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Similar to Type 1, companies follow a one-time payout of 1-3% of the implementation revenue. Error submitting the form. You can set up your Type 2 plans in the following split: Now that we have covered compensation structures and commission plans, its time to optimize for your SaaS product, representative type, and the ACV of your customers. Experience and time in the role have a generally positive impact on the employees salary and benefits. Also, we will cover profitability as a metric to the compensation plan so that you can get this approved by your finance leaders as well (ka-ching!). Strategic selling is about truly understanding the nuances of a customers business and their needs, and fitting a product or service perfectly to fill in the gaps. This ensures the primary responsibilities of sales and customer success are reflected in their respective comp plans and aligns them in a complementary way to drive growth and retention. Account managers should not be commissioned for maintaining the current order volume. Instead, consider adding a bonus or variable comp on top of the base salary (if you have the budget to do so) or using annual pay increases as a way to slowly migrate in the direction youd like. If sellers dont understand how they will be paid, then it is very hard to use compensation to motivate them to perform in a specific way. 885 Arapahoe Avenue Even though you hired the representative here at a ratio of 5, when they perform better, the ratio increases. Unless you have a very strong baseline and a fast-growing business, it usually doesnt help. Scenario #2: Your revenue is measured in dollars whereas your commissions are not paid out in dollars. Example: Zoom, Slack. At the same time, the focus must not be entirely on their own goals, or the customer may not be willing to enter a long-term partnership. Let us know some of the biggest challenges your organizations face as it relates to evaluating account managercompensation plan design in the comment section below. That is when I became converted to at Base + Variable plan. Compensating the Sales Force, Second Edition. We also took a look at pay mix, which splits TTCC into two components: base salary and target incentive amount. You are an MM/Enterprise-only product and, in general, your deal velocity is low with high ACV. Ready to learn more about being an Account Manager and take your Quarterly Business Reviewsto the next level? But, hold on. Next, identify the KPIs that will be the basis of your plan. Here is an example of a sliding scale for each KPI. Base = $75,000 From this, its possible to on to a number of other directorial positions, such as Sales Director, VP of Sales, or National Sales Manager in larger organizations. For both KPIs, Id focus on revenue core revenue retention (excluding cross-sell & upsell) and revenue expansion (up-sell and cross-sell). and You may have other key performance objectives youd like your team to execute against (NPS, adoption goals, However, ultimately your business is expecting your CSMs to retain and expand your customer revenue so dont beat around the bush and just measure them against those metrics. For more info on hiring and compensating CSMs, read here. However, in a high velocity business, it's uncommon because high velocity AEs dont have renewal or expansion goals. So, after hitting their targets, they sit back and simply push the upcoming deals to the next quarter, where they will be incentivized for closing them. Read more: Position Sales Teams to Grow Accounts, Not Just Retain Them. But for current employees, you need to migrate with care and consideration. Its easier to show the relevant skills through a similar previous job or a few years of positive experience in a currently held position. Theres wide debate in the customer success discipline regarding the best structure for a CSM compensation plan. The role of a salesperson is very clear: sell the companys products or services to new and existing customers. Sales leaders who implement effective compensation plans motivate account managers to grow and retain accounts. The Key Account Manager is the one responsible for arranging and executing the best KAM strategies for their company. Ideally, most objectives are quantitative and aligned to the important KPIs of the business (retention, upsell, cross-sell, NPS, # of case studies, etc.). My first advice when building a variable compensation plan for CSMs is to keep things as simple as possible and focus on 2 or 3 (max) KPIs. The organization broke my top rule to keep it simple. OpenSymmetrysStrategy Solutionsteam first suggested the company define their Sales Compensation Philosophy, which helps align the organizations business, talent, and sales strategies with decisions made in the compensation design process. However, from my experience, a bonus structure still has a few shortcomings. Doing so will be a hard pill to swallow for the CSMs as they are used to (and rely on) their current base salary. In the first post of this two-part series, I addressed a key question that often surfaces about who owns the renewal. Now that you have your 2 KPIs identified, you need to determine how much of the variable portion will be paid against each KPI. Here is a little more details on how to approach setting it up. They are aligned to core business KPIs and arent , Variable Split = 75%/25% retention-to-expansion. Gartner Terms of Use To sell strategically, the Key Account Manager must