If Chuck Berry was a CSM

[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:

1. Revenue (broadly)

2. Product usage & adoption

3. 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:

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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.

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Go Johnny go.

Effort without consistency is like interest without compounding

There is a battle underway, and most of us are losing. This isn't a battle overseas with platoons strategizing their next move. This is a battle of the mind. A battle for mindshare. To the victor goes our cognitive focus.

We fight this battle daily: hundreds of emails, native ads, social media intrusions—all of which are enabled by the average person's insatiable need to check our smartphone (the latest research suggests we do this at least 150 times per day). For the mathematicians in the house, that's once every 10 minutes over 14 waking hours (at a minimum). 

What we sacrifice is focus. Focus is becoming a scarce resource for today's knowledge worker and leader. And when we sacrifice focus we dilute our EFFORT, and therefore, results.

Effort with consistency is like interesting without compounding.

This troublesome dynamic is supported by a mountain of literature, e.g Harvard Business Review's The Cost of Continuously Checking Email.

But there's no value is denying this reality, so we must adapt. Therefore, we'd like to offer our readers a few thoughts on how to navigate this battlefield, particularly when is comes to goals.

In my view, there are two types of goals:

1. Binary: you either accomplished the goal, or you didn't; it’s a singular, one-time deal.

2. Recurring: an activity you seek to repeat by (hopefully) forming systems/habits.

For example, a binary goal might be: I will summit Mt. Everest by July 4th, 2017. You are either going to summit Mt. Everest by July 4th (and triumphantly stake an American Flag), or you will fail to summit Mt. Everest. There is a singular moment of accomplishment or attainment. Most executives track their quarterly goals on a goal sheet and cross them off upon completion.

Recurring goals are repeating by nature: you must accomplish the goal routinely, over time. For example: I will practice Transcendental Meditations twice a day for 15 minutes for 5 days per week. A recurring goal is designed to form a habit—a very powerful human ability. We define success as having accomplished 80% of activities you set out to do, e.g. a goal of meditating 5 days per week—or 60 times per quarter—would be deemed “completed” if you meditated 48 times (80% x 60).

Today's digital battlefield of distraction makes recurring goals extremely challenging. To win, we need to extract our recurring goals from our goal sheet into a separate system.

For your consideration, we offer you: The DBT Recurring Goal Sheet. 

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As the saying goes, If you can't measure it, you can't manage it. How else can you really track a dozen or so recurring goals with any truthfulness? The above framework provides a simple process for tallying your progress for all goals that aren't a singular, binary event.

To get a copy of the DBT Recurring Goals Sheet along with our DBT Goal Sheet (Binary + Recurring on 1 page) within our Leadership Library, please navigate to the Contact page and fill out the form so we can email it to you (we promise not to spam).

We hope you find these two pieces of artillery helpful in the battle for mindshare to accomplish your professional goals.