Side Quest EXP

Last session went off the rails fast… in a good way! But now I’m worried I need to overhaul my leveling system. Most of my players are new but all have experience with RPGs like WoW and BG3. They crushed their first arch in the campaign and stuck to the main story quest. I kind of had them on training wheels just to get them comfortable with the mechanics and to start building flavor for their PCs.

Now they are starting to explore the world in their second arch and on their way to the next dungeon they decided to look for a bounty to pick up along the way.

Long story short, I improved a whole interaction with really tough monsters and NPCs that were actually meant to be out of their league. They played smart and eventually, over the course of the whole session, stomped some baddies that should give them a good bit of EXP.

Here’s the problem; I’ve been doing milestone leveling and this shit wasn’t part of the plan. So now I’m wondering if I need to just start adjusting all my monsters and NPCs to be bigger and badder to keep them on track with the milestone leveling of the main campaign? Or do I switch to proper CR exp? I’m hesitant to do that just because I hate keeping up with all that info, but I feel like I should reward these players for doing something they really had to fight for.

If you want to do milestone then stick with milestone but make sure your players understand that they're not grinding to get levels, if they've played a lot of WoW it's a tough habit t break and they might think they need to be running around doing side hustles to get to a decent level. As for rewards a level up isn't the only one you can offer, instead give them gold, magic items, or even just information that will help them in the campaign. 

There are plenty of ways to reward players without a level up. Magic items, gold, reputation, allies, or just seeing their choices have consequences later in the campaign or world. People don't pursue side quests in BG3 to farm XP, they do it because those side-quests are inherently interesting and rewarding in their effects on the world/NPCs the players care about.

At my table, with Milestone leveling the reward from doing a side quest, beside the accomplishment in itself, isn't more Experience Points but something else they may or may  gain uch as treasure, fame, favor, new contact etc 

Keeping the same leveling method and following the course on the next campaign arc seems more appropriate to me.

Honestly, you should move away from milestone leveling.  Incentives matter, and milestone leveling offers the worst incentives to PCs.

• There shouldn't be a 'script'.  The plot is what the PCs want to do, not a railroad imposed by the DM.  You can have stuff going on in the world (even things which impose consequences if not dealt with), but the PCs should be actively choosing what to engage with.  
• Milestone leveling encourages the players to be passive consumers rather than active participants in telling the story.  (And good on your players for getting themselves off the rails).
• Encourage your players to have their own goals.  And those goals should be the prompts for future actions/sessions.  Don't think of these as sidequests -- this is what the characters want to be doing. This is the main story.

Your players just told you something about who their characters are.  That's to be celebrated, not discouraged.

That said, I don't recommend kill xp as the primary xp source either.  Original D+D had this right: treasure looted as the primary source of xp.  This encourages smart play, and encourages players to approach encounters with a mindset other than kill or be killed, because killing monsters is no longer the goal.  (B/X, BECMI, and 1st AD+D awarded 1xp per 1gp of treasure successfully looted and brought back to town.  And keep in mind that it's the PC's share of the treasure, not total party treasure.  So a 10,000gp treasure hoard for a 5-member party, assuming they could successfully retrieve the whole amount, would be 2,000xp each -- and only once, and if, they got back to town/base with it).