Are MBOs the Best Way to Compensate CSMs? Exploring the Pros, Cons, and Alternatives

Compensation in Customer Success (CS) has always been a hot topic. Unlike sales teams, where quotas are clear, CSMs operate in a gray area—driving adoption, influencing renewals, and ensuring customer outcomes without always having direct control over revenue.

To align CSM efforts with company goals, many organizations use Management by Objectives (MBOs) as part of their compensation structure. But are MBOs the best approach?

Or is it time to rethink how we incentivize CSMs?

The Case for MBOs in Customer Success

At their core, MBOs aim to align CSMs with key business objectives beyond just renewals. For example, many companies structure MBOs around:

• M1: ARR Growth – Encouraging expansion and retention efforts.
• M2: Cloud Consumption – Driving product adoption and customer usage.
• M3: Customer Satisfaction – Ensuring strong relationships and advocacy.
• M4: Product/Adoption – Strengthening integration across the customer lifecycle.

Why MBOs Work Well for CSMs:

✅ Tied to Business Goals – MBOs ensure CSMs contribute directly to company success.

✅ Flexibility – They can be adjusted quarterly to match strategic priorities.

✅ Encourage a Broader CS Mindset – Unlike commission-only models, MBOs can reward adoption, customer health, and retention equally.

The Challenges of MBO-Based Compensation

While MBOs provide structure, they also present challenges that can create friction for both CSMs and leadership.

🚧 Lack of Direct Control: Many MBOs are tied to outcomes that depend on sales, product readiness, or customer behavior, making it difficult for CSMs to fully influence their own compensation.

🚧 Short-Term vs. Long-Term Impact: Quarterly MBOs can lead to short-term focus rather than fostering deep, strategic customer relationships.

🚧 Difficulties in Measuring Success: Metrics like customer satisfaction (CSAT) or NPS can be impacted by external factors—should a CSM be penalized for a bad support experience they didn’t own?

🚧 Potential for Misalignment: If MBOs aren’t structured well, they can create conflicting priorities (e.g., pushing expansion when adoption isn’t strong).

What Are the Alternatives?

If MBOs aren’t the ideal approach, what else could work?

1. Revenue-Based Compensation (Quota Model)

Some companies give CSMs a quota tied to Net Revenue Retention (NRR) or expansions. This model makes CSMs accountable for business outcomes but can blur the lines between CS and sales.

✅ Pro: Directly ties compensation to business success.

❌ Con: Can shift CSM behavior toward selling rather than value delivery.

2. Hybrid Models (MBOs + NRR Bonus Structure)

A mix of MBOs and variable compensation based on revenue growth or renewals can balance customer advocacy with business needs.

✅ Pro: Incentivizes revenue without making CSMs feel like sales reps.

❌ Con: Still requires careful metric alignment to avoid conflicting goals.

3. Value-Based Compensation

Instead of tying pay to revenue, this model rewards CSMs based on customer outcomes and long-term success (e.g., adoption milestones, time-to-value).

✅ Pro: Keeps CSMs focused on driving real customer impact.

❌ Con: Harder to measure and quantify fairly across a broad customer base.

4. Team-Based Incentives

Some organizations tie compensation to collective CS team performance, ensuring collaboration rather than individual competition.

✅ Pro: Encourages teamwork and shared success.

❌ Con: May reduce individual accountability and recognition.

Final Thoughts: Should MBOs Stay or Go?

The best compensation model depends on your CS organization’s charter and maturity. For many, a hybrid approach—blending MBOs with revenue-based or value-driven incentives—may provide the best balance.

As we continue to refine how we motivate and reward CSMs, ensuring they focus on the right priorities while driving long-term customer success.

Now, I’d love to hear from you:

How does your company structure CSM compensation? Are MBOs working for you, or is it time for a change? Let’s discuss in the comments!