be able to sell their products and services seamlessly without having to pitch the idea. And when it comes to implementation fees, as they are very common in high ACV businesses, you should clearly state it as part of the plan. This can lead to many other higher managerial positions within the sales, development, and account management departments. Strategic Account Managers have low influence they handle the largest company accounts and manage the resources that help meet customer needs; therefore, the pay mix should be closer to 80/20 or 75/25. David J. Cichelli. For most of the year, the CSMs counterpart on the sales side of our business was nowhere to be seen, only occasionally popping into the equation to see how things were going. Check it out: Thank you for signing up for Everstage demo! Kicker models are the way to go! How Successful CSMs Build Strong Rapports With Customers, Tried and True Recipe for Retaining Customers and Building Loyalty. Talk to our in-house RevOps expert right away! Drop your email in and lets do it together. They must be able to think strategically about how to positively impact their customer and help them succeed without losing focus of their own goals of growing and expanding the account. For example, a 90/10 pay mix reflects a base salary equal to 90% of TTCC and a target incentive amount equal to 10% of TTCC. Creating a Customer Loyalty Program? USA, Take the Annual State of Customer Success Survey and Win Prizes. Here, a rate-based method doesnt make sense. Success in this position revolves around both the key account customers and the company growing because of the partnership. For each of their accounts, they had a Strategic Account Manager and a number of other resources assigned, such as Solution Architects and Sales Engineers. Take a glance at the table below. Bonuses area always specific to individual companies, though it is common for Key Account Managers to receive bonuses based on their performance or annual bonuses. Reps get a shot at getting paid more if they overachieve on their targets. Health insurance benefits are typical, including medical and dental insurance benefits. Larger organizations will have more potential for advancement because of the variety of positions above that department. Before choosing the plan type and metrics, it is important to understand that each role has a specific set of goals critical to the overall business objectives. In fact, they make your sales efficiency numbers improve. These large organizations require multiple resources, such as pre-sales and customer service, to meet their needs. At the time, we were compensating our CSMs on a mere bonus structure and this CSM probably made $2,000 on the renewal. Some organizations use specific numbers, such as targets or percentiles: Company A pays its employees at the 50thpercentile of the regional wage market.. and Ex: Planning tools and compensation tools. These are skills that can only be shown through experience and a positive track record in areas where these skills would have been required. So, how do you compensate the strategic account manager? Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. At Company B, total rewards include base pay, variable pay, health and welfare benefits, retirement benefits, PTO, education, training and other rewards such as career and job development.. Some companies are non-specific and instead focus on the principles that guide how the organization will pay its employees: Company C provides rewards designed to motivate employees to achieve individual and company goals, with the opportunity to earn more for top performance.. Referring back to our example above, with a 75/25 OTE split you will then mirror that with a 75/25 retention-to-expansion split for the variable portion of the comp plan. Retention = ($25,000 * 75%) = $18,750 CSMs are neither impacted by severe under-performance, nor rewarded for over-performance. Typically, I see the following three CSM compensation models: Ive tried all three models over the years and prefer the third model: Base + Variable. The CSM worked tirelessly the entire year to successfully manage this customer and drive value across their global entities. In my opinion, a CSM compensation plan that is 100% base salary is a mistake. Along with these business challenges came an even bigger test: how to compensate their Strategic Account Managers (sales performance management planning). But I would track those separately and focus the compensation plan on 2-3 KPIs, in this case, retention and growth. By clicking the "Subscribe" button, you are agreeing to the As a large, complex organization, they were approaching the Penetration Phase on the business maturity spectrum. Copyright 2010. First, determine the ideal base-to-variable compensation split for your CSMs. I like to see the base-to-variable split anywhere from 70/30 to 80/20 against the total on-target earnings (OTE). Todays organizations are more complex; they sell through multiple channels, have complicated coverage models, and network of sales roles to sell their products, services, and solutions. If youre curious, heres a list of some secondary success metrics: Lets go over our journey till now and look at what we have learned about designing a perfect compensation plan for your teams: Weve also made a shareable image of the summary. Smaller organizations may have difficulty offering a variety of upward career paths for this position, which is something to consider before joining an organization. The