Compensation planning leads to customer success

TLDR: It’s the start of the year, when companies review their annual goals and compensation plans. Typically, customer retention and growth is a top priority.  

Do you have the right incentives in place to meet your customer retention goals?  There are two approaches to answering this question: bottoms-up and top-down

Bottoms-up: start with owners of the customer journey

Your customer’s journey will typically utilize multiple of your teams, so it’s important to ensure that each stage of the journey is owned by somebody.

The goal is to make sure that every stage has a clear owner and appropriate incentives to do a great job.

For each stage in the journey, ask two key questions:

  • Who is accountable for the stage?
  • How are they incentivized?

Look for gaps in ownership and/or incentives, and adjust your compensation plans to make sure that each stage is covered.

If you haven’t created one already, you’ll need your own high-level definition of the customer journey.  It might look something like this:

  • Conversion
  • Activation / onboarding
  • First-use / ramp-up
  • Sustaining adoption
  • Renewal
  • Upsell / cross-sell

Bottoms-up: now spot the hidden dependencies

By doing the exercise above, you’ll probably find some dependencies on other teams even when an owner was identified.

For example, an onboarding team might also need the customer support team’s help to troubleshoot customer issues.  After all, onboarding is a critical stage and you want your customers to have a trouble-free path and fast time to value.

Ask yourself: Does the team you’re depending on also have incentives that support the owners?  Is this alignment important enough that they should?

Bottoms-up: find overlapping incentives

There’s an opposite challenge to aligning your dependencies: Teams that are getting paid that shouldn’t.  

An example is when a salesperson receives quota relief and/or commissions for renewals or expansion revenue where they had no involvement.  This situation is often used to “keep the peace” internally.  In reality, it’s a good indicator that true ownership and accountability aren’t defined yet.  Perhaps the sales team should be rewarded for renewals, and their ownership and accountability can be made more clear.

Ask some key questions:

  • For each stage of the customer journey, who are all the teams that are getting paid?
  • Are roles being rewarded where there’s no real dependency on them?

Bottoms-up: fancy tools

Some companies struggle to complete the bottoms-up exercise because there’s so many involved parties.  If you want to develop a more comprehensive matrix of everybody that’s involved, consider tools such as the RACI matrix.

In my experience, this tool often reveals that there are “too many cooks in the kitchen” and/or that some customer journey stages have no true owner at all.

Top-down: profit margin goals

If your bottoms-up approach has created a logjam, or you want to take another approach to the challenge, it can be helpful to introduce financial constraints into the picture.  

Financial constraints can facilitate making the hard choices about who will be incentivized for their contributions and ownership. And who will not.

The top-down approach declares a budget for how much compensation you will hand out across all of your your post-purchase teams.  Usually, this is determined by setting a target profit margin. You’ll probably want to partner with your Financial Planning & Analysis (FP&A) team on this.

With a budget in hand, you can start to prioritize the allocation of incentive compensation across the dependent teams.  In my experience, this exercise tends to concentrate, not distribute, incentive compensation because you realize there isn’t enough money to go around.  

Back to the customer success team example.  If it’s a critical activity, and they own it, then offer incentives for that team to do the job exceptionally well.  The dependent support team has other priorities, and it might be hard in practice to incentivize them for just those support cases that pertain to onboarding.

Incentives are a powerful component to compensation.  They drive performance and accountability.  They can also be used to ensure alignment.  Have a fresh look at how your incentives and compensation will drive customer success.

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