Sales Compensation Plans for Key Sales Roles
For any SaaS company, sales compensation needs to be architected in a way to motivate the team while keeping business objectives in mind. Unlike traditional companies, most SaaS firms face most challenges regarding recurring revenue models, subscription services, and multiyear contracts.
These plans need to reward activities that drive predictable revenue and customer loyalty and simultaneously offer balance in driving pressure on reps to close new business. In this article, we will discuss sales compensation planning for the main sales roles and give sample strategies constituting a good starting point based on which one may build effective compensational structures for each SaaS company.
How critical are effective sales compensation plans?
To the sales teams of SaaS companies, compensation plans are just not carpe diem deals. To the sales leaders, team incentives should align with company-wide goals: long-term revenue growth, customer retention, and profitability. Compensation plans can drive behaviors, motivate top talents, and ensure that everyone works to attain key objectives.
With that said, the compensation plans must be designed in such a way that their goals focus on SaaS specifics: growing recurring revenue, not just focusing on one big service sale.
Sales Compensation Plan for Account Executives
Accordingly, the responsibility of the Account Executive in SaaS companies is to close new business and drive software subscription revenue. Their compensation plan should be designed to focus first on driving new customer subscriptions, not one-off services revenue.
That’s because recurring software revenue is worth more over time. In some organizations, AEs also lead expansion and renewal efforts with existing customers, while in other organizations those tasks might fall to the Customer Success team.
Sample Account Executive Plan
- Base Salary: AE base salary should be fixed at 50% of OTE for financial stability.
- Commission Structure: Performance variable element that is based on sales of new subscriptions with incentives-bonuses for closing many year’s contracts or upselling current clients.
- Recurring Revenue Bonus: The bonus element tied to the value of recurring revenue deals closed during the quarter or year.
This plan ensures that AEs focus on driving new customer acquisitions while upselling opportunities and securing longer-term deals.
Sales Compensation Plan for Sales Managers
Sales Managers at SaaS companies bear a huge responsibility in team performance management and mentoring of sales representatives. Compensation should be made to reflect the success of both their teams and capability in attaining specific management objectives. Typically, Sales Managers have a greater base salary, with a portion of their variable pay then connected to team success metrics like quota attainment or forecast accuracy.
Sample Sales Managers’ Plan
- Base: The base is 60% of OTE, and the remainder is linked to variable metrics based on performance.
- Team Quota: Part of the commission is tied to the teamed attainment of revenue quotas.
- Management by Objective: Once specific leadership goals, such as retention, forecast accuracy, or developing new talent in the team, are identified, incentives will be linked with those objectives.
It links compensation to team performance and key leadership objectives so that Sales Managers drive revenue while developing their teams.
Sales Compensation Plan for Business Development Representatives – BDRs
It is very important that Business Development Representatives, also known as Sales Development Representatives, should be available to provide better lead generation and appointment setting for the Account Executives. A BDR is supposed to be a junior professional, to whom basically the initial stages of the sales cycle are assigned. Most are usually responsible for outreach and initial contact with prospects. Their compensation, therefore, should appropriately reflect their capability to book qualified appointments and such that bring in AEs with the highest quality of leads.
Sample Plan for BDRs
- Base Salary: The base salary is usually lower, around 60-70% of the OTE.
- Appointment Quota: A type of variable pay related to the number of qualified appointments set with prospects.
- Revenue Bonus optional: Some firms may attach a smaller percentage of compensation to the revenue generated off leads the BDR sources, but again, this is usually minor.
They need to be incentivized based on indicators within their span of control, such as lead generation and appointment setting, and not the deal closure outcome by Account Executives.
Compensation Plans Tailored for SaaS Success
While the sample plans above serve as good starting points from which to design compensation plans in SaaS companies, it is important to draws on specific business needs and goals. SaaS organizations should consider customer population size, market condition, and growth expectations when determining compensation plans. It’s balancing the base salary with the commission component while keeping compensation as closely aligned as possible with productive activities that will drive revenue.
Core Metrics of SaaS Sales Compensation
- ARR: Annual Recurring Revenue is different because reps are incentivized on the recurring revenue derived from new and existing customers.
- Customer Retention and Expansion: Differing compensation based on efforts related to the retention of customers and upsell for longer-term growth.
- Multi-year contracts: Incentivize with bonuses the acquisition of longer-term contracts, providing predictability and stability for revenue.
With these metrics, SaaS companies would pay attention to giving the necessary balance in compensation plans for meeting short-term sales goals and long-term revenue objectives.
Conclusion
The process of designing effective sales compensation plans within SaaS companies does require a lot of forethought, taking into consideration the important roles that come under the sales organization and the overall revenue aims of the company. It helps balance whether it is the compensation of Account Executives, Sales Managers, or Business Development Representatives such that compensation plans are motivating the right behaviors and are aligned with company objectives.
In balancing base salary with commissions and bonuses off key metrics for SaaS businesses, such as recurring revenue and customer retention, comes a well-structured, incentivizing setting to drive organic, continuous growth and high performance within the sales organization.
