110201 sales comp ppt

About Cobb Consulting
Sales comp plans that work
Review and assessment of plan effectiveness
New plan design
Cost modeling
Review existing payment processes
Technology or vendor selection
Advisor to software entrepreneurs
Founder of Makana Solutions and Centive

Preface – Questions from last Meeting
How is sales comp handled when the company sells both SaaS and on-premise solutions? Are there separate sales forces for SaaS and on-premise?
Do SaaS sales people get comp'ed for renewals? Who handles renewals? Hunters vs. gathers.
Are sales people comp'ed for total contract value? When the deal closes, or over the life of the contract? Is there a "claw-back" for non-renewing customers?

Discussion Topics:
Some sales comp basics
Comp follows the strategy
Reps follow the money
Creating a comp plan
SaaS issues, metrics and drivers
Hubspot lessons learned

Comp Follows the Strategy
Know your goals
Revenue, growth, profit
Understand your company stage
Startup, repeatable growth, maturity
Design your sales strategy
Organization design and job roles

Reps Follow the Money
Does your plan communicate the strategy?
Motivate what can be controlled
Provide frequent feedback- $ & #s

INTERPRETING THE STRATEGY
Considerations for Sales Comp

Company Stage - Skok Scaling the Business David Skok Presentation to MTLC Dec 2010 Search for Product/Market Fit Search for Repeatable & Scalable Sales Model Conserve Cash Invest Aggressively

Product Stage Influences Design
Bookings
Sell to anyone
Reward repeatability
Industry focus
Partners
Manage churn
Margins
Laggards Time Innovators Technology Adoption Lifecycle Customers’ buying habits impact on roles & metrics Early Majority Late Majority

Design your Sales Strategy
Sales Comp Design

Skok - Sales Strategy Impact on CAC A rough estimate of CAC versus Sales Complexity http://www.forentrepreneurs.com/sales-complexity/ David Skok Presentation to MTLC Dec 2010

Eligible Job Roles
All customer facing roles
Measurable influence over the actions of the customer
Willing to consider at least 15% of Target Total Comp (TTC) as incentive

DESIGNING THE COMP PLAN
Considerations by Job Role

Best Practice: Motivate
Make sure reps have control of the event
Be aware of competitors’ compensation
Communicate clearly, including the upside
Reward in timely fashion
Provide reps real-time visibility

Establish Target Pay - Basics Point of Excellence Top 10% of performers Target Total Comp (TTC) Aka: On Target Earnings (OTE) MIX Ratio of base and incentive relative to TTC Base Target Incentive Upside

Comp Philosophy for Target Pay* Lower target pay Higher target pay * Sales Compensation Made Simple World at Work Press P.42 40 th 50 th 60 th 75 th Percentile 1. Degree of industry stability Rock solid High Moderate Low 2. Desired business results Very likely Probable Difficult Unlikely 3. Expected employee performance Low Average Stretch Exceptionally high 4. Productivity level Low Average Above average Very High 5. Talent supply Abundant Adequate Limited Scarce 6. Employee mobility Low Modest Some hiring away by competitors Very Competitive
Staffing
Excessive Adequate Light Lean

Mix and Upside * Sales Compensation Made Simple World at Work Press P.42 90 80 50

Payout Components
Limit confusion
no more than 3
weight by priority
Reward volume
ARR, MRR, churn…
Not duties
updating CRM
funnel activities
Rate: TIC/quota
Base Target Incentive Upside Upfront ARR 50% MRR 35% Qtrly Bonus -15%

Payout Timing – Reinforce Good Behavior
Frequency – pay as often as you can
Be clear about event: Booking, invoice, shipment, other
Considerations
Length of sales cycle
Length of order fulfillment
90-120 days – 65/35 split
>120 days – 35/65 split

Plan Documents
Be motivating – show them what they CAN earn
Include T&Cs
Crediting rules for measures
Transition policies
Customer changes
Ramp up of new hires
Be consistent

View Comp Across Job Roles
Assess:
Value of role
Metrics that support strategy and teamwork
Fairness

ASSESSING THE PLAN
Considerations for Monitoring Success

Assessing the Plan
Performance reports
Employee motivation
Tell all graphs
Pay for Performance
Attainment Distribution
Return on investment - CCOS

Pay for Performance
What you want…tight alignment
* Sales Compensation Made Simple World at Work Press P.126

Pay for Performance - Outliers * Sales Compensation Made Simple World at Work Press P.126
Why?…
Mixed job roles, MRR vs LTV, Special deals

Pay for Performance - Random * Sales Compensation Made Simple World at Work Press P.127
Why?…
Monthly rates, gaming the plan, paying for the past

