$159,500. That’s the difference between the highest and lowest average salary for Customer Success Managers in California this year.
With such a wide range of earning potential, it’s hard to know what fair compensation looks like for a CSM. Adding commission structures to the mix makes it much more complicated.
So how exactly are CSMs compensated? And how do Customer Success Managers get commission?
Today, we're clearing up the confusion around exactly that. We’ll deep dive on the different kinds of CSM compensation packages, what they consist of, and how to find the right commission structure — both as an employer and as a CSM. Keep reading to discover everything from types of CSM compensation to what real companies are actually paying their CSMs.
Understanding the Different Types of CSM Compensation
There are lots of different ways Customer Success Managers get paid. In addition to base salaries, CSMs can make bonuses or commissions. Although the terms bonus and commission may sometimes be used interchangeably it’s important to understand how they are different before we go any further.
CSM Commission Structures vs. Bonuses
Commissions and bonuses are related concepts but they are not the same thing. What they do have in common is that commissions and bonuses are forms of variable pay, meaning they are not fixed salaries or wages.
1. Commission Structures
Commission structures are typically associated with sales roles but are also relevant to CSMs. Any income CSMs receive as part of commission-related compensation is tied directly to defined and quantifiable metrics. The amount of commission CSMs receive will either be a percentage of sales or a fixed amount.
Also, commissions tend to be paid out at regular intervals while bonuses are more likely to be sporadic.
Should CSMs get commission?
We asked Autoboxup CEO Benzo Lee for his stance on whether or not Customer Success Managers should be paid commissions.
“I have been deeply involved in shaping the compensation and benefits package for our CSMs,” Lee shares. “Recognizing the pivotal role they play, we've developed a comprehensive approach to ensure they are rewarded and supported, contributing to their job satisfaction and our company’s success.”
Their comprehensive approach includes a combination of “competitive bonuses, tailored benefits, and meaningful perks.”
Why? As Lee says, “We aim to create an environment where our CSMs feel valued, motivated, and equipped to excel” and offering commission is a powerful way to do exactly that.
Some in the field disagree with Lee and say commissions are counterproductive. According to one anonymous user on Reddit’s Customer Success forum, “When you put a quota on CS it dissolves the trust between the clients and their trusted advisor because now that person is only thinking about how much more money they can squeeze out of the customer and not focusing on how to provide value. You can offer bonuses for maintaining ARR [Annual Recurring Revenue] or for renewals instead.”
2. Bonuses
Bonuses, on the other hand, are often more broadly defined than traditional commissions. They’re meant to reward achievements such as hitting team revenue targets, high performance over a set period of time, and more.
Payout from bonuses don’t necessarily follow a percentage formula and are often discretionary. General bonuses may be awarded sporadically when a notable goal is accomplished or at certain key times every year depending on the company culture.
And to complicate matters, some consider commissions to be a type of bonus while others acknowledge that the meaning of the two terms vary from company to company. Some brands may even pay CSMs their bonuses on top of commissions.
The good news is that all of this should be defined in the fine print of your employment contract!
Let's do a deeper dive into the different CSM compensation options that are out there.
When defining a CSM compensation and commission structure, it’s important to understand how each of the following influences the numbers:
- The type of product the company is selling
- Average contract value per account
- The type of customers the brand serves (think B2B versus B2C, etc.)
- Customer portfolio size
- The experience and knowledge that any given CSM brings to the table
Compensation packages should adequately reflect the value of all of the above combined with big picture economic considerations (we’re looking at you, inflation!) and expectations for the role within your existing team.
That said, the most common CSM compensation plans fall into three categories: base salary only, base salary + performance bonus, and base salary + commission.
Top 3 Most Common CSM Compensation Plans
1. 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.
Pros: Base-only compensation packages tend to be above the market average in order 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 targets.
2. Base Salary + Performance Bonus CSM Compensation
A base + bonus compensation package is common for a lot of B2B SaaS companies. Performance bonuses pay additional compensation beyond your base salary or hourly wage.
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 the book of business you’ll be responsible for
If the bonus structure 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.
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.
3. Base Salary + Commission CSM Compensation
This compensation package also involves bonuses, but the big difference is that a commission 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 -> CSMs earn 2%of the net ARR retained
- Bonus Tier 2: 90%-95% net retention -> CSMs earn 3%of the net ARR retained
- Bonus Tier 3: 95%-100% net retention -> CSMs earn 4%of the net ARR retained
- Bonus Tier 4: above 100% net retention -> CSMs earn 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.
CSMs can also accelerate their bonuses with other variables such as upsells/cross-sells, and these variables can be tied to a dollar amount.
Note: 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.
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 Decode Commission Structures for CSMs
At this point it should come as no surprise that commission structures for CSMs can vary based on the specific terms and conditions set by each company.
However, there are common components of commission structures for CSMs. Knowing what these are in addition to the base salary + variable compensation models we’ve covered will help you better understand what your CSM contract is actually worth.
- Customer Health Metrics. Commission structures for CSMs may be tied to the overall health and satisfaction of the customers they manage. Metrics such as customer retention, renewal rates, and customer satisfaction scores could play a role.
- Revenue Generation. Some companies tie CSM commissions to revenue generation. This might include upselling or cross-selling additional products or services to existing customers.
- Expansion and Upsell. CSMs may earn commissions for successfully expanding the usage of a product or service within their assigned customer accounts. This could involve identifying opportunities for upselling or encouraging customers to adopt additional features.
- Renewal Rates. CSMs often have a vested interest in ensuring customer renewals. Commission structures may reward CSMs for achieving high renewal rates, which is critical for the ongoing success of a subscription-based business model.
