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

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

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

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

Variable
(% of TTCC)

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

50%

•  Level of Autonomy
INSIDE SALES

•  Experience Required

High Volume, Hunting, STRAT ACCT MGR
High Influence, Pro-active Complex, Large Cust’r,
Hunt/Farm/Catch

What Determines Variable Comp:

ACCOUNT MGR
Hunt/Farm/Catch, Pro/
O/B LEAD GEN

•  Complexity of Sales Cycle

High Volume, Short,
Simple, Pro-active

•  Influence on Buying Decision

I/B LEAD GEN

•  Inbound vs. Outbound
•  “Hunting” vs. “Farming” vs. “Catching”

10%

High Volume, Short,
Simple, Reactive

$25K

Re-active

Annual Base
$100K+ Salary (USD)

Don’t make these mistakes…

7 COMMONLY OVERLOOKED FACTORS
It’s
impossible to
please them!


What was I
thinking?

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

If your reps cannot
easily calculate their
commissions as they
make decisions in
real-time, then your
Comp Plan is not proactively 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.
• 

rces:
u
Success for Company A ≠ Success for Company B.
Reso
aS
ry Sa ”
ve or ain
•  Service-Based Company => Revenue Recognized aintBillable
rds E
oa
ashb hould M
“3 D
s
S
pany nView Lab
•  Product-Based Company => Bookings Ope
Com
f
o
Some
ring
Explo at Matter
•  SaaS-Based Company => Recurring Revenue s th
w:
Revie Metric
ge
“Pe r aaS
on
(monthlyteorSannualized)-Sta
nsi
he
Expa ies”
to
an
Most
Comp iew Labs
Success in Season A ≠ Success in Season B. penV
-- O
--

• 

•  Start-Up => Cash Flow => Up-Front Payment
•  Expansion => Market Share => New Customers

Hours

3. Design your comp plan document
like a marketing asset, not a contract.
Sales Compensation Plan
Though shalt

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

e:
ourc his One?
Res rd T
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Ne
HaveThoughommu
“
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Plan or Br
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e Pla
ake
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tter S ork.org
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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

r
f thei
o
d 5% fixing
en
ps sp ecking/
s,
“Re n ch
ment
i
te
time
n sta
s
io
miss nagers a e an
com d ma
e hav e
n
w
a
10%— ales forc
s
.”
uch a f the s
m
tants
o
un
issue into acco
n
-rning
nsatio
tu
ompe
eC
ch,
centiv s Resear
In
Sales Practice ions Inc.
Best th Solut
Grow

Lost credibility kills motivation and creates a lasting distraction!


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


:
RLAY
E
H OV l Reps
C
f
W MU ta for Al
HO
0% o
o
12
Qu
Total qual 110 – et
e
rg
ould
ny Ta
a
sh
Comp
:
TATS 9.7%
S
:
Class : 10.1%
in
ge
Best
Avera 2.3%
try
ndus gards: 1
I
up
Lag
n Gro
e
berde
--A
12
in 20
r
rnove hts
tu
5.5% O Insig
2
--CS

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


Commissions

Base Elements
is
Scale ate
g
Slidin ppropri
a
e
more h volum
ig
for h actional
trans les
sa

Sliding Scale

Step Function

Target earnings

Quota

Attainment

MY
E:
RENC ,
E
PREF tandard
Use S ou have a
y
nless ng reason
u
li
mpel rwise
co
othe

Commissions

Limiting Elements

Target earnings

Quota

Attainment

Commissions

Limiting Elements
re
is mo or
Floor riate f
op
appr volume
high ctional
a
trans les
sa

Ceiling

Target earnings

Quota
Floor

Attainment

MY
:
ENCE
ER
PREF r use a
Neve hy cap
W
iling! ance?
ce
rm
perfo

Commissions

Over-Performance Elements

Target earnings

Quota

Attainment

Accelerator

Commissions

Retroactive
Accelerator

by
alify or
Qu
ent
ainm ute
att
ib
y attr
b

Target earnings

Quota

Bonus

:
ENCE or
ER
PREF Accelerat
MY
e
gh
oactiv erful, thou
Retr pow
e.
ery
escrib ne
is v
od
icult t y, combi
diff
ivel
tor.
ernat Accelera
Alt
&
onus
B

Attainment

Example 1:
Qualifying by Attainment vs. by Attribute
SaaS Comp Plan:

Option 1:

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

•  Primary:
MRR Attainment

•  Secondary:
Average % Discount
(profitability)

•  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

6.  Bonus

2.  Sliding Scale

7.  Forward Accelerator

3.  Step Function

8.  Retroactive Accelerator

Limits

Additional Elements

4.  Floor

9.  SPIFF’s & Contests

5.  Ceiling

10.  Non-Monetary


10 Compensation Modeling Elements
Base Elements


1.  Standard Commission Rate

6.  Bonus

2.  Sliding Scale
3.  Step Function
Limits

ts 7.  Forward Accelerator
emen
el
ining nt for
b
y com an ince
B
lts 8.  Retroactive Accelerator
you c dary resu ing
iz
n
seco depriorit nts
t
e
ithou compon
w
y
Additional Elements
rimar
p

4.  Floor

9.  SPIFF’s & Contests

5.  Ceiling

10.  Non-Monetary


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
michael@hannastrategy.com

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