Continuing with Mark Roberge’s book The Sales Acceleration Formula and the recent post on HubSpot Growth: $300,000 to $3,000,000 in Six Months, there’s another really important topic to discuss: SaaS sales compensation plans.
In the early years of Pardot everything was sold month-to-month with no annual contract. We quickly learned that if a customer stayed with us past month four, they’d stay with us indefinitely (we had a monthly customer churn of 1.4% with no contracts). So, naturally, we set our sales compensation plan based on this learning about the critical nature of the first four months. Sales reps were paid commission of 50% of the monthly revenue for the first four months (e.g. the equivalent of 2x the monthly recurring revenue). We wanted the reps to sell good fit customers, and if the customer churned after the first month or two, the sales rep would get a substantially reduced commission.
Unbeknownst to us at Pardot, HubSpot arrived at the exact same formula: their reps were paid 50% of the first four months of revenue.
Overtime, HubSpot evolved to a different formula that did a better job of promoting good fit customers. Sales reps were paid a commission on monthly recurring revenue as follows:
- 50% of the first two months
- 50% of month six
- 50% of month 12
By paying half the commission in the first two months and then spreading the commission out over two key junctions – the six and twelve month milestones – HubSpot was able to align the sales team with the company goal of signing customers that were great fits.
Entrepreneurs would do well to consider the company goals and organize the sales compensation plans accordingly in a way that balances the short-term and long-term.
What else? What are some more thoughts on these two SaaS sales compensation plans?
3 thoughts on “Two Common SaaS Sales Compensation Plans”
I hadn’t thought about intermittent payments, as opposed to paying each month for the first 12 months to give the proper incentive to retain customers. Really like this plan idea.
I’ve often recommended this book that includes a ton of sales plans: http://www.amazon.com/Compensating-Sales-Force-Practical-Designing/dp/0071739025/
Definitely pick up the hard copy version because there are many, many tables and charts for the comp plans posted.
When referring to this comp plan, what was the base salary of the reps (if there was one) and how might a comp plan look for selling a SaaS product that is not monthly but annually?
Good question Thompson, interested to see the response.