Show me the money! Sales compensation plans that won't fail

Proprietary and Confidential ©2013 OpenView Investments, LLC. All Rights Reserved

Show Me the Money! Sales Compensation Plans that Won’t Fail Michael Hanna Founder, Hanna Strategy Group November 19, 2013


Outline

•  Introduction

•  Base Salary / Variable Split

•  Why the Sales Compensation Plan Exists

•  7 Commonly Overlooked Factors

•  10 Compensation Modeling Elements

•  Recap

•  Q&A


Why the Sales Compensation Plan Exists

From the Organization’s Perspective:

1.  To provide clarity of focus for each role.

2.  To define success for the sales person’s contribution to the organization’s success.

3.  To motivate behaviour by rewarding for results.

From the Sales Person’s Perspective:

1.  To help fund their personal goals.


Base Salary / Variable Split

What Determines Base Salary:

•  Level of Difficulty

•  Level of Autonomy

•  Experience Required

What Determines Variable Comp:

•  Complexity of Sales Cycle

•  Influence on Buying Decision

•  Inbound vs. Outbound

•  “Hunting” vs. “Farming” vs. “Catching” Annual Base Salary (USD) $25K

Variable (% of TTCC)

10%

50%

$100K+

ENTERPRISE SALES Large Deals, Complex, Multi-Year Sales Cycles

I/B LEAD GEN High Volume, Short,

Simple, Reactive

INSIDE SALES High Volume, Hunting,

High Influence, Pro-active

O/B LEAD GEN High Volume, Short, Simple, Pro-active

ACCOUNT MGR Hunt/Farm/Catch, Pro/

Re-active

STRAT ACCT MGR Complex, Large Cust’r,

Hunt/Farm/Catch


7 COMMONLY OVERLOOKED FACTORS Don’t make these mistakes…

What was I thinking? It’s

impossible to please them!


Commissions

1. A simple plan is better than a thorough plan.

If your reps cannot easily calculate their commissions as they make decisions in real-time, then your Comp Plan is not pro-actively affecting behaviour.

It is simply rewarding your reps after the fact.


2. Set comp metrics that align with your business model and stage of growth.

•  Success for Company A ≠ Success for Company B.

•  Service-Based Company => Revenue Recognized or Billable Hours

•  Product-Based Company => Bookings

•  SaaS-Based Company => Recurring Revenue (monthly or annualized)

•  Success in Season A ≠ Success in Season B.

•  Start-Up => Cash Flow => Up-Front Payment

•  Expansion => Market Share => New Customers


2. Set comp metrics that align with your business model and stage of growth.

•  Success for Company A ≠ Success for Company B.

•  Service-Based Company => Revenue Recognized or Billable Hours

•  Product-Based Company => Bookings

•  SaaS-Based Company => Recurring Revenue (monthly or annualized)

•  Success in Season A ≠ Success in Season B.

•  Start-Up => Cash Flow => Up-Front Payment

•  Expansion => Market Share => New Customers

Resources:

“3 Dashboards Every SaaS

Company Should Maintain”

-- OpenView Labs

“Peer Review: Exploring Some of

the SaaS Metrics that Matter

Most to Expansion-Stage

Companies”

-- OpenView Labs


3. Design your comp plan document like a marketing asset, not a contract.

Sales Compensation Plan

Though shalt

Though shalt

Though shalt

Sign here



3. Design your comp plan document like a marketing asset, not a contract.


Though shalt

Though shalt

Though shalt

Sign here


Resource:

“Have You Heard This One?

Plan Communications

Can Make or Break Your New

Sales Incentive Plan”

--

Clinton Gott, Better Sales Comp,

posted on Wordatwork.org


4. Ensure you can accurately track your quota metrics.

Whenever possible, avoid metrics that are:

•  Dynamic

•  Estimated

•  Subjective

•  Incomplete

Lost credibility kills motivation and creates a lasting distraction!


4. Ensure you can accurately track your quota metrics.

Whenever possible, avoid metrics that are:

•  Dynamic

•  Estimated

•  Subjective

•  Incomplete

Lost credibility kills motivation and creates a lasting distraction!

“Reps spend 5% of their

time in checking/fixing

commission statements,

and managers as

much as 10%—we have an

issue of the sales force

turning into accountants.”

--

Sales Incentive Compensation

Best Practices Research,

Growth Solutions Inc.


5. Provide real-time visibility.

•  Deliver your Compensation Plans with a calculator to run scenarios.

•  Provide a live dashboard indicating attainment to quota.


