How Should Product Led Growth Companies Compensate CSMs?

Palette Team

For any company, the question on whether sales or success should handle renewals and expansion can be a tricky one. For product-led growth (PLG) companies, and usage-based pricing companies in particular, the matter is even more complicated. CSMs can play an arguably even more important role in influencing revenue growth at product-led and usage-based companies, where revenue is directly tied to customer adoption and product usage. With this in mind, should PLG companies build variable commissions into CSM comp plans, the way they do with sales? 

At first glance, this approach makes sense - since CSMs are an important lever in influencing product usage, they should be incentivized to focus on this over other activities. The answer may be more complicated, however. Let's consider a few scenarios common at product-led companies.

For many PLG organizations, the goal is to build products which will grow regardless of human intervention. If the product is designed to grow regardless, it makes no sense to compensate individuals when this growth occurs - however, there are probably still things the success team can do to push growth even further. Ultimately the answer here depends on measuring a baseline, getting a sense of how much the product grows on it's own, and then awarding bonuses or commissions for extra growth beyond the baseline (read our guide on CSM compensation structures here for more information on deciding between bonuses or other forms of comp for success teams).

In another example, PLG companies may focus on growing with customers over time rather than focusing on short term revenue. In this case, does variable compensation for growth make sense, or should growth occur organically as the customer realizes the benefit of the product and grows into it? Once again, establishing a set of baseline data can help answer this question long term. In the meantime, it can be beneficial to incentivize specific activities through a bonus until the company has enough data to find out which actions are repeatable and lead to better customer adoption. This is an area where companies can A/B test their bonus structure to help determine what types of activities work best. Incentivize one set of activities with a customer cohort, and see what outcomes it drives. In this earlier phase, though, it's important to keep base pay as a high percentage of the total CSM comp. CSM's you hire at this stage should be scrappy and understand the goals of finding actions which lead to better outcomes, but they should also be rewarded fairly for the work they do in helping the company figure this out, even if it leads to suboptimal outcomes. (for more examples on specific structures, check out our blog post on the sales compensation model key to unlocking product-led growth).

Ultimately, for many usage-based pricing companies, it makes sense to have CSMs focus on providing the best experience for the customer rather than assigning quotas for revenue growth. The philosophy behind usage-based pricing is focused on what's best for the customer, rather than pushing them into a subscription or pricing model which leads to waste. Shouldn't PLG companies bring the same philosophy to their comp plans? 

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