Inside Sales Program and Compensation Model for SaaS/Cloud Businesses

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One of the best ways to scale a Software-as-a-Service/cloud-based enterprise application is through an inside sales team. Field reps work well when the price point is sufficiently high, but most SaaS products are focused on the SMB segment of the market, necessitating a more cost effective way to acquire customers.

Here’s an example inside sales program and compensation model:

Business Development Reps

Goal: Set quality appointments via cold calling and lead nurturing
Commission: $175 per completed appointment (completed is when the prospect shows up for the call) with no commission on the first 10 each month
Quota: 20 completed appointments per month (240 per year)
Salary: $30,000
On Target Earnings: $51,000 based on $30,000 salary plus $21,000 commission (commission is 10 appointments * $175 * 12 months)
Payout: Paid monthly for completed appointments
Promotion: Promoted to account executive after completing 240 appointments

Account Executive

Goal: Take prospects from initial interest/demo through to close
Commission: 14% of first-year’s annual recurring revenue and 5% of services/consulting revenue at time of signing the deal (hunters and farmers are completely separate)
Quota: $25,000 in new annual recurring revenue per month ($300,000 per year) with no services/consulting allocation
Salary: $40,000
On Target Earnings: $82,000 based on $40,000 salary plus $42,000 commission (commission is 14% * $300,000)
Payout: Paid monthly after cash received (all at once for annual pre-pays and 50% per month for monthly payments up to the equivalent of 14% annually)
Promotion: Promoted from Junior Account Executive to Account Executive to Senior Account Executive for each $1,000,000 in new annual recurring revenue with a 30% salary raise and a 30% quota raise at each promotion

This program provides a multi-year career path for sales people along with black and white metrics for each step in the process. A high quality inside sales team provides predictable revenue and is an integral part of a successful SaaS/cloud business.

What else? What are some other thoughts on inside sales programs and compensation models? Here are 20+ more posts on sales reps.

Comments

8 responses to “Inside Sales Program and Compensation Model for SaaS/Cloud Businesses”

February 28, 2013

Eric Langley

David, This is great. An advisor and I were just talking about this recently. There is not enough revenue in our model to support an outside rep but inside reps are viable. I would imagine that most of the sales are via webinar generated leads.

This model could also be modified for channel partners.

What do you think about vesting? Where the rep earns a piece of the recurring revenue after a certain period of time with the company?

What about bonuses bringing in other reps, coaching them and earning overrides? Have you used any of those elements?

~eric

Reply
March 1, 2013

David Rosendahl

David, very interesting. Is this the model you used at Pardot? Are the salary figures representative of what you were paying? Thanks in advance for your response.

-Dave

Reply
March 2, 2013

Greg Benoit

Last October, David and I discussed the idea of me implementing this type of sales process at my company (QGenda). After a few months of restructuring the sales team, we hit the ground running Dec 1st with a very similar structure modeled from David’s advice, which I describe here: http://GregBenoit.com/2013/01/29/creating-a-repeatable-sales-process/

We are only two months into the new year, but when comparing where we are now vs where we were this time last year, the numbers are staggering. As of the end of Feb ’13 our sales team performed 105 demonstrations YTD, this is a huge increase compared to the same period last year which yielded 40 demonstrations. This is a dramatic increase and so far everyone on our sales team is a big fan of this model.

Reply
1. March 30, 2014
  
  Philip Yang
  
  Hello Greg,
  Have you used any tool to track and document the 15/15/15 daily activity, like a spread sheet or a software?
  
  Philip
  
  Reply
October 28, 2013

Babak

David, great article and much appreciated! One question regarding the promotion track: I was not entirely sure how you proposed to promote the Account Exec:

When you speak of ” Promotion: Promoted from Junior Account Executive to Account Executive to Senior Account Executive for each $1,000,000 in new annual recurring revenue with a 30% salary raise and a 30% quota raise at each promotion”

1. Does “each $1m in new ARR” refer to each additional $1m in lifetime of the given account executive? I.e., what period is this considered in?

2. When the account exec meets this goal, it seems his main incentive would be the 30% increase in his/her base salary?

Reply
1. October 28, 2013
  
  David Cummings
  
  Thanks. Yes, the $1mm in new ARR is lifetime. Right, the incentive is a higher base salary.
  
  Reply
January 3, 2014

Rosalyn Lemieux (@rozlem)

Thanks, great post. Any thoughts on how to compensate inside sales team managers? Specifically, I’m thinking of early hires promoted from a sales position (compensated in large part through commissions) to a managerial post where they are not selling as much themselves, but managing a team.

Reply
1. January 4, 2014
  
  David Cummings
  
  I like to keep it simply with a mix of salary (e.g. $50,000), commission on overall team sales (e.g. 3%), and commission per sales rep that makes quota (e.g. $1,000 per rep per quarter).
  
  Reply