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Compensation structures are one of the most interesting questions facing customer success organizations in software startups. How should customer success leaders structure their team’s compensation in order to align the objectives of individual customer success managers with those of the larger business?

At the Customer Success Summit, Boaz Maor, VP of Customer Success at Mashery presented his rubric for answering this question. I have copied his table below.

At Mashery, customer success managers are evaluated on five different objectives: product adoption, program expansion, value to customer/ROI, strength of the relationship, non-monetary value, and monetary value. Each field has a corresponding weight, used to calculate the ultimate bonus for the CSM.

As I prepared the S-1 analysis for ServiceNow, the third largest public SaaS company in the world, I came across a section in their latest annual report called Key Factors Affecting Our Performance in which the company describes the two ways they evaluate churn. One is common, but another is unusual. Below I’ve quoted their definitions.

Upsell rate. To grow our business it is important for us to generate additional sales from existing customers, which we refer to as our upsell rate. We calculate our upsell rate as the annualized contract value, or ACV, of upsells, net of losses during the period, divided by our total ACV signed during the period. The upsell rate was 36%, 31% and 30% for the years ended December 31, 2014, 2013 and 2012, respectively. Our upsells are primarily derived by an increase in the number of seat licenses purchased by our customers and are also derived from the addition of other subscription services.

Worth $11.5B, ServiceNow is the third public SaaS company, after Salesforce and LinkedIn. Based in San Diego, ServiceNow employs roughly 3000 people, and sells a system of record for IT operations teams to manage IT assets, facilities, and human resources. ServiceNow’s software allows clients to develop custom applications for their own needs, often with the help of the company’s professional services team.

The role of the marketing team within SaaS has stretched from simply engendering awareness and creating interest, to guiding customers much deeper into the funnel. Steve Patrizi created the schematic above that illustrates the idea beautifully.

In traditional go-to-market models, marketing teams fill the very top part of the funnel. When a potential customer enters the consideration phase of the buyer journey, the marketing team transitions the lead to his sales account executive, who educates the customer from the consideration stage through purchase.

We may have been talking about SaaS companies for more than a decade, but we’re still just at the beginning. The legacy software companies including Oracle, Microsoft, SAP and and IBM control 83% of the market cap of software businesses, representing $830B in market cap. The largest SaaS company, Salesforce, is just about half the size of SAP, and Microsoft is 8x bigger.

I’m thrilled to welcome Mina Radhakrishnan as an entrepreneur-in-residence (EIR) to Redpoint. Mina, my partner Jamie, and I got to know each other about 10 years ago at Google, where we were associate product managers all working in Marissa Mayer’s APM program.

Since Google, Mina has done some amazing things. In particular, Mina was Uber’s first PM. She joined when the company numbered about 20 people, and stayed through until the employee base reached many thousands. Mina introduced surge pricing, built the on-boarding software for new drivers, and managed the releases of the key products of the company including UberX.

In a recent podcast, Ron Gill, the CFO of Netsuite - a $7B+ market cap company with about $600M in 2014 revenue, which provides ERP software to mid-market companies - articulated the importance of the Lifetime Value / Cost of Customer Acquisition (LTV/CAC) ratio for his company. LTV/CAC is often used to justify marketing and sales investment to acquire customers. But there’s much more to it.

McKinsey developed the 9 Box Matrix in the 1970s to help GE prioritize investments across its 150 business units. Not all business units were equally attractive. Some should receive investments and others should be divested. The 9 Box Matrix evaluated business units on two dimensions: industry attractiveness and competitive strength of the business unit.

At some point in the last 40 years, Human Resources teams co-opted this model as a talent management tool, and replaced the two industry axes with people specific ones: performance and potential, as depicted above. Because the HR model has never been standardized, there are quite a few variations in circulation. But the usage patterns are consistent. The main goal of the 9 Box Matrix is to categorize employees, determine which to promote, retain and invest in, and which to reallocate.

As the next generation of SaaS companies achieve maturity, they have begun to serve larger and larger customers, who in addition to demanding a great product, often request services. Professional services, as they are often called, entail training and customization. For product driven startups, the decision to offer professional services is a tricky one. On one hand, the customer is always right and services often enable substantially larger contracts. On the other hand, selling hours to drive revenue decreases the efficiency of the business, by hiring more people in order to grow revenue linearly. In addition, many businesses operate their services divisions at a loss. But not all. The chart above compares the gross margins on professional services across the 13 publicly traded SaaS with the largest average revenue per customer, which ranges from $50-$800K for the 2015 fiscal year where available, and otherwise the last disclosed year before acquisition.

Of the 43 SaaS companies to have gone public in the time period between 2006 and 2014, 60% are trading above their IPO pop price – the price at the end of their first day of trading. The median company has appreciated 69% since its IPO. The chart above shows the trends for each of the companies in this data set. Xero tops the list that more than 17x appreciation. This is an anomaly; the company went public right as it was founded and has grown to be worth several billion dollars. It’s an amazing story. On the bottom end, Castlight has dropped by 80 percentage points in value since its IPO, to a market cap of about $850 million, and trades below the typical SaaS company at about 7x forward revenues. If you’re curious about the trends from IPO offer, you can find the chart here.