sales teams are usually one part of your company and these deals are your big customers. Here are the recommended steps: As an example, we completed a sales compensation plan audit for a telecommunications company last year. Download the CSM Variable Compensation Structure Image. Straight answer: Not a chance! Whereas an entry level position may pay an average of around $63,000 annually, the same employee may earn upwards of $100,000 after 20 years in the position. Commissions are usually added as a bonus for a lower salary manager, and are not typically high for those with an already high salary. This is another area that is specific to each company, depending on how they have arranged payment and benefits for the position. Total Target Cash Compensation includes both the base salary and sales compensation components and excludes benefits, contests/SPIFs, and other recognition occurrences. However, ultimately your business is expecting your CSMs to retain and expand your customer revenue so dont beat around the bush and just measure them against those metrics. If a rep overachieves on their quota, this ratio doesnt change a lot. Different types of primary success metrics can help you decide what works best for a high velocity sales team and a low velocity sales team. You can imagine the frustration of the CSM who came to me and said, Why is it that I did all the work throughout the entire year to ensure this strategic account renewed (and they renewed in a big way), and yet I get a $2,000 bonus and the sales rep (who did nothing all year) bought a new yacht with his commissions? And he was right. This is an exhaustive list but that doesnt mean you should use all of them. You can imagine the frustration of the CSM who came to me and said, Why is it that I did all the work throughout the entire year to ensure this strategic account renewed (and they renewed in a big way), and yet I get a $2,000 bonus and the sales rep (who did nothing all year) bought a new yacht with his commissions? And he was right. The account gets transferred to the customer success or account managers team in a very short span (less than 6 months). New product introduction into the account, Delivering on upsell or cross-sell opportunities, Establish the Total Target Cash Compensation, Keep it Simple no more than 3 plan metrics/components, No Formal Quota each major account has unique account circumstances, Plan Components revenue, growth, churn, sales initiatives (i.e., increase utilization, penetration, cross-sell), and account sales planning/outcomes. Sales reps of junior or senior levels are usually at the firing line and need to stay razor-focused on their goals. 2022 Everstage, Inc. All rights reserved, Opportunity generation: Prospecting emgine, Commmission % as part of deal value (reserved for most use cases), Commission % as part of their attainment (used only in special cases which will be covered below). Im a fan of a Base + Variable compensation plan because I believe it provides the best alignment with the core objectives of the CSM team, drives clear accountability for performance (or lack thereof), and generously rewards CSMs for achieving or over-achieving their targets. The Strategic Account Manager is included in this group and is amongst the most difficult roles to compensate in sales organizations. Strategic thinking and business development are both vital to how a Key Account Manager nurtures and grows the relationship between their own company and the key accounts business. If using a single-metric plan, sales leaders should consider implementing thresholds and pay accelerators to limit sellers ability to earn incentive pay via renewals as a motivator to drive account growth. To make matters worse, the organization had no defined sales compensation philosophy, no defined Target Total Cash Compensation (TTCC), and varying pay mixes for the role. Mike Gutmacher and Paul Reiman. Imagine, you hire a representative with a fixed pay of $60k and an OTE of $100k at an annual rate. AEs will usually be compensated for the first deal value and any subsequent upgrades within the first 3-6 months. Check out our resources below for more customer success best practices and insights for how your organization can approach customer success with the customer at the center: Learn more about how ClientSuccess can help your company develop a strong Customer Success methodology and strategy with easy-to-use customer success software by requesting a 30-minute demo. Download the Sales and CSM Variable Comp Structures Image. Since Base + Variable is my favorite compensation model for CSMs. At Omniture, one of our Strategic CSMs in EMEA was assigned to a strategic account that was a Global Fortune 100 company. When you add the deal velocity goals as part of your reps compensation, it should be for the following reasons: There's also a possibility to apply pipeline generation or outbound deals in this sales model. You have a fast-moving SMB product that SMB, MM and Enterprise customers will purchase. All rights reserved. In SaaS, you might find this type to be the most commonly used commission plan. Under such circumstances, the Strategic Account Manager becomes the quarterback1to manage all the internal support. Learn more about how ClientSuccess can help your company develop a strong Customer Success methodology and strategy with easy-to-use customer success software by. Privacy Policy. For new employees, its easy. There is a lot of potential for upward movement from the