Attainment Distribution * Sales Compensation Made Simple World at Work Press P.127 Percent of Reps Percent of Quota
Desired distribution – team of winners
Use to allocate quotas, measure performance

Attainment Distribution Problems * Sales Compensation Made Simple World at Work Press P.132 Team of losers- goals too high Stars only – territories uneven

SAAS METRICS AND DRIVERS
Considerations Unique to SaaS Companies

SaaS Issues, Metrics & Drivers
Selling both SaaS and On-Premise
The Cash Flow Gap
Multi-year contracts (tricky)
Most common metrics

Problem: SaaS and On-Premise What would you do? Sell a $150K software installation engagement. Sell a $1,000/month SaaS Subscription of your software with a 3 year contract.
Confirm strategy
Redesign job roles

The Cash Flow Gap -Skok David Skok Presentation to MTLC Dec 2010 Cash Gap (Slightly later breakeven point, because Gross Profit is less than MRR) 11 months to breakeven

Most Common SaaS Metrics
Good for comp:
ARR
Estimated
Up front payment
MRR
Actual
Contract length
By customer type
New
Tiered by expected ARR
Profit category
Renewal
Good to measure, but not for comp
LTV – avg MRR/churn
COCA
Velocity
Margin – if reps don’t have visibility too
Stage of funnel

HUBSPOT
Considerations from the Real World

Inbound Marketing Software
4 years old
VC Funded
General Catalyst
Matrix Partners
Scale Ventures
Board of Dir.
David Skok
Larry Bohn
Rob Theis
Gail Goodman
Andy Payne
What’s HubSpot?

Rethinking Marketing Outbound Marketing Inbound Marketing
SEO / SEM
Blogging
Social Media
RSS
Free tools/trials
Viral videos
Telemarketing
Trade shows
Direct mail
Email blasts
Print ads
TV/radio ads

HubSpot’s Marketing Platform Get Found Convert Analyze Advice Create SEO Mobile Social Media Promotion Drive Conversion Marketing Automation Social Media Analysis Analysis Support Experts Word Press SeoMoz Coder HootSuite Unbounce Marketo Radian6 Google Analytics On Your Own Consultant

Sales Model HubSpot http://www.forentrepreneurs.com/sales-complexity/

SaaS Sales Comp - HubSpot Case Study

Compensation Structure – Strategy Match Laggards Innovators Product Adoption Lifecycle Early Majority Late Majority Search for Product Market Fit

Phase 1: Product Market Fit
Discover the market pain and find customers who will pay for the product
Experiment with broad prospect segments
80% of inbound funnel
Optimize for discovery & customer velocity
Corporate Strategy >> Comp Structure
Quota based on new MRR
All Month-to-Month contracts
Clawbacks
100% kicker for new MRR above quota
Base (50%) Target Incentive (50%) Upside Velocity Retention

It worked
The model scaled
0 to 10 reps
1 to 2 products SKUs
100’s of customers
…
… but hard to enforce discipline around acquiring retainable customers
… for a while

Search for a Repeatable Sales Process Laggards Innovators Search for a Scalable & Repeatable Sales Process Early Majority Late Majority

Comp and LTV Misalignment

Phase 2: Repeatable Sales Process
Refine the sales process to acquire retainable customers
Focus exclusively on best fit prospects
LTV:COCA > 3
Payback < 12 mo
Optimize for repeatability
Quota based on MRR
Amount based on historical LTV tier (upside for 2x standard)
Clawbacks – 3mo
Base (50%) Target Incentive (50%) Upside Velocity Retention

It worked … but LTV calculations are unclear and often a lagging indicator New cohorts retained at much higher rates Customer Cohort … for a while

Scaling the Business Laggards Innovators Scaling the Business Early Majority Late Majority

Phase 3: Scaling
Scale core funnel and begin to test new growth opportunities
Experiment selectively with adjacent product / market fits
Optimize for growth
Quota based on MRR*
Payout partially based on contract
Clawbacks – 6mo
100% kicker for new MRR above quota
* Start considering fit with manager comp plans Base (50%) Target Incentive (50%) Upside Velocity Retention

Will this work?

Lessons Learned
Align sales compensation to the needs of the business
This will change over time
This includes churn & LTV
Analyze each rep like a thin version of your entire company
Leverage SaaS benchmarks to ensure you’re on track – then hit the gas!

Thanks!
Contact:
Liz Cobb
[email_address]
SalesCompStrategy.com
Brad Coffey
[email_address]
HubSpot.com
@BradfordCoffey

110201 sales comp ppt

by MassTLC on Feb 02, 2011

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110201 sales comp ppt — Presentation Transcript

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