Issue 16. How Do You Compensate Customer Success People?

The advisory work I do on Customer Success almost invariably begins with a process review. We look at what the team is doing and how it is doing it, and then talk about what their goals and ways of working should be. Compensation then follows and is structured to create incentives for desired behavior.

But that’s rarely the way these things are set up in the first place. More often than not, the CS team’s goals and priorities are the outcome of choices made for them. And few choices loom larger than reporting structure.

Reporting lines matter because the functional structure of a company dictates each team’s goals and priorities. Does the team report into operational or commercial leadership? A commercial team is going to have little interest in operational goals, which inherently prioritize structure, standards, routines, and process—often viewed as speed bumps to revenue. Operations people are equally allergic to commercial goals and quotas because they know that great service delivery is never 100 % correlated with client usage or revenue retention.

So how, then, do we create a comp structure that is motivating and incentivizing the right behavior?

Outcomes First

Every comp structure starts by thinking about outcomes. What does good look like for CS?

• Deliver the work.Examples: On‑time launches, low defect counts, cycle time in line with SLAs, delivery cost ≤ X % of ARR or attaining a certain gross/contribution margin level.
• Keep the revenue.Examples: Gross or net revenue retention above target, healthy product‑usage scores, hitting expansion quotas.

You therefore need goals for both buckets, which also means you need support and management for both.

This is where things get sticky in most organizations because of the potential tension between commercial and operational objectives (and people).

Principles

1. Variable compensation as % of OTE

Variable comp should represent between 20–30 % of a CS employee’s on‑target earnings (OTE), which is consistent with sector data.

2. Within variable comp, % for commercial vs. operational objectives

Of the variable portion, the share based on commercial goals (revenue) should be at least 50 % but not more than 70 %. CS is first and foremost a revenue driver—that’s why 50 % is the floor. The operational slice can flex depending on the business’s immediate priorities: in normal times it might sit at 30 %, but it can rise toward 50 % when the company is under delivery‑ or margin‑pressure.

3. Reporting should be matrixed

This isn’t strictly about compensation, but it’s crucial to success. A CS team will not thrive unless the commercial and CS/ops leaders see eye‑to‑eye. While it’s complex, I favor a matrix in which the CSM reports to commercial leadership for day‑to‑day direction but is trained and people‑managed by a CS/ops leader. The CS/ops side should also own head‑count and budget and have goals that are related to margin and efficiency. However, it’s reasonable for the commercial organization to own the budget if their quotas include margin requirements. (The foxes shouldn’t guard the henhouse.)

4. Governance should be explicit

The commercial and CS/ops leaders should jointly review revenue vs. target, margins, team capacity, and performance at least quarterly, while real‑time client issues surface naturally through the CS teams.

Conclusion

Properly compensating CS teams is pretty straightforward, so long as you start with the two key outcomes: deliver the work, keep the revenue. If a KPI or incentive doesn’t serve one of those outcomes, it doesn’t belong on the plan. Commercial and CS/ops leaders should genuinely agree on the principles and the execution to ensure the incentives are aligned and clients are delighted.