For context, I’m defining Customer Success (CS) professional as “non-commercial” in they sense that they influence revenue but are not directly responsible for executing commercial transaction. If CSMs are directly commercially responsible for renewals and/or expansion, then I consider them to be Account Managers (covered elsewhere).

Customer Success Compensation

• The primary variable compensation metric is net retention rate.
  • Most commonly, companies pro-rate bonuses relative to target albeit with a threshold (ex: 90% NDR) below which the bonus is zero. The use of accelerators is uncommon.
  • Alternatively, bonuses may be based on tiers such as the following:
    (note: one may have more tiers; one may have accelerators up to 200%)
    • < 90% NRR : 0% payout
    • 90% to 99% : 50%
    • 100% to 115% : 100%
    • > 115% : 150%
• Other variable compensation metrics (in descending order of use):
  • company performance (ex: overall net increase in ARR)
  • NDR
  • GDR
  • NPS

Locale	Low ($K)	Typical ($K)	High ($K)
Austin	125	155 (100+55)	200
Boston	130	160 (100+60)	210
New York	140	180 (110+70)	240
San Francisco	145	180 (115+65)	235
Salt Lake City	115	150 (95+55)	195

From April 2023 (for reference)

Locale	Low ($K)	Typical ($K)	High ($K)
Austin	78	99	128
Boston	80	102	133
New York	89	114	147
San Francisco	93	118	154
Salt Lake City	76	97	127

Compensating CSMs for Early Renewals

Most leaders expect that renewals should be on-time if not early; hence, they do not want to pay CSMs extra for what is perceived as ‘doing their job.’ But, leaders often prefer to ‘punish’ CSMs for late renewals. Nonetheless, we should do the same thing for both early and late renewals to avoid complexity.

For the case examples below, assume the following:

• Renewal quota for each quarter is $600K. This quota may be GDR * (renewable ARR) or NDR * (renewable ARR).
• Quota credit is based on booking date, not on service start date, invoice date, or cash collected date.
• Bonus target for each quarter is $20K. Bonuses are paid on a linear scale based on attainment without decelerators or accelerators.
• Renewals are at most one quarter early. This is just a simplification so cases can be shown with two quarters.

The tl;dr on the mechanics in the cases is as follows:

• Quota credit multiplier for early renewals: (not recommended) Increases incentive to secure early renewals but comes at the expanse reduced focused on challenging in-quarter deals. Leadership should set the expectation that renewals should on-time or early. Extra available compensation budget is better spent on stronger initiatives such as expansion or conversion of annual contracts to multi-year.
• Increased current period quota based on early renewal amount: (not recommended) CSMs will view retroactive quota changes very unfavorably.
• Reduced future period quota based on early renewal amount: (neutral): Though this increases the CSM compensation cost of renewals, it drives early renewals and avoids the misperception of under-performance in future quarters.

(see here for Google Sheets version of case examples)

Case 1: On Time Renewal (Base Case)

If the CSM has no early renewals, they earn $40K over the course of two quarters.

($K)	Q1	Q2	Total
Renewal Quota	600	600	1,200
Actual Renewed in Period	600	600	1,200
Performance to Quota
Early	—	—	—
Late	—	—	—
On-Time	600	600	1,200
Bonus Paid in Period	20.0	20.0	40.0
Early	—	—	—
Late	—	—	—
On-Time	20.0	20.0	40.0

Case 2: Early Renewal, No Multiplier, No Quota Adjustment

Now assume a CSM books an extra $100K in Q1 that was scheduled to renew in Q2. The service still starts in Q2. Per our assumptions above, the CSM receives quota credit based on booking date.

Here, we assume the CSM does not receive a favorable multiplier (> 1.0x quota credit) for early renewals. Consequently, the ‘extra’ bonus they are paid in Q1 makes up for the ‘reduced’ bonus on Q2 such that the total payout of $40K is unchanged from the base case.

Advantages:

• Compensation cost of renewal is unaffected by timing
• With no multiplier, CSMs stay focused on in-quarter renewals. Thus, they maintain focus on hard in-quarter deals rather than dropping to pursue early renewals.

Disadvantages:

• CSMs have only modest incentive to secure early renewals.
• Perceived over-performance in Q1 could trigger accelerators. If that is undesirable, either avoid accelerators or do not include early renewals in accelerator calculation (though this increases complexity of compensation administration).
• Creates the perception of underperformance (500/600 = 83.3%) to plan in Q2 even though the CSM is doing a great job.

