 Bonus
• Key meetings:
  • +X%: Tier 1 Bonus
  • +Y%: Tier 2 Bonus

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The last word...

As mentioned above, establishing an effective commission plan for Customer Success Managers (CSMs) is crucial to aligning individual objectives with the company's overall strategy. In an increasingly competitive landscape where customer retention and expansion are imperatives, commissions are becoming an essential lever for encouraging the performance of CSMs teams!

Ultimately, commissions for CSMs are about more than just finance; they are a strategic tool for driving business growth, retaining existing customers and boosting employee engagement. Based on sound practices and relevant metrics, companies can truly leverage the potential of CSMs to achieve their long-term sales reps objectives.