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Given the changing business models, what are some of the latest developments in Sales Model transformation adopted by IT service providers like system integrators, solution resellers ( of say a Microsoft)? And how are these changes causing changes to how Sales personnel are incentivised i.e what are the critical changes to compensation parameters for sales folks in this industry?
Sales compensation is a more complex topic for cloud/SaaS/subscription revenue companies. Unlike traditional sales, the job of sales doesn’t end when a new customer signs a contract. Instead, it is crucial to retain customers over many years, as that is how you maximize your revenues.
When we’re designing sales compensation, the goal is to align sales behaviors with the desired business objectives. Therefore, the process should start with identifying your key business objectives.
The primary business objectives related to cloud sales are usually some combination of:
Book as much new recurring revenue as possible.
Collect as much cash upfront as possible. (Particularly important in the startup phase where cash is in short supply and expensive to raise).
Sign longer term contracts (e.g. annual terms vs. monthly, multi-year vs. annual)
Make sure customers are happy after purchase so they will remain long term customers.
Drive the maximum renewal rate.
Drive expansion revenue with existing customers to have a revenue retention rate of greater than 100%, even when you lose some customers due to churn.
Add as many new logos as possible.
Optimize deal size (sometimes worth trading this off for faster sales cycles, and then expanding after getting in the door).
Drive a specific product mix: i.e. selling a new product that has just been added to the product line.
Drive gross margins as high as possible.
And there may be other objectives that might matter in the early days of a startup, such as:
Sign up accounts that are willing to be references.
Sign up a particular type of customer: i.e. larger customers, well recognized brands, customers in a specific new vertical, etc.
Reward sales reps that don’t discount too much to win deals.
Get a consistent flow of bookings, as opposed to a few very large deals that are unpredictable in timing and certainty of closing.
Get a large number of customers quickly to maximize market share, which might be done at the expense of optimizing the deal size.
Land and expand: use a low entry deal size to break into accounts, and then expand once you have a foot in the door.
The point I’m trying to make here is simple: it helps to write down and prioritize your business objectives so you can drive the sales compensation accordingly.
The final point: keep it SIMPLE! Choose a maximum of 3-4-5 criteria and give incentives on these criteria. Make sure that your sales plan rewards the winners and penalize the losers, and please make sure it does not introduce distortions (so-called “artificial behaviors”), i.e. unwanted side effects.
Please contact me on LinkedIn if you want to get deeper into the matter.