Retention Rates Are Bad CS Metrics (for Comp)

I have always struggled to come up with a good Customer Success plan. Based on our survey with Modern Sales Pros last year, I’m not alone. While SDR and AE plans had average satisfaction scores of 3.36 and 3.37 respectively, CS plans had an average score of just 2.98. And this survey was filled out by the people who created the plans!

With the benefit of seeing hundreds of reps’ plans and performance, we have worked with neuroscientists and behavioral psychologists to understand how incentives get us to perform our best. This work generated Varicent Concert's Commission Smarter Framework.

With this framework, we understand how the most effective plans drive performance, and why most plans don't.

With CS plans, retention rate metrics do not seem to improve performance. Here's why:

The Quota (Where am I going?)

On the surface, the Retention Rate is clear and totally aligned with the business. I mean, it's how most of us budget revenue from the base. It also appears to be a straightforward calculation- the new annual value divided by the previous values. But there are two challenges.

First, rates are harder to intuit because you can’t sum the parts to make the whole. You signed one renewal with an 89% retention rate and another with a 100% retention rate, but the proportionality of those deals matters in your aggregate retention rate.

Second, your CS rep’s book of business is constantly shifting. As your company grows, accounts will move around, the denominator you planned for might not be the denominator you end up with.


The Playbook (How do I get there?)

Here’s where retention rates are especially problematic. Retention Rate is an important health and efficiency metric at the aggregate company level, but there isn't a set of activities that get you to the right retention rate.

Your CS team should instead be looking at each account and running each account through one set of plays: Renewal/upsell, Cross-sell or Churn Prevention.

Renewal rates, in fact, implicitly focus reps on Cross-sell and Churn Prevention because those plays tend to swing the calculations most significantly.

Based on that last account churn, no cookies this quarter.

The Commission (Based on where I am, what do I do next?)

If you’ve been around CS comp you’ve seen this situation before: your largest customer churns, so you have no way to move your retention rate high enough to get a payout. What do you do for the rest of the quarter or year?

Also, reporting for CS is usually significantly lagging. All the quarterly check-ins, scorecards, and analysis you do this year will add up to a renewal a year later. So, the playbook you use is really disconnected from the outcome.

This is further compounded because CS plans tend to be measured over longer periods of time (year or quarters, vs quarters or months) which create more lags in reporting.

OK, I'm sold. No more Retention Rate. What should I do?

Renewals and Upsells

Your customer should see the value you promised, IRL.

Quotas: $ Renewed, # Quarterly Business Review (or activity in which a customer realizes value) completed.

(These quotas should be set based on expected account load, activities and $ volume with accelerators. Upsells, churn and downgrades should be modeled into the quotas you set.)

Playbook: How do we engage with customers throughout the service period? How do you have renewal conversations?

Commissions: Tiered commission rates based on performance, with real-time feedback


Your customers want help solving the next adjacent set of problems

Quota: # of Referrals (if passing to Sales) or $ Booked (if closing)

Set quotas based on lookalikes, or target account list.

Playbook: How do we talk about this adjacent problem, and do some discovery work to see if we’d be a good fit.

Commissions: Tiered commission rates based on performance, with real-time feedback

Contractual Nice-to-Haves

Customers are willing to put financial or social capital behind you, in the form of multi-year agreements, upfront payments, referrals, or marketing references.

Quota: N/A

There’s no target for these terms.

Playbook: How do we present and negotiate with these items?

Commissions: Flat rate based on number of deals or deal value, with real-time feedback

Your comp plan drives performance when it is focused.

With these plan shifts, CS teams will have clear targets, actions, and feedback. This confidence and focus will translate to better individual and company performance.

Plan strategically with our latest eBook, How to Create Better Compensation Plans in 2022.