($K)	Q1	Q2	Total
Renewal Quota	600	600	1,200
Actual Renewed in Period	700	500	1,200
Performance to Quota	116.7%	83.3%	100%
Early	100	—	100
Late	—	—	—
On-Time	600	500	1,100
Bonus Paid in Period	23.3	16.7	40.0
Early	3.3	—	3.3
Late	—	—	—
On-Time	20.0	16.7	36.7

Case 3: Early Renewal, Multiplier, No Quota Adjustment

Now assume a CSM books an extra $100K in Q1 that was scheduled to renew in Q2. The service still starts in Q2. Per our assumptions above, the CSM receives quota credit based on booking date.

In addition, the company applies a 1.25x quota credit multiplier as an incentive to secure early renewals. Due to this accelerator the total bonus payout increases to $40.8K from the base case of $40K.

Advantages:

• CSMs have a strong incentive to secure early renewals which benefits the company due to lower risk..

Disadvantages:

• Compensation cost of renewal increases as a result of timing
• CSMs may reduce focus on challenging in-quarter renewals in order to pursue early renewals.
• Perceived over-performance in Q1 could trigger accelerators. If that is undesirable, either avoid accelerators or do not include early renewals in accelerator calculation (though this increases complexity of compensation administration).
• Creates the perception of underperformance (500/600 = 83.3%) to plan in Q2 even though the CSM is doing a great job.

($K)	Q1	Q2	Total
Renewal Quota	600	600	1,200
Actual Renewed in Period	700	500	1,200
Performance to Quota	116.7%	83.3%	100%
Early	100	—	100
Late	—	—	—
On-Time	600	500	1,100
Bonus Paid in Period	24.2	16.7	40.8
Early	4.2	—	4.2
Late	—	—	—
On-Time	20.0	16.7	36.7

Case 4 (RECOMMENDED): Early Renewal, No Multiplier, Future Quota Adjustment

Now assume a CSM books an extra $100K in Q1 that was scheduled to renew in Q2. The service still starts in Q2. Per our assumptions above, the CSM receives quota credit based on booking date.

In addition, the company adjusts Q2 . Due to this adjustment, the total bonus payout increases to $43.3K from the base case of $40K.

Advantages:

• CSMs have an incentive to secure early renewals which benefits the company due to lower risk.
• There is no perception of underperformance (500/500 = 100%) to plan in Q2

Disadvantages:

• Compensation cost of renewal increases as a result of timing
• CSMs may reduce focus on challenging in-quarter renewals in order to pursue early renewals.
• Perceived over-performance in Q1 could trigger accelerators. If that is undesirable, either avoid accelerators or do not include early renewals in accelerator calculation (though this increases complexity of compensation administration).

($K)	Q1	Q2	Total
Renewal Quota	600	500	1,100
Actual Renewed in Period	700	500	1,200
Performance to Quota	116.7%	100%	109.1%
Early	100	—	100
Late	—	—	—
On-Time	600	500	1,100
Bonus Paid in Period	23.3	20.0	43.3
Early	3.3	—	3.3
Late	—	—	—
On-Time	20.0	20.0	40.0

There is a perverse way to ‘game’ this plan by pulling nearly all business forward as shown in the table below. You can guard against this rare event with a compensation plan provision such as the following:

Credit for cumulative early renewal bookings in excess of 50% of the associate’s current quarter bookings target shall be applied to the original, on-time quarter.

($K)	Q1	Q2	Total
Renewal Quota	600	10	610
Actual Renewed in Period	1,190	10	1,200
Performance to Quota	198.3%	100%	196.7%
Early	590	—	590
Late	—	—	—
On-Time	600	10	610
Bonus Paid in Period	39.7	20.0	59.7
Early	19.7	—	19.7
Late	—	—	—
On-Time	20.0	20.0	40.0

Case 5: Early Renewal, No Multiplier, Current & Future Quota Adjustment

Now assume a CSM books an extra $100K in Q1 that was scheduled to renew in Q2. The service still starts in Q2. Per our assumptions above, the CSM receives quota credit based on booking date.

In addition, the company adjusts Q1 upward and Q2 downward . Due to this adjustment, the total bonus payout matches the base case of $40K.