Key Account Manager position in most organizations. Current account managers compensation plans rarely force them to focus on the hard work required to grow their accounts. You have a fast-moving SMB product that your sales team sells to a specific segment of your base. On this last point, Id consider a reverse comp model for sales with their variable comp focused 75% on new business growth and 25% on retention. Its important to work with your CFO to ensure that the combine targets for the team are completely aligned to the targets for the company, otherwise the misalignment can be costly. Unlike the high velocity reps, the high ACV reps usually are responsible for generating their own leads and working with SDR to find opportunities within their territories. They are aligned to core business KPIs and arent squishy as Jason Lemkin would say. Eachsalesperson is assigned a territory, a quota, and they go forth and sell, right? As stated above, usually the bonus is in the form of an MBO plan in which the CSMs are measured against a handful of key objectives individually and/or as a team. However, many times MBOs also have one or more qualitative objectives as well, such as contribution to the team, leading a special project, etc. At the time, we were compensating our CSMs on a mere bonus structure and this CSM probably made $2,000 on the renewal. Pick and choose what works for you based on your business model. Ex: Field Sales. Next, we suggested establishing a Target Total Cash Compensation for the role. You have a well-established sales team with 25-50 reps and you want to ensure that they sell efficiently. This plan comes into play in those scenarios where our Type 1 plans dont fit in, like the ones weve mentioned below: Scenario #1: The AE has a non-revenue based component like number of deals or pipeline-generated deals which you want to reward if they do well. I hope this helps guide you as you build out your customer success compensation plans. This will designate the portion of the on-target earnings (OTE) that will be allocated to base salary vs. variable compensation. While this tends to be a viable option, it will typically take time for the annual pay increase cycle to complete the transition.. After reviewing the compensation structure, Victor spots the problem: A lack of incentive. Lastly, we provided some high-level recommendations aroundincentive compensation plan design, including: Most sales roles have easily-assigned performance metrics and straightforward sales compensation plans. ($40k divided by $500k). If they do, they will have to start at square one- the base rate. Sales representatives completely own the deal closures but depending on your business type, they could also be partially-responsible for lead generation. At the end of the year, the strategic customer signed a multi-year, multi-million dollar renewal that significantly changed the trajectory of our relationship with that customer, largely due to the tremendous work of the CSM. Powerful, lasting relationships ahead. By clicking Accept, you consent to the use these cookies. According to Payscale, the average compensation for a Key Account Manager position was $73,000 annually as of August 2017. In this post, Ill address the most frequent question Im asked by customer success leaderswhat is the best compensation plan for Customer Success Managers (CSMs)? Adding the bonus structure is a step in the right direction as it aligns performance to company objectives and rewards accordingly. Strategic selling is one of the most important skills to understand. Base only compensation plans do little to align CSMs to company objectives and also provide no additional incentives (other than personal pride and work ethic) to achieve or overachieve the expected performance standards. OTE Split = 75%/25% base-to-variable Averages may vary by industry and years of experience. In fact, Key Account Managers do not do a lot of typical selling activities. Before I explain the benefits of a variable compensation plan, let me discuss the deficiencies of the first two models. Sometimes called Key Account or Corporate Account Managers, Strategic Account Managers typically have one maybe two accounts, each with unique situations and needs. The Gartner Driving Growth Through Smarter Account Management report shows that 49% of account managers have a single revenue goal that makes no distinction between retention and growth. In the first post of this two-part series, I addressed a key question that often surfaces about, Ive tried all three models over the years and. Focus the majority of the variable on retention to reinforce the fact the the CSMs primary responsibility is retention. But opting out of some of these cookies may affect your browsing experience. 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But, get this, if you stick to the base rate for all revenue, the rep would receive no incentive for closing deals post their quota attainment. That is when I became converted to at Base + Variable plan. (Note, I prefer to use the word target and payouts vs. quota and commissions to distance or differentiate this plan from a sales plan.). Please refine your filters to display data. Focuses the CSMs on their primary responsibility of retention while rewarding their efforts that result in growth (expansion, upsell, cross-sell). Even when an account managers quota does have a growth component, the median proportion of their overall goal assigned to growth only accounts for 9% of their variable pay. Instead, we suggest a temporary SPIFF program to address short-term behavioural changes. Download ourQBR ebookfor more practical tips! Eight principles should be considered when creating a Sales Compensation Philosophy2: The philosophy can be as specific or generic as you want it to be. Heres the secret: if you model it right, it actually makes it more profitable for you. The Base + Bonus option is a great step in the right direction. 