- Customer Retention. Similar to renewal rates, some commission structures may be based on the ability of CSMs to retain customers over the long term. Retaining existing customers is often more cost-effective than acquiring new ones.
- Cross-Functional Collaboration. CSMs may work closely with other departments such as Sales, Marketing, and Product Development. Commission structures might include collaboration incentives, rewarding CSMs for contributing to overall company success beyond their specific customer portfolio.
- Quotas and Targets. CSMs may be assigned individual quotas or targets that they need to meet to qualify for commissions. These targets could be based on a combination of revenue, customer satisfaction, and other relevant performance indicators.
- Performance Bonuses. In addition to regular commissions, companies may offer performance bonuses for exceptional achievements or surpassing specific performance benchmarks.
- Tiered Structures. Commission structures may be tiered, with different levels of compensation based on performance. As CSMs achieve higher levels of success, their commission rates may increase.
Benjamins, Baby: Calculating the Actual Value of Your Commission Structure
So you have the salary and you know what type or types of commission structures are offered. But what would the payout actually look like? Here’s how to figure out the back-of-the-napkin math.
Step 1: Do your homework
Thoroughly read and understand the commission structure outlined in your employment agreement or contract. Identify the specific metrics or criteria used to calculate commissions. You may even be able to ask the hiring manager point blank what the average commission payout is for CSMs. If not, then the next step would be to gather data on how much the product(s) cost and what a typical client looks like for the brand.
Step 2: Calculate estimates
Conservatively ballpark what the metric used to determine commissions might look like. For example, if the commission is based on a percentage of revenue, you can estimate the average revenue generated per customer and calculate potential earnings based on different scenarios.
If the contract is unclear, don't hesitate to ask for examples or scenarios that illustrate how commissions would be calculated in different situations.
Step 3: Dig deeper
If possible, ask for historical data or benchmarks related to the commission metrics. Understanding how past CSMs have performed can give you insights into the realistic earning potential. If you do make this ask, emphasize how enthusiastic you are about the opportunity. Also be sure to frame your request for historical data as a way to better understand expectations and set yourself up for success.
Feel free to copy and paste this script:
I'm really excited about the opportunity to contribute to the success of the team. To ensure that I align my goals with the company's expectations, could you provide me with some historical data or benchmarks related to the commission metrics for this position?
If you’re not comfortable explicitly asking for company data, you can ask for success stories or examples of CSMs who have excelled in the past instead.
Remember: You can maintain a positive and collaborative tone throughout the negotiation process by simply being of service to helping the brand succeed. In other words, make it all about how clarification can help you help them.
Step 4: Zoom back out
Now that you have some rough estimates you can assess potential challenges and risks beyond your control that may be associated with achieving the commission targets. For example, potential union strikes and an economic recession may affect the primary metric used to calculate your CSM commission rate.
Also, don’t forget to look at the overall compensation package, including benefits, bonuses, and any other perks offered. Sometimes a comprehensive package can make up for a lower commission rate.
Remember: If any part of the commission structure is unclear or ambiguous, seek clarification from the employer or the HR department. It's crucial to have a clear understanding before accepting the job offer.
Beyond Commissions: Bonuses, Benefits, and Perks, Oh My!
The icing on the contractual cake, these extras boost salaries and are worth considering as you continue to decode the value of your commission structure.
- Bonuses. Bonus structures vary from company to company and even department to department. But for CSMs, the most common types of bonuses are interval-based and rewarded based on accomplishments during that given time period. Quarterly performance bonuses and year-end bonuses for overall team success are great examples of this.
- Benefits. Some companies go beyond the standard benefits of insurances and 401k for managerial level CS professionals. Some unique or specialized benefits offered by progressive companies include professional development opportunities, health and wellness programs, and corporate discounts at luxury goods stores.
- Perks. All things being equal, the employer-specific perks offered in a CSM contract may be the make or break. Examples include Evenbrite’s Zen Room for massages and Facebook’s free wash-and-fold service.
Insights from CS Leaders and Those Who Hire Them
How much commission do CSMs get paid?
This will vary from company to company but Lee was kind enough to share details with us on what his CSMs are paid out in commission.
“Our account managers are eligible for a variety of bonuses that reflect their individual performance and team achievements,” said Lee. “If customer satisfaction remains above 90%, a personal bonus is awarded. That typically equates to a bonus of about $2,000 a year.”
They also award bonuses beyond individual performance. “Team-based bonuses are tied to collective metrics such as customer retention, with teams receiving an additional $5,000 if customer retention exceeds their annual target of 10%. This dual structured bonus system is designed to encourage individual excellence and teamwork.”
What are some industry standard benefits and perks for CSMs?
Zeralabs Founder Zera Tang gave us the inside scoop of what they offer their CSMs and how their compensation is based on both “industry standards and our company values”.
“We understand the value of flexibility and work-life balance,” says Tang. “Our CSMs have the option of a flexible schedule, with the ability to start their workday anytime between 7 AM and 10 AM. Remote working options are also available, which over 60% of our CSM team utilize at least once a week.”
Tang went on to say that “company-sponsored events are a regular occurrence, with at least one major team-building retreat annually. Last year, our retreat to a nearby resort, which included team-building activities and relaxation sessions, was particularly well-received and saw attendance from all CSM team members!”
How can you negotiate a salary increase as a CSM?
“Like in every organization, having a few clear ‘wins’ under your belt are always great to support your cause,” says Customer Success Leader and current Bedrokk Contributor Enrique Roth.
“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.”
If you don’t have the data already at your fingertips, sending a quick note to former colleagues asking for information on the measurable value of your work with them will do the trick.
Hint: Requesting a screenshot of any of the data points mentioned above is an easier ask than making them dig through their entire CS platform.
Keys to the Commission Castle
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 monitor 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!