Advantages:

• Compensation cost of renewal is unaffected by timing
• There is no perception of over-performance in Q1.
• There is no perception of underperformance (500/500 = 100%) to plan in Q2.
• CSMs stay focused on in-quarter renewals. Thus, they maintain focus on hard in-quarter deals rather than dropping to pursue early renewals.

Disadvantages:

• CSMs have no incentive to secure early renewals which would otherwise benefit the company due to lower risk
• CSMs will view retro-active quota changes very unfavorably. (This is a MAJOR problem.)

($K)	Q1	Q2	Total
Renewal Quota	700	500	1,200
Actual Renewed in Period	700	500	1,200
Performance to Quota	100%	100%	100%
Early	100	—	100
Late	—	—	—
On-Time	600	500	1,100
Bonus Paid in Period	20.0	20.0	40.0
Early	2.9	—	2.9
Late	—	—	—
On-Time	17.1	20.0	37.1

Case 6: Early Renewal with Credit Allocated to the Original, On-Time Quarter

Now assume a CSM books an extra $100K in Q1 that was scheduled to renew in Q2. The service still starts in Q2. However, instead of basing quota credit on the booking date as we have been doing, we instead allocate credit to the original, on-time quarter.

The total payout of $40K is unchanged from the base case.

Advantages:

• Compensation cost of renewal is unaffected by timing
• With no multiplier, CSMs stay focused on in-quarter renewals. Thus, they maintain focus on hard in-quarter deals rather than dropping to pursue early renewals.
• There is no perception of over-performance in Q1.
• There is no false perception of under-performance in Q2.

Disadvantages:

• CSMs have no incentive to secure early renewals which would otherwise benefit the company due to lower risk

($K)	Q1	Q2	Total
Renewal Quota	600	600	1,200
Actual Renewed in Period	600	600	1,200
Performance to Quota	100%	100%	100%
Early (from prior periods)	—	100	100
Late	—	—	—
On-Time	600	500	1,100
Bonus Paid in Period	20.0	20,0	40.0
Early	—	3.3	3.3
Late	—	—	—
On-Time	20.0	16.7	36.7

Case 7: Annual Quota With Incremental Payouts (RECOMMENDED)

Now assume a CSM books an extra $100K in Q1 that was scheduled to renew in Q2. The service still starts in Q2. Here, the CSM is on an annual quota of $2.4M and paid on incremental performance-to-quota with an annual bonus target of $80K

The total payout of $40K is unchanged from the base case.

Advantages:

• Compensation cost of renewal is unaffected by timing
• With no multiplier, CSMs stay focused on in-quarter renewals. Thus, they maintain focus on hard in-quarter deals rather than dropping to pursue early renewals.
• There is no false perception of under-performance in Q2.

Neutral

• While there is some perception of over-performance in Q1, there is no risk of triggering accelerators.

Disadvantages:

• CSMs do not have a strong incentive to secure early renewals which would otherwise benefit the company due to lower risk.
• Compensation in Q4 is complicated. Early renewal of deals that are pulled forward from the subsequent FY will have no offset and may trigger accelerators unless excluded from accelerator calculations.

($K)	Q1	Q2	Total
Annual Renewal Quota	2,400	2,400	2,400
Cumulative Renewed	700	1200	1,200
Performance to Quota	29.2%	50%	50%
Early	100	—	100
Late	—	—	—
On-Time	600	500	1,100
Bonus Paid in Period	23.3	16.7	40.0
Early	3.3	—	3.3
Late	—	—	—
On-Time	20.0	16.7	36.7

Compensating CSMs for Late Renewals

CSMs are usually paid a commission or bonus based on retention, typically net dollar retention. They may have a dollar ($) or percentage (%) target. Things can get a little bit complicated for late renewals (aka boomerangs, win-backs, or reacquired customers.)

Here, I define a late renewal as a contract with a lapse in recognized revenue. I am this precise to ignore two situations. First, instances where vendors continue service as an act of goodwill; in other words, service status is irrelevant. Second, instances where a late renewal is back-dated to the on-time renewal date such that there is no lapse in revenue recognition. Incidentally, these two situations tend to occur simultaneously.

Companies typically define a time window during which a reacquired customer is treated as a late renewal rather than a new logo. A typical window is 180 days (6 mos). Bookings after the window are treated as new logos. And, organizations do make exceptions which should be documented for consistent treatment in the future.