6. Anticipate staffing challenges.

Total Company Achievement =

Head Count

•  Quota per Rep

•  Turnover Factor from Existing Reps

•  Ramp-Up Factor for New Reps

•  Delay Factor for Late Hires


6. Anticipate staffing challenges.

Total Company Achievement =

Head Count

•  Quota per Rep

•  Turnover Factor from Existing Reps

•  Ramp-Up Factor for New Reps

•  Delay Factor for Late Hires

HOW MUCH OVERLAY:

Total Quota for All Reps

should equal 110 – 120% of

Company Target

STATS:

Best in Class: 9.7%

Industry Average: 10.1%

Laggards: 12.3%

--Aberdeen Group

25.5% turnover in 2012

--CSO Insights


7. Reserve compensation budget for ad-hoc SPIFF’s.

•  Helps you avoid changing Compensation Plans mid-year.

•  Enables you further incent for dealing with changing conditions.

•  Sales contest to beat a disruptive competitor.

•  Customer win-back campaign to off-set churn.

•  Added incentives to compliment a new product launch

•  “Catch-up” contest for underperformance.

•  Quarterly / Annual contests for most new logos, largest deal, most creative objection handling, greatest team player, etc.


7 Commonly Overlooked Factors

1.  A simple plan is better than a thorough plan.

2.  Set comp metrics that align with your business model and stage of growth.

3.  Design your comp plan document like a marketing asset, not a contract.

4.  Ensure you can accurately track your comp metrics.

5.  Provide real-time visibility.

6.  Anticipate staffing challenges.

7.  Reserve compensation budget for ad-hoc SPIFF’s.


10 COMPENSATION MODELING ELEMENTS •  Base Elements

•  Limiting Elements

•  Over-Performance Elements

•  Additional Elements


Base Elements

Attainment

Com

mis

sion

s

Quota

Target earnings

Sliding Scale

Step Function

MY

PREFERENCE:

Use Standard,

unless you have a

compelling reason

otherwise

Sliding Scale is

more appropriate

for high volume

transactional

sales


Limiting Elements

Attainment

Com

mis

sion

s

Quota

Target earnings


Limiting Elements

Attainment

Com

mis

sion

s

Quota

Target earnings

Floor

Ceiling

Floor is more

appropriate for

high volume

transactional

sales

MY

PREFERENCE:

Never use a

ceiling! Why cap

performance?


Over-Performance Elements

Attainment

Com

mis

sion

s

Quota

Target earnings



Attainment

Com

mis

sion

s

Quota

Target earnings

Qualify by

attainment or

by attribute

Bonus

Accelerator Retroactive Accelerator

MY PREFERENCE:

Retroactive Accelerator

is very powerful, though

difficult to describe.

Alternatively, combine

Bonus & Accelerator.


Example 1: Qualifying by Attainment vs. by Attribute

SaaS Comp Plan:

•  Primary: Monthly Recurring Revenue (MRR) (Top line)

•  Secondary: Average % Discount (profitability)

Option 1:

•  Primary: MRR Attainment

•  Bonus: Exceeding 100% of MRR Quota

Option 2:

•  Primary: MRR Attainment

•  Bonus: < 10% Average Discount


Example 2: Qualifying by Attainment vs. by Attribute

SaaS Comp Plan:

•  Primary: Monthly Recurring Revenue (MRR) (Top line)

•  Secondary: Term Length

Option 1: •  Primary:

MRR Attainment

•  Bonus: Exceeding 100% of MRR Quota

Option 2: •  Primary:

MRR Attainment

•  Accelerator: 2 Year Deal => +25% 3 Year Deal => +50%


10 Compensation Modeling Elements

Base Elements

1.  Standard Commission Rate

2.  Sliding Scale

3.  Step Function

Limits

4.  Floor

5.  Ceiling


6.  Bonus

7.  Forward Accelerator

8.  Retroactive Accelerator

Additional Elements

9.  SPIFF’s & Contests

10. Non-Monetary


10 Compensation Modeling Elements

Base Elements

1.  Standard Commission Rate

2.  Sliding Scale

3.  Step Function

Limits

4.  Floor

5.  Ceiling


6.  Bonus

7.  Forward Accelerator

8.  Retroactive Accelerator

Additional Elements

9.  SPIFF’s & Contests

10. Non-Monetary

By combining elements

you can incent for

secondary results

without deprioritizing

primary components


Example: Combining Elements

BDR Comp Plan:

•  Primary: # New Qualified Leads (Quantity)

•  Secondary: % of Qualified Leads Accepted (Quality)

Option 1: •  # New Qualified Leads:

70% of Target Comp

•  % of Qualified Leads Accepted: 30% of Target Comp

Option 2: •  # New Qualified Leads:

100% of Target Comp

•  % of Qualified Leads Accepted: Accelerator: >= 80% => + 25% Decelerator: < 40% => - 25%


Recap

The design and implementation of your Sales Compensation Plan will only succeed if your sales reps…

•  Understand it.

•  Buy into it.

•  Trust it.


Questions


Michael Hanna ca.linkedin.com/in/michaelhanna7/

@michael_hanna

www.facebook.com/michael.hanna.988

www.youtube.com/HannaStrategyGroup

michael.hanna.3

[email protected]

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Show me the money! Sales compensation plans that won't fail