Sales Compensation Knowledge Hub

Recurring Revenue can be of three types - New Business, Renewals, Upsells & Cross-sells. The commission should be based on which role will be responsible for each one of these three revenue streams.

Not designing a comp plan based on your historic data Not aligning it to your sales strategy. KPIs of different roles. Not identifying and rewarding the specific behavior that leads to success Setting targets too high or too low (<70% of team achieves their target)

Product Led Growth follows a different trajectory in which Sales plays a different role (which is more of assisting the buyer instead of driving the sales cycle). For eg. in PLG, the sales team may be responsible for ensuring a successful trial by hand-holding the customer. Then the comp plan should reward leading indicators such as customer satisfaction from the trial etc.

No, I would give the outbound BDR the same credit irrespective of where the lead gets registered. The website is a conversion engine for both inbound and outbound. Any lead that comes from the Outbound Account List should be credited to the Outbound team.

Adjustments and clawbacks in the context of sales compensation in the SaaS industry refer to the process of modifying or recovering previously paid commissions or incentives based on certain conditions or circumstances. Adjustments: Adjustments are made when there is a need to correct or modify the initially calculated commission payout like Order cancellations or returns, Incorrect or overpayment, Contract changes or amendments. Clawbacks: Clawbacks are a more severe form of adjustment where previously paid commissions or incentives are recouped by the company. This typically occurs in situations where there is a violation of company policies, unethical behavior, or if the conditions for earning the commission are not met like misrepresentation of sales, violation of compliance regulations, unethical practices, or the discovery of fraudulent activities. (The clawback amount is typically deducted from future commission payments earned by the salesperson).

Typically when the business starts to grow and the companies become more efficient to close the deal in less time, they start to focus more on cost optimization. Cutting commissions can be a way to optimize costs and improve profit margins without sacrificing the quality of the sales team. An established company and experienced rep becomes better at converting leads into customers with less effort and the business manages to stay competitive even after reducing the overall cost of acquiring customers. They start focusing more on long-term customer value and retention. They need to keep in mind that they can only focus on cost-cutting once they are at a certain level of stability and predictability so that their high-performing reps do not churn. Lastly, keep adjusting your compensation strategy with changing sales strategy.

Commissions amortization refers to the practice of spreading out the recognition of commission expenses over a specific period, typically matching the revenue recognition pattern of the associated sales. For this, you need to determine the period over which commissions will be recognized as expenses and use two common methods i.e. straight-line amortization (the total commission expense is divided equally over the commission recognition period) and proportional amortization (commissions are recognized proportionally based on the revenue recognized from the associated sales). Then comes the recognition period where you need to determine the specific period over which commissions will be recognized. For long sales cycles use an extended period. Make sure to ensure compliance with relevant accounting standards such as the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).

Cutting the commission of the reps in Start-ups should be avoided. Such an action reduces the trust of the reps who may see this as an attempt to cut costs at the expense of their earnings and taking away what has been rightfully earned. This typically happens in two cases: 1) there were loose ends as plans were not designed and tested well. Sales reps are very good at identifying and exploiting them. Since a comp plan is a legal contract and is binding as such, it would be best to honor and then change terms if needed. 2) A Sales Rep twisted what should have been common sense to an unfair advantage. This needs to be addressed through a collaborative discussion. These issues should be handled sensitively and objectively as these can lead to a perception that can lead to attrition and impact future hiring.

Companies that focus on driving immediate revenue while also ensuring lasting growth and profitability need to follow different strategies to balance short-term and long-term results. Starting with quarterly bonuses and equity or profit-sharing programs, to motivate immediate performance while Incorporating customer success metrics alongside revenue targets to encourage sales reps to focus on building strong customer relationships and driving long-term customer retention. Companies need to consider long-term strategic objectives like market penetration, expansion into new segments, or successful product launches. While all of this is very obvious one of the most important strategies would be adjusting the comp plan after considering trends and sustained performance rather than just short-term spikes.

The typical commission structure for a sales professional selling SaaS can vary based on factors like industry, company size, deal size, and sales role. There are some common practices that include: 1-Commission is often based on a percentage of revenue generated, ranging from 5% to 30% or more. 2-Some companies tie commission to the Annual Contract Value (ACV) of customer subscriptions, typically 5% to 15% or higher. 3-Tiered commission structures may be used, where higher performance leads to increased commission rates. 4-SDRs usually receive lower commissions for lead generation, while AEs earn higher rates for closing deals. 5-Commissions are typically paid monthly or quarterly, with potential bonuses for meeting specific targets.

Well designing the sales compensation plan in a way that incentivizes and rewards sales reps for actions and outcomes that contribute to the sustained growth, profitability, and overall success of the company over the long term. Instead of solely focusing on short-term sales results. The best way would be: Adopting a balanced scorecard approach with multiple performance metrics beyond revenue. Using tiered commission structures that incentivize recurring revenue and customer relationships and Foster collaboration. Incorporate team performance metrics to promote collaboration and overall success. Offer long-term incentives like equity or profit-sharing programs.

While there is no one-size-fits-all when it comes to deciding the pay mix for the SaaS industry you might want to consider some components like Base Salary, Variable Pay (The base salary portion provides a stable income for sales reps and ensures a baseline level of financial security. The ratio of base salary to variable pay can vary depending on factors such as the complexity of the sales process, deal size, and average sales cycle length), Commissions, Bonuses (Commissions are typically tied to individual performance metrics such as the revenue generated or new customer acquisition, while bonuses may be awarded for achieving broader team or company-wide goals), Incentives for Specific Behaviors, Stock Options or Equity, and Performance Multipliers (The ratio of performance-based multipliers to the base compensation can vary depending on the desired level of motivation and the significance of exceptional performance in driving revenue growth).

Yes, RevOps can provide valuable guidance and support for ongoing sales compensation plan adjustments and improvements by analyzing sales data, trends, and patterns, to identify areas where adjustments or improvements may be necessary and identifying areas where the existing plans may be falling short or where adjustments can be made to stay competitive and attract top talent. RevOps actively seeks feedback from sales team members, sales leaders, and other stakeholders gathering input and gain valuable insights into their experiences, challenges, and suggestions for improvement. They also collaborate with other departments and provide guidance and recommendations on how adjustments to the sales compensation plans. RevOps also provide clear and transparent communication and helps ensure that the changes are well understood and accepted.

No doubt sales compensation software can ease up the complex calculation and provide fair compensation to the reps. But every prize comes with a responsibility and here the software requires some of the additional features from the organization like CRM Integration, Sales Performance Management (SPM) Tools, Data Warehouse or Business Intelligence (BI) Systems, Payroll, and HR Systems, Single Sign-On (SSO) and Identity Management (provides seamless authentication and access control for users within the sales comp software), Document Management Systems, and Finance and Accounting Systems (ensures accurate financial reporting, commission accruals, and alignment with financial processes).

Yes, Revenue Operations (RevOps) can help sales leaders identify potential drawbacks or challenges in sales compensation plan design. This can be done through: Data analysis: Analyzing comprehensive data on sales performance and financial metrics to identify patterns and misalignments in the compensation plan design. Cross-functional collaboration: Working closely with sales, finance, and other departments to gather different perspectives and uncover potential drawbacks or challenges. Performance metrics alignment: Ensuring the compensation plan aligns with broader company goals and supports the desired sales behaviors and revenue strategy. Continuous evaluation and iteration: Monitoring and evaluating the effectiveness of the plan over time, gathering feedback, and making necessary improvements to address any challenges.