In addition to goal-based commissions, it is very common for SaaS companies to use additional incentives for specific business goals. For this model, rewards are more closely tied to higher revenue generated and multi-year contracts.
While all forms are good, they maintain a positive cash flow for the company.
In one case, at a company we worked with, salespeople received an additional 2% if customers paid 12 months in advance and another 2% if customers signed a contract for 24 months or more. Incentives can also be cash bonuses.
Example: Another company offered a $2,000 bonus to anyone who could sell them the service for one of the “logos” they wanted to include on their website.
Non-financial reward
Recognition doesn’t always have to be spain phone number list related to cash payment. Dream vacations at the “President’s Club” (a traditional internal competition adopted by many American companies, consisting of all-inclusive trips) continue to be used for a good reason: they are very consistent motivations and public recognition.
We have seen companies that offer group tours and parties and have had excellent results, especially those that operate more towards group work.
Unit economics for sellers
A general guideline is that when the sales process starts flowing smoothly, targets should be at least 5 times the salesperson’s OTE (On Target Earnings), which includes base salary + bonus.
Ideally, this target should be 6-8 times OTE to maintain high performance. This is a guideline we’ve observed based on data from successful companies we’ve worked with. But it’s just a convention. The complexity and difficulty of your sales process will determine the ratio your company can handle.
Matt Bertuzzi of The Bridge Group shared this chart comparing salespeople’s OTE goals and target salaries:
But it is interesting to note that many of the respondents are in the early stages, the number may be smaller and there may still be some divergences.
How sales behavior influences revenue retention
A common view in sales is that they are responsible for bringing in new customers and letting the rest of the organization worry about retaining customers. But you’ll quickly notice that this way of thinking has a negative impact on your customer turnover/retention. Here are 4 behaviors you should encourage to avoid these problems:
Don’t sell more than necessary
It is easy to oversell a customer, overpromising can make a customer unhappy and they will cancel quickly. There is no sales boost if the customer decides to cancel a contract where they were promised more than they were delivered.
It’s interesting to have a penalty for this type of behavior. If commissions are paid upfront, you’ll usually see commission penalties when the customer cancels in the early stages. This creates an incentive for sellers not to overpromise customers who don’t fit the profile.
Selling to the right type of customers, where the solution is proven
There are also customer groups here’s how to fix it and profiles where your product works best and who are the ideal customer. These usually have the lowest cancellation rate.
Sell the stickiest module
Early on, while you are still looking for product/market fit, you should find that your product is not “sticky” unless the customer adopts a specific module/functionality. In this case, customers who buy this module will be much more valuable than those who don’t and will likely cancel quickly. Of course, you should encourage your salespeople to sell this specific module.
Sell to the most profitable customer segments
Your most valuable customers will asb directory have a high CAC (Customer Acquisition Cost) ratio with a high LTV (LifeTime Value) in a short period to recover the CAC.
To have a high LTV, we look for customers with a high ACV, a low churn rate, and a high potential for revenue expansion after closing. If you identify segments with these characteristics and it doesn’t cost much to sell to them, this is your great segment.
Payment for sales must change as goals change
Your business goals will change as new priorities emerge. That means you need to adapt your sales compensation plan to keep them aligned.
For example, if your company is doing well at acquiring new customers, but they are churning rapidly, the priority will be to retain those customers and renew contracts, with the focus on acquisition taking a backseat. Or you might launch a new product and shift your sales focus to selling more of the new product.
A balanced approach is important, but you don’t want a plan that changes focus too quickly.
Paying double commissions for a new product that isn’t ready to sell yet can hurt the growth of your main product, or paying commissions for additional sales can delay opening new accounts.
Always make sure you have balances in your compensation plan to mitigate the risk of changing your direction too quickly in relation to the new.
Early Stage Sales Compensation
While still looking for product/market fit, you will need “explorer” salespeople who can help you define the business process beyond maximizing sales. You need someone who loves the product and can help you in areas like:
- Which segment to focus on?
- Who to sell to in the organization?
- What problem do you solve?
- What is the message?
- What features are missing to really solve the problem?
- What is the ideal price?
This isn’t your typical salesperson, but rather a self-starter who can problem-solve with each potential sale and report back to the product team. And while income is low and unpredictable, you may want to pay a higher base salary instead of variable compensation.
Justin Roberts of Lever says, “In the early stages, I like to keep compensation simple, focusing on base salary and stock options to invest primarily in what each sale has . ”
Conclusion
Compensation for SaaS becomes more complex as more business goals emerge when creating the plan. In particular, SaaS should focus on attracting customers who will stay for the long term and expand their contracts over time. We recommend that you start by listing your business goals and highlighting key objectives.
“The most important thing is that you’re thinking about the company’s goals,” says Marcus Bragg of Zendesk. More customers? More revenue expansion? Are you looking for a lot of customers or a few big customers? Do you offer free trials on your website or are we going to work with leads captured with inbound?
All these questions will help you define how your compensation plan evolves. It is also important that it is simple and easy to understand, so that ideally 2 or 3 (maximum 4) elements define the variable compensation.
And as business goals change, you need to be prepared to adapt the plan as new priorities arise. The journey may not be easy, but the end result will be. If your plan is aligned with your goals and your sales team knows what to do to earn good commissions, you’ll be on the right track to attracting top salespeople and ensuring great performance.
Did you like it and want to learn more about your sales team’s SaaS commission? Then read our content: Brave Sales Consultant: The Fifth Skill of the Complete Salesperson .