2022Gartner, Inc. and/or its affiliates. If you are looking to build out your Client Success team, read these helpful tips here.. Aligns sales and customer success to ensure they are collaborating effectively to drive retention and growth across their shared book of business. With regards to experience, its common for Key Account Managers to get incremental pay increases over their years if they are successful in the position. A good compromise is a 75/25 base-to-variable split. With that in mind, lets break down the key elements to consider when designing a variable compensation plan for your CSMs. Companies currently using single-metric plans should consider whether implementing thresholds and accelerators will provide enough motivation to their sellers before undertaking the effort necessary to move to a multimetric plan. Strategic Account Managers are assigned to existing accounts the largest company accounts. The account managercompensation plan included various commission rates for profit on new business, delivery, managed and professional services, commission for renewals, and bonuses for a plethora of other activities. Will this plan negatively affect your overall profit rates? These cookies do not store any personal information. On top of the complex plan, each Strategic Account Manager was assigned a quota. OTE = $100,000 Download Customer Success Compensation Models Image. Their compensation needs to be as simple as possible without many variables outside their control like your leaders. When you hire a rep, you would usually plan for a quota to OTE ratio ranging between 4:1 and 6:1. Career advancement options can affect how lucrative a job offer is. This average wont necessarily represent the starting salary for Key Account Manager position, but does give a good indication of what to expect with the right skills and experience for the job. In the areas where sales strategy and seller performance diverge, illustrate areas for leaders to better address and motivate sellers to tap revenue channels where they have the largest chance to drive growth. Unfortunately, todays sales compensation plans are not designed to deliver the account growth that sales operations leaders want, says Craig Riley, senior principal analyst at Gartner. By clicking the "Continue" button, you are agreeing to the ), 4 Fool-Proof Ways to Retain Customers and Build Loyalty. Sorry, No data match for your criteria. But, there are non-revenue behaviour-based goals that you want to address and reward to make the sales engine more efficient and to address more focused goals. The two important metrics to consider are as follows: The metrics that we looked into in the earlier section will only address the revenue goals that you have planned for. Acquiring and refining certain skills can help a Key Account Manager to earn more in their job. This process helps not only retain the most important customers, but also encourages them to expand their accounts by working as strategic partners with the organization. KAM requires cooperation from all over both organizations involved, and its the job of the Key Account Manager to convince those people to not only buy into the idea, but to actively encourage forward progress. You can look at our SPIFF blog here to learn more about how to use SPIFFs to your best advantage. If you go with that option, you may consider whether to cap the upside or leave it uncapped. Rewards the CSMs with upside as they exceed their retention and growth targets. We also use third-party cookies that help us analyze and understand how you use this website. At a base rate of 8% and 12% above 100% attainment, the better the rep does, the better your Quota Attainment to OTE ratio. Of the four models, High Velocity and High ACV products are extremely rare while High Velocity and Low ACV and Low Velocity and High ACV are the most common. Utilizing survey data and considering internal equity among all sales jobs, management determines a TTCC for the role. However, the Strategic Account Manager and how to effectively compensate this critical role has stumped compensation practitioners for decades. Many Key Account Managers who perform well in their jobs will go on to be Regional Sales Managers. You can stick with the tried-and-tested rate-based model if revenue is your main goal. In this plan, reps are compensated with a flat commission % as part of their deal value. Building Out Your Variable Compensation Model. For each KPI, determine the target retention number and expansion number you want the CSMs to hit in order to receive 100% of their payout for each period (month, quarter, or year). Any changes to compensation should be as simple as possible to prevent unease or disruption among the sales force, says Riley. For example, if the account manager increases the volume of higher margin products, even while lowering the volume of lower margin products, they may receive a commission if the total volume remains equal. Some companies take a more assertive pay position compared to market; others prefer to be more conservative.