[Chuck Berry's birthday was yesterday. The legendary rock and roll guitarist turned 89. Happy birthday Chuck!]
Assuming your Customer Success Manager team has avoided the pitfall of being subsumed by technical support (there should unequivocally be a separate function this), you typically have three schools of thought on how to comp CSMs:
Revenue (broadly)
Product usage & adoption
Discretionary
Revenue: this is arguably the best way because 1) revenue matters, 2) CSMs can directly impact it and achieve upside, and 3) it creates a sense of ownership over their accounts.
Product usage & adoption: this is the second best option. Your customers won't derive value from your software/product without usage. Therefore usage is key to obtaining ROI, earning organizational adoption, and securing renewals and growth.
Discretionary: this option is easy in the sense it requires little overhead for the manager; however, it is highly subjective and doesn't clearly align CSMs with any tangible business impact. Therefore, it is the worst option (although it is quite common).
Side note: In terms of base/variable split, most CSMs we've encountered are on an 80/20 split, e.g. $80k base, $20k variable, $100k OTE. The $20k variable is often paid quarterly ($5k per quarter). Salaries range from $75k (entry level) to $180k (very senior).
Let's unpack the revenue method: CSMs typically own a "portfolio" of accounts. CSMs work with customers to understand their goals, and connect those goals with capabilities of your product the success of which will be increased usage, increased value and ultimately retained/expanded revenue.
Since Chuck Berry's birthday was yesterday, let's say a hypothetical CSM—named Chuck—starts Q4 with 80 accounts paying $5k MRR for a total of $400k MRR or $4.8MM ARR. In each month customers can churn, expand, or renew with no change (flat renewal).
You can therefore calculate a net retention metric for Chuck:
Chuck Berry's hypothetical Q4 performance.
The formula for net retention = 1 + ((Expansion + Churn)/MRR managed). So in Oct-2015, we'd have: 1 + (($3,000 + (-$4,000))/$400,000)), or 99.75%. Sum it all up, take the average, and Chuck delivered an average monthly net retention of 100.04%, or 100.48% annualized (100.04^12).
Now the question becomes: Is that good or bad based on your business model?
Generally speaking, net retention below 100% is bad. That means you have a churn problem and customers are net leaving you. That is a separate conversation. Best in class net retention is 101-102% monthly, or 112.7%-126.8% annualized. Companies that DBT is advising are targeting 101.6% monthly net retention which equals the nice round number of 120% annualized.
A fair CSM comp model might look something like this: if Chuck achieves between 99-100% net retention, he gets his OTE quarterly bonus of $5k. BUT, if Chuck gets 100%, or 101% or 102% he can hit accelerators and earn $7k, $10k, or $15k respectively.
Some might gawk at paying a CSM $15k in a single quarter, but think about what Chuck has done for your business: he has net expanded his portfolio by 2% each month (102%) which is $8k MRR per month or $24k MRR for the quarter. $24k MRR is $288k in additional annual revenue for your business! $15k represents 5.2% of the gain, a modest price to pay for enviable net retention metrics.
Think about THAT next time you're listening to Johnny B. Goode.
Go Johnny go.