Dear SaaStr: How Should I Structure the Comp Plan for a VP of Customer Success?
For a VP of Customer Success, variable comp should be tied directly to measurable outcomes that align with your company’s growth goals. At $6M ARR, the key metrics to focus on are Net Revenue Retention (NRR), Gross Retention Rate (GRR) and upsell/expansion revenue.
Having said that, time-to-value in the end may matter most of all, especially if anything less than 95%+ of your customers don’t deploy quickly. Customers that never deploy … never get value.
Here’s how I’d structure it:
1. Variable Comp Percentage: 30%-40% of Total Comp
– 30%-40% of total comp typically is variable for a VP of CS. For example, if their OTE is $250K, $75K-$100K should be tied to performance metrics. This ensures they’re incentivized to drive results while still having a solid base.
2. Quarterly vs. Monthly Targets
– Quarterly targets are better for a VP of CS. Monthly targets can create unnecessary short-term pressure, especially since CS metrics like retention and upsells take time to materialize. Quarterly gives enough runway to see meaningful results while still keeping accountability tight.
3. Specific Metrics to Measure
Here’s what I’d recommend tying their variable comp to, with specific targets:
a. Net Revenue Retention (NRR)
– Weight: 50%-60% of variable comp.
– NRR measures how much revenue you’re retaining and expanding from your existing customers. For a Series A startup, aim for **110%-120% NRR**. If you’re at 100% NRR now, set a quarterly goal to increase it by 2%-3% per quarter.
– Example: If NRR improves from 105% to 110% in Q2, they earn 100% of this portion of their bonus.
b. Gross Retention Rate (GRR)
– Weight: 20%-30% of variable comp.
– GRR is the foundation—it shows how much revenue you’re retaining before upsells. A strong GRR (80%-90%) ensures you’re not masking churn with upsells. Set a quarterly target to maintain or improve GRR by 1%-2%.
– Example: If GRR improves from 85% to 87% in Q3, they earn 100% of this portion of their bonus.
c. Upsell/Expansion Revenue
– Weight: 20%-30% of variable comp.
– This is about driving additional revenue from your existing customer base. Set a quarterly target for upsell revenue growth, e.g., **$100K in net new expansion ARR per quarter**.
– Example: If they hit $120K in upsells in Q4, they overachieve and earn 120% of this portion of their bonus.
4. Additional Metrics (Optional)
If you want to go deeper, you can add smaller weightings for:
– Time-to-Value (TTV): How quickly customers realize ROI from your product. Shorter TTV = faster expansion opportunities.
– Customer Advocacy: Number of new case studies, testimonials, or referenceable customers created each quarter.
5. How to Measure
– Use tools like Gainsight, Salesforce, or HubSpot to track NRR, GRR, and upsell revenue. Automate reporting so there’s no ambiguity.
– Segment metrics by customer size (SMB, mid-market, enterprise) to ensure the VP is driving improvements across the board, not just cherry-picking easy wins [1][3][8].
6. Example Quarterly Bonus Plan
Let’s say the VP’s variable comp is $100K annually ($25K per quarter):
– NRR: 60% weight = $15K. Target: Increase NRR from 105% to 110%.
– GRR: 20% weight = $5K. Target: Maintain GRR at 85% or improve to 87%.
– Upsells: 20% weight = $5K. Target: $100K in net new expansion ARR.
If they hit all targets, they earn 100% of their bonus. If they exceed targets (e.g., 115% NRR or $150K in upsells), offer accelerators—e.g., 120% payout for overachievement.
7. Why This Works
This structure aligns their incentives with your company’s growth. If they drive NRR to 120%, that’s an additional $1.2M in ARR at your scale—well worth the bonus payout. Plus, tying comp to measurable outcomes ensures they’re focused on what matters most: retention, expansion, and customer success as a revenue driver, not just a cost center.
Still, having more than one core KPI has some challenges.
The plan above makes NRR the core lighthouse metric, but still 3 total KPIs. Almost everyone will focus almost all their energy where it’s easiest to hit their value comp.
