When defining a CSM compensation and salary package, it’s important to understand the type of product the company is selling, average contract size, the type of customers, customer portfolio size, and the experience and knowledge that any given CSM brings to the table.
Today, we're covering the different kinds of CSM compensation packages, what they consist of, and how to find the right compensation package—both as an employer and as a CSM.
Understanding the Different Types of CSM Compensation
Let's do a deeper dive into the different options that are out there. The most common CSM compensation plans fall into three categories: base salary only, base salary + performance bonus, and base salary + variable bonus
Base Salary Only CSM Compensation
Base pay is defined as the initial salary paid to an employee, not including any benefits, bonuses, or raises. It is the rate of compensation an employee receives in exchange for services. An employee's base pay can be expressed as an hourly rate or weekly, monthly, or annual salary.
Note that if a CSM's role within a company is to own retention and expansion revenue efforts, then an employer should consider offering a base salary that is above the market average in order to make it compelling enough to attract quality CSM talent.
Base Salary + Performance Bonus CSM Compensation
By definition, bonus pay is additional compensation beyond your base salary or hourly wage. A base + bonus compensation package is common for a lot of B2B SaaS companies. In this scenario, bonuses are typically tied to Customer Success objectives such as retention and growth, and offer the CSM an opportunity to increase their overall salary based on performance. As for the employer, by further incentivizing CSMs to drive business growth with a bonus in place, CSMs tend to achieve better results because, well, that's why incentives exist.
In order for this model to succeed, the company must clearly define the objectives and timeframes, and most importantly, these objectives need to be realistic. There is nothing more disheartening for an employee than to have goals that are out of reach.
If the hiring company has this kind of package in place, as a CSM, it's important to know the following pieces of information:
- Average Contract Value (ACV)
- Current retention rates
- Approximate number of accounts in their book of business
If the bonus structure in place rewards CSMs based on retention, then the CSM will likely get a percent of that net retention as a bonus. So, the larger the ACV, the bigger the bonus. While this type of bonus structure is commonplace for Customer Success teams in B2B SaaS, there are many types of bonuses out there. So, be sure to do your research, and if there's room for negotiation, explore which options make the most sense for you and your situation.
Base Salary + Variable Bonus (a.k.a. Quota, Commission, Accelerators) CSM Compensation
This compensation package also involves bonuses, but the big difference is that a bonus with variables/accelerators gives high-performing CSMs the opportunity to increase their bonus exponentially.
The variables in place are usually determined by the net retention and/or logo retention, and the ARR growth achieved during the specified timeframe.
In order for this compensation structure to succeed, the company must have different compensation and bonus tiers in place, for example:
- Bonus Tier 1: 80%-90% net retention -> 2%of the net ARR retained
- Bonus Tier 2: 90%-95% net retention -> 3%of the net ARR retained
- Bonus Tier 3: 95%-100% net retention -> 4%of the net ARR retained
- Bonus Tier 4: above 100% net retention -> 5%of the net ARR retained
That way, the higher the net retention is, the more the company grows, and the higher the performance bonus will be. Furthermore, CSMs can accelerate their bonuses with other variables such as upsells/cross-sells, and these variables can be tied to a dollar amount. Note that some companies may put fixed bonuses in place for upselling new and/or important features of the product that are strategic for the company to sell to customers; this is commonly known as a spiff.
The Pros & Cons of Each Type of CSM Compensation Plan
It's tricky to make a general, overarching statement about which type of CSM compensation is best. Every SaaS business is different, and therefor, have different compensation plans in place based on what makes the most sense for the company and its employees. To that end, we can make a few anecdotal statements about the pros and cons of each compensation plan.
Base Salary Only
Pros: Base-only compensation packages tend to be above the market average in order to make it compelling enough to attract quality CSM talent. It also reduces the temptation for CSMs to push upsells or expansions that are not in their customers' best interest.
Cons: Goals can be arbitrary, and CSMs have no clear financial incentive to hit their revenue goals.
Base Salary + Performance Bonus
Pros: Base + performance compensation packages incentivize/reward desired CSM behaviors, and tend to tie back to company KPIs which better contextualizes goals.
Cons: Performance-based goals (and payouts) can be arbitrary and qualitative, making payouts difficult to quantify or fixed from the start, not taking into account exceptional performance.
Base Salary + Variable Bonus
Pros: Holds CSMs accountable to their goals, and accelerators reward performance that goes above and beyond set goals.
Cons: CSMs could spend too much time focused on growing revenue than helping their customers achieve their desired outcomes.
How to Negotiate a Salary Increase as a CSM
Now that we went through the different types of compensation packages that can be offered, and the pros and cons of each, it is important to understand how a CSM can negotiate for a salary structure that works best for them.
Like in every organization, having a few clear “wins” under your belt are always great to support your cause—retaining your customers, increasing product adoption, and growing your customers’ accounts are good to highlight because they relate directly back to company KPIs and can be easily quantified. Moreover, if you can prove that the strategies you have implemented led to these results, it’s the perfect formula to showcase your value as a CSM within your organization.
Once you have built your case, identify where it is that you could be earning more based on the results you’ve achieved (retention, upsells, cross-sells), then understand how flexible the company is in regards to changing the compensation structure. Have a conversation with your manager and try to get an increase in the area where you are achieving the best results. If you encounter some pushback from your manager/company on increasing your bonus fees, you could always ask for a higher base salary and/or request to add larger logos to your portfolio so your total net retention is based on a higher ARR than before, thus increasing your earnings.
The main idea of having a bonus compensation structure in place is to reward high performers and allow them to maximize their potential earnings based on their results. In a nutshell, the bigger the net revenue growth that is derived from the work of the CSM, the higher the potential earnings the CSM should get access to.
All that to say, having a performance bonus or variable bonus structure based on performance in place at your organization can get difficult to keep track of if you don't have the right tool in place to track expansion revenue. A tool that also automates CSM account assignment doesn't hurt either. The good news? Vitally does both. Request a personalized demo today.