For late renewals inside the window, organizations award anything between 0% and 100%. Full credit is the most common especially since renewals are a team sport spanning customer success, sales, product, marketing, finance, legal, and other functions. 100% credit also makes commission account much less complex.

That being said, organizations may consider reduced quota credit to encourage on-time renewals. Here are some example quota credit tiers:

• 0-30 days late: 75%
• 31 to 90 days late: 50%
• 91 to 180 days late: 25%

(see here for compensating AEs/AMs for late renewals)

Most leaders expect that renewals should be on-time if not early; hence, they do not want to pay CSMs extra for what is perceived as ‘doing their job.’ But, leaders often prefer to ‘punish’ CSMs for late renewals. Nonetheless, we should do the same thing for both early and late renewals to avoid complexity.

For the case examples below, assume the following:

• Renewal quota for each quarter is $600K. This quota may be GDR * (renewable ARR) or NDR * (renewable ARR).
• Quota credit is based on booking date, not on service start date, invoice date, or cash collected date.
• Bonus target for each quarter is $20K. Bonuses are paid on a linear scale based on attainment without decelerators or accelerators.
• Renewals are at most one quarter late. This is just a simplification so cases can be shown with two quarters.

The tl;dr on the mechanics in the cases is as follows:

• Punitive quota credit multiplier for late renewals: (recommended) Since late renewal significantly raise risk to the company, CSMs need strong incentives to secure renewals on-time if not early.
• Reduce current period quota based on late renewal amount: (not recommended) This removes incentives for CSMs to secure on-time renewals.
• Increase future period quota based on late renewal amount: (neutral) Though this will strongly encourage CSMs to renew deals on-time, it may be too draconian since it also lowers the rate paid for on-time renewals in the future quarter. This can lead CSMs to work too hard on otherwise doomed late renewals as the expense of higher quality on-time renewals.

Case 1: On Time Renewal (Base Case)

If the CSM has no late renewals, they earn $40K over the course of two quarters.

($K)	Q1	Q2	Total
Renewal Quota	600	600	1,200
Actual Renewed in Period	600	600	1,200
Performance to Quota	100%	100%	100%
Early	—	—	—
Late	—	—	—
On-Time	600	600	1,200
Bonus Paid in Period	20.0	20.0	40.0
Early	—	—	—
Late	—	—	—
On-Time	20.0	20.0	40.0

Case 2: Late Renewal, No Multiplier, No Quota Adjustment

Now assume a CSM books late renewal of $100K in Q2 that was scheduled to renew in Q1. The service still starts in Q2. Per our assumptions above, the CSM receives quota credit based on booking date.

Here, we assume the CSM does not receive a punitive multiplier (< 1.0x quota credit) for late renewals. Consequently, the ‘extra’ bonus they are paid in Q2 makes up for the reduced bonus on Q1 such that the total payout of $40K is unchanged from the base case.

Advantages:

• With no punitive multiplier, CSMs will work as hard on late renewals as on on-time renewals (all else being equal).
• Maintains a consistent commission rate on all on-time renewals.

Disadvantages:

• CSMs have limited incentive to secure renewals on-time
• Creates the false perception of over-performance (700/600 = 116.7%) to plan in Q2 even though the CSM failed to secure renewals on time.

($K)	Q1	Q2	Total
Renewal Quota	600	600	1,200
Actual Renewed in Period	500	700	1,200
Performance to Quota	83.3%	116.7%	100%
Early	—	—	—
Late	—	100	100
On-Time	500	600	1,100
Bonus Paid in Period	16.7	23.3	40.0
Early	—	—	—
Late	—	3,3	3.3
On-Time	16.7	20.0	36.7

Case 3: Late Renewal, Punitive Multiplier, No Quota Adjustment (Alternative Recommendation)

Now assume a CSM books late renewal of $100K in Q2 that was scheduled to renew in Q1. The service still starts in Q2. Per our assumptions above, the CSM receives quota credit based on booking date.

Here, we assume the CSM does receives a punitive multiplier (0.8x quota credit) for late renewals. The total bonus payout of $39.3K is lower than the base case of $40K due to the late renewal penalty.

Advantages:

• CSMs have strong incentive to secure renewals on-time
• Maintains a consistent commission rate on all on-time renewals.

Disadvantages:

• With a punitive multiplier, CSMs may work less hard on late renewals as on on-time renewals (all else being equal).
• Creates the false perception of over-performance (700/600 = 116.7%) to plan in Q2 even though the CSM failed to secure renewals on time.

