For Clients Do you need a top-performing sales professional to drive revenue? Visit our Client Services section.
SaaS sales compensation is not nearly as complex and mysterious as it has been made out to be. So, here is the scoop…. Although at first glance, lifetime value may appear to be an overly complex metric to use for sales compensation, it is always proportionate to recurring revenue.
Now you can apply any of the various sales compensation models that you already know and love. Your particular choice should match the specific goals, products, pricing and culture of your specific business, as with any other sales compensation design challenge. The primary principle of sales compensation is to pay the sales rep in proportion to the value of the deal, usually measured by the price of the product.
The value of the deal in turn is wrapped up in the sales commission percentage, which is calculated by dividing the target commission at quota by the sales rep quota: This is important, because it is at this point in the sales compensation plan design that we clearly see that sales compensation is NOT about paying the sales rep a percentage of revenue, it is about allocating a target commission payout based on a measure of performance quota.
The measure we use for performance license revenue, recurring revenue, margin, etc. We consciously choose a measure that scales with deal value, so that sales compensation aligns sales rep performance with company performance. You can get really fancy with tiers, spiffs, margin vs.
What does change is how you measure deal value, and thus the relevant measure of sales performance. In a subscription business with a recurring revenue stream, the value of the deal is not as clear cut as the price of a software license.
As any MBA or bond trader will gladly tell you, the true value of a subscription deal is the present value of the future cash flowswhich amounts to summing up all the recurring revenue over time, taking into account churn, and discounting it by your cost of capital.
As previously mentioned, the LTV of the deal is always proportionate to recurring revenue of the deal. We do not need to calculate the absolute LTV for the deal, because the commission percentage will scale up or down as needed to make sure we payout the target sales compensation.
Thus for SaaS, we simply change the calculation to the following: But, once a time-frame for recurring revenue is chosen for calculating the sales commission percentage, it is critical to stick with the same recurring revenue time-frame throughout your SaaS sales compensation plan, i. Psychologically it is often best to base your SaaS sales compensation plan on a recurring revenue time-frame monthly, quarterly, or annually that equals your most common contract renewal term, e.
The picture above shows a quick visualization for two sales compensation plans for two sales reps with similar skill sets and market labor rates: Visual, but maybe not so easy. Below is a simple numerical example that walks you through the calculation.
What quota can the sales rep carry? For example, here is the list price MRR for all sf.
|Our Team | Business Development Resources||Identifies ways to maximize revenue. Works with audit committee to prepare budgets.|
|Sales - Wikipedia||A draw is a pay advance against expected earnings or commissions. It can be important to both your sales representative and your company, but for different reasons.|
|Jobs, Bursaries and Internships: Vacancies at Big Companies - Page 5||The 3-Step Sales Strategy Step 1:|
|Connect with Your Commercial Territory Sales Representative | Johnny's Selected Seeds||Ellis Island Background As a family with three small children, we are always going on outings where souvenirs are offered for sale. I am amazed at the prices charged for items that I find are usually of poor quality and little value.|
The only important rule is that you must use the same recurring revenue time-frame throughout all your SaaS sales compensation plan calculations. When it comes to payout, there is a tendency to want to swap out the correct recurring revenue measure for the explicit contract renewal payment.
The reason the monthly, annual and 2 year renewal contracts all pay the same commission amount is that they all have roughly the same lifetime values, and are therefore of equal value to the SaaS company.
The difference between the three is only the cost of capital. But, the rep and sales manager never see this. Hence, if we want to add an incentive to our SaaS sales compensation plan for signing longer renewal term contracts it should be determined by how much we value cash up front, i.
If you have customers with dramatically different churn profiles, you should segment these deals and prorate commission payment relative to the norm as in the second example. Since this post was published, I created a saas sales commission spreadsheet that demonstrates these calculations.
Not some underpayment or overpayment spuriously based on the contract renewal term, and not in dribbles over the life of the contract to match cash flow.
Good for the SaaS sales rep. Good for the SaaS business. Good SaaS sales compensation plan design. How much easier could it be? Well…here are some very common mistakes to avoid.
Unhappy customers cancel early, and ask for refunds. If your customers are happy, then the primary benefit of a long term contract is up-front cash payment, not lock-in.
Your SaaS sales compensation plan should reflect this reality.If you want to build a strong business, you're eventually going to have to hand over the sales reins to a sales team.
Here's how to do it right. The Outcomes of a Successful Territory Business Plan When the sales territory is managed and developed properly, we can expect to see several predictabl e outcomes.
Utility Sales Associates, in my view, is the model of a great rep organization. They plan, they communicate, they execute. That’s why we have been associated with them since Creating a sales incentive compensation plan is a challenging task.
It’s all about balance, but sometimes the perfect balance can be hard to strike. This is part of the Winning By Design Blueprint Series in which we analyze and provide practical advice for every part of a SaaS sales organization.
In this Blueprint we explain how to build a sales compensation plan for the following customer facing roles: Sales Development Rep (SDR); Prospecting – Anywhere from a first SDR job (Jr.) focused on inbound, to a senior SDR job calling on key.
Sales Representative Business Plan – Financial Projections and Costing The founders of Lego Sales Consultants use to be well known sales agents for large multinational businesses, procurement, and construction contracting services and, at the same time, are experienced market researchers in global markets.