Which sales compensation plan should you choose?
Choosing the right sales compensation plan is decisive as it will drive sales behaviors. It’s a very efficient way to align sales activities and sales objectives. In SaaS companies, sales compensation plans are even more complicated as these companies need to retain their customers. So how to get it right?
Before designing your sales compensation plan, you should think of your business objectives. What is your goal?
- Show new logos
- Get deals > 50K€
- Collect up front cash
- Get a retention rate > 90%
Logo based sales compensation plan
As a startup with zero customers, you might want to design your sales compensation plan so sales representatives will spend their energy to close as many new deals as possible. Thus, designing a sales compensation plan based on the number of new logos per month might be a good option. If your startup is still looking for a product/market fit, you might not be anxious about the retention rate yet. Getting as many logos as possible can be a winning strategy, as you’ll find which companies are more likely to be interested in your startup, and which are not. Companies that love your product will stay and companies that ultimately realize that they don’t want your product will churn.
Once your startup has found the product/market fit, you will know your ideal customer profile. From this point, you can understand your potential market. Whenever your sales team signs a company that doesn’t fit your ideal customer profile, you know that you lose money. Indeed, your customer success team spends too much time and energy trying to retain them. It will create frustration as if you compensate your CSM team on retention rates and the sales team bring garbage in. Thus, the logo based sales compensation plan is now counterproductive as it doesn’t fit your business objectives anymore. You could think of paying sales representatives on renewals or two years subscription deals.
Design a tiered model
Let’s say your startup has a sales team of hunters as you’re looking for new business. Your sales compensation plan is dead simple as you compensate 10% of the Annual Contract Value (ACV). As you want to make sure to reward your top performers, increasing this rate to 14% when sales reps are over quota and to 20% when sales reps are 120% over quota is a great way to reward, motivate and keep your overachievers.