($K)	Q1	Q2	Total
Renewal Quota	600	600	1,200
Actual Renewed in Period	500	700	1,200
Performance to Quota	83.3%	116.7%	100%
Early	—	—	—
Late	—	100	100
On-Time	500	600	1,100
Bonus Paid in Period	16.7	22.7	39.3
Early	—	—	—
Late	—	2.7	2.7
On-Time	16.7	20.0	36.7

Case 4: Late Renewal, No Multiplier, Future Quarter Quota Adjustment

Now assume a CSM books late renewal of $100K in Q2 that was scheduled to renew in Q1. The service still starts in Q2. Per our assumptions above, the CSM receives quota credit based on booking date.

Here, we assume the CSM does not receive a punitive multiplier (<1.0x quota credit) for late renewals. However, the shortfall in Q1 adds to the Q2 renewal quota. The total payout of $36.7K is significantly lower than the base case of $40K in part because the higher future quarter quota also impacts the rate paid on on-time Q2 renewals.

Advantages:

• CSMs have very strong incentive to secure renewals on-time
• Does not create the false perception of over-performance to plan in Q2.

Disadvantages:

• CSMs may work excessively hard trying to save otherwise doomed late renewals. This can come at the expense of focusing on higher quality, on-time renewals.
• Because the higher quota in Q2 lowers the commission rate paid on on-time Q2 renewals, this approach may be overly harsh to CSMs.

($K)	Q1	Q2	Total
Renewal Quota	600	700	1,300
Actual Renewed in Period	500	700	1,200
Performance to Quota	83.3%	100%	92.3%
Early	—	—	—
Late	—	100	100
On-Time	500	600	1,100
Bonus Paid in Period	16.7	20.0	36.7
Early	—	—	—
Late	—	2.9	2.9
On-Time	16.7	17.1	33.8

Case 5: Late Renewal, No Multiplier, Current & Future Quarter Quota Adjustment

Now assume a CSM books late renewal of $100K in Q2 that was scheduled to renew in Q1. The service still starts in Q2. Per our assumptions above, the CSM receives quota credit based on booking date.

Here, we assume the CSM does not receive a punitive multiplier (<1.0x quota credit) for late renewals. However, the shortfall in Q1 adds to the Q2 renewal quota. However, we also reduce Q1 quota retroactively by the late renewal amount. The total payout matches the base case of $40K.

Advantages:

• Does not create the false perception of over-performance to plan in Q2.
• CSMs will work equally hard on on-time and late renewals.

Disadvantages:

• CSMs have little-to-no incentive to secure renewals on-time
• While CSMs will view the retroactive Q1 quota adjustment favorably, this approach is too lenient and therefore not recommended.

($K)	Q1	Q2	Total
Renewal Quota	500	700	1,200
Actual Renewed in Period	500	700	1,200
Performance to Quota	100%	100%	100%
Early	—	—	—
Late	—	100	100
On-Time	500	600	1,100
Bonus Paid in Period	20.0	20.0	40.0
Early	—	—	—
Late	—	2.9	2.9
On-Time	20.0	17.1	371

Case 6: Annual Quota With Incremental Payouts (RECOMMENDED)

Now assume a CSM books late renewal of $100K in Q2 that was scheduled to renew in Q1. The service still starts in Q2. Per our assumptions above, the CSM receives quota credit based on booking date.

The total payout of $40K is unchanged from the base case.

Advantages:

• Does not create the false perception of over-performance to plan in Q2. Hence, accelerators, if any, will not be triggered.
• CSMs will work equally hard on on-time and late renewals.

Disadvantages:

• CSMs have little-to-no incentive to secure renewals on-time
• Compensation in Q4 is complicated. Since they may not have a way to make up renewal that pushes into the subsequent year, CSMs may stop putting effort into very challenging renewals. If territories do not switch, then late renewals can be added to quota in the subsequent year. If territories do switch, managers must stay on top of such deals.

($K)	Q1	Q2	Total
Annual Renewal Quota	2,400	2,400	2,400
Cumulative Renewed	500	1200	1,200
Performance to Quota	20.8%	50%	50%
Early	—	—	100
Late	—	100	—
On-Time	500	600	1,100
Bonus Paid in Period	16.7	23.3	40.0
Early	—	—	—
Late	—	3.3	3.3
On-Time	16.7	20.0	36.7