Thursday, February 3, 2011
Sales Compensation for a SaaS Business
MassTLC SaaS members braved another New England storm for a lively discussion on sales compensation in a SaaS environment led by Liz Cobb, sales compensation consultant, and Brad Coffey, Director of Business Operations and Strategy, at HubSpot. Highlights are below and the presentation can be accessed via slideshare here.
Discussion topics included sales compensation basics:
1. Compensation follows the strategy
- Know your goals - Revenue, growth, profit
- Understand your company stage - Startup, repeatable growth, maturity
- Design your sales strategy - Organization design and job roles; Consider other job roles - not just your outside sales folks
2. Reps follow the money
- Does your plan communicate the strategy?
- Motivate what can be controlled by the rep
- Provide frequent feedback- $ & #s
3. Creating a comp plan
Liz highlighted that payout timing is critical - align it as closely as possible to the motivating event. The key events for motivating: make sure reps have control of the event, make the compensation competitive, communication the plan clearly, reward in a timely fashion and provide real-time visibility to results and how payments were determined. Also, be sure to view compensation across job roles so you can check for fairness and alignment - from the sales manager to sales rep to service. And lastly, make sure managers are aligned with the team quota.
Once the plan is out there, it is important to assess the plan and make sure it is motivating. Two tell-all graphs include:
1. Pay for performance - tight alignment
2. Attainment Distribution - how to set quotas and monitor, look for a nice bell curve
You want a team of winners - 60-65% of group should be at or above quota
There was a quick look at organizations that sell both SaaS and on-premise products. Be sure to confirm your strategy as a company and avoid having the same person selling both!
Brad followed Liz by offering considerations from the real world. One of the most important lessons HubSpot learned was they had to shift their model to pay on predicted LTV more than MRR. This worked for awhile however LTV calculations are unclear and often a lagging indicator. Over time they have shifted their model in an attempt to schedule longer term contracts, extended clawback deal up to 6 months.
Hubspot lessons learned:
- Align sales compensation with the needs of the biz
- This will change over time
- This includes churn and LTV
- Analyze each rep like a thin version of the your entire company
- Leverage SaaS benchmarks to ensure you're on track - then hit the gas!
Stay tuned for information on a series of breakfast seminars from the group focused on running an efficient SaaS business model. If you wish to be further involved in the planning of upcoming sessions, please contact Christine Nolan at firstname.lastname@example.org. Thanks to all who attended and joined in the discussion!