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Sales Compensation in SaaS Companies Annual Survey 2018

The topic of salary compensation for sales professionals is a hotly debated one among SaaS companies, so to see how Israeli startups stack up against international benchmarks, we (Viola Ventures) surveyed some of our portfolio and non-portfolio companies about their sales compensation policies. You can read the accompanying blog post here: http://www.viola-group.com/violanotes/sales-compensation-in-saas-companies-viola-ventures-annual-survey-2018/

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Annual Survey — 2018
By Ronen Nir
General Partner, Viola Ventures
SALES
COMPENSATION
In SaaS Companies
© All rights reserved to Viola Ventures 2018 2
SCOPE
The
One of the most discussed topics among Saas
companies is how salespeople should be compensated.
To see where Israeli startups stand vis-à-vis the
international benchmarks, we surveyed both portfolio
and non-portfolio companies about their policies.
We believe that this survey can be used as a great
“sanity check” tool for CEOs, CFOs and CROs, to
help them formulate the rationale for their sales
compensation plan.
We are happy to share the results of the survey along
with our comments, which we hope will be a useful
guide for companies in the future.
© All rights reserved to Viola Ventures 2018 3
What is the annual
quota for an Inside
Salesperson?
Note: All answers are in new ACV (Annual Contract Value)
Most of the responses put the annual quota at
$400-700k / yr which is in line with worldwide
industry benchmarks.
To ensure that the operation is efficient,
keep in mind the following rule:
Inside Sales quota = x8-10 of base salary.
$300-399K
$400-499
$700-1200
$800
$500-599
$600-699
$50-75k
> 1M USD
15.4%
15.4%
7.7%
7.7%
7.7%
7.7%
7.7%
30.8%
© All rights reserved to Viola Ventures 2018 4
What is the annual
quota for a field
salesperson?
(All answers are in new ACV)
The survey results were very clear and in line with
industry benchmarks. A $1-1.2 million quota is a
good place to be, as it will allow for scaling of the
team.
Important to note: These numbers reflect new
ACV only. Any renewal target should be on top
of the desired quota.
$700-800K
$800-1000k
N/A
> 10M USD
$1000-1200k
> $1500k in new ACV
50%
10%
15%
15%
© All rights reserved to Viola Ventures 2018 5
What is the average
commission for
new ACV?
Based on the outcome of the survey, the commission
on new ACV is roughly 10%, i.e. a salesperson with
a $1.2 million quota will get $120k in commission,
which comprises 100% of the variable part of the
compensation.
Remember, however, that due to revenue
recognition, total commissions in the company’s
P&L can even reach 15% of recognized revenue.
5-7% >9% 3-4%
0
5% up to certain
threshold and 20%
over the threshold
Based on total
OTE target
7-9%
15%
15%
30%
25%
© All rights reserved to Viola Ventures 2018 6
What is the
commission rate
for renewal?
It’s surprising that 22.2% of the respondents
don’t give commission at all for renewal. This is a
problematic approach.
Renewal compensation should be around 2-3%
of the contract value and should be provided
even if done by the customer care (rather than
sales) team.
No commission at all
We give commission for renewal,
but it is lower than commission
for new ACV
We give the same commission for
renewal and new ACV
N/A – First year of sale
50%
22.2%
5.6%
22.2%

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Sales Compensation in SaaS Companies Annual Survey 2018

  • 1. Annual Survey — 2018 By Ronen Nir General Partner, Viola Ventures SALES COMPENSATION In SaaS Companies
  • 2. © All rights reserved to Viola Ventures 2018 2 SCOPE The One of the most discussed topics among Saas companies is how salespeople should be compensated. To see where Israeli startups stand vis-à-vis the international benchmarks, we surveyed both portfolio and non-portfolio companies about their policies. We believe that this survey can be used as a great “sanity check” tool for CEOs, CFOs and CROs, to help them formulate the rationale for their sales compensation plan. We are happy to share the results of the survey along with our comments, which we hope will be a useful guide for companies in the future.
  • 3. © All rights reserved to Viola Ventures 2018 3 What is the annual quota for an Inside Salesperson? Note: All answers are in new ACV (Annual Contract Value) Most of the responses put the annual quota at $400-700k / yr which is in line with worldwide industry benchmarks. To ensure that the operation is efficient, keep in mind the following rule: Inside Sales quota = x8-10 of base salary. $300-399K $400-499 $700-1200 $800 $500-599 $600-699 $50-75k > 1M USD 15.4% 15.4% 7.7% 7.7% 7.7% 7.7% 7.7% 30.8%
  • 4. © All rights reserved to Viola Ventures 2018 4 What is the annual quota for a field salesperson? (All answers are in new ACV) The survey results were very clear and in line with industry benchmarks. A $1-1.2 million quota is a good place to be, as it will allow for scaling of the team. Important to note: These numbers reflect new ACV only. Any renewal target should be on top of the desired quota. $700-800K $800-1000k N/A > 10M USD $1000-1200k > $1500k in new ACV 50% 10% 15% 15%
  • 5. © All rights reserved to Viola Ventures 2018 5 What is the average commission for new ACV? Based on the outcome of the survey, the commission on new ACV is roughly 10%, i.e. a salesperson with a $1.2 million quota will get $120k in commission, which comprises 100% of the variable part of the compensation. Remember, however, that due to revenue recognition, total commissions in the company’s P&L can even reach 15% of recognized revenue. 5-7% >9% 3-4% 0 5% up to certain threshold and 20% over the threshold Based on total OTE target 7-9% 15% 15% 30% 25%
  • 6. © All rights reserved to Viola Ventures 2018 6 What is the commission rate for renewal? It’s surprising that 22.2% of the respondents don’t give commission at all for renewal. This is a problematic approach. Renewal compensation should be around 2-3% of the contract value and should be provided even if done by the customer care (rather than sales) team. No commission at all We give commission for renewal, but it is lower than commission for new ACV We give the same commission for renewal and new ACV N/A – First year of sale 50% 22.2% 5.6% 22.2%
  • 7. © All rights reserved to Viola Ventures 2018 7 Who should be in charge of renewals? The subject of who actually does (or should do) the renewals is controversial. The two most common approaches in the market are to delegate the renewals to either sales and customer care. From our experience, when ASP is low, customer care is in charge, and when ASP is high, the sales department is responsible for the entire customer journey. Inside sales The same sales rep who closed the initial deal Customer success team CFO Finance team member Account manager N/A – First year of sale 36.8% 42.1%
  • 8. © All rights reserved to Viola Ventures 2018 8 Who should be in charge of expansion? As per the controversy around the renewal question, here we also see a division between the responsibilities of sales and customer care. We believe that in the future, renewal and expansion will merge into the same department. Inside sales The same sales rep who closed the initial deal Customer success team Customer success and same rep Account manager and/or the same reps who closed the initial deal 57.9% 26.3%
  • 9. © All rights reserved to Viola Ventures 2018 9 Do you provide accelerators for multi-year deal? There are huge opportunities for improving a company’s financials by providing the right accelerators/incentives. We would expect to see more usage of this tool. Of course, the entire commission plan is based on TCV and not ACV Yes, but we provide reduced commission for the 2nd and 3rd year Yes, but only if the customer pays up- front for the entire contract period No. We compensate for ACV only Compensation based on booking 27.8% 5.6% 22.2% 27.8% 16.7%
  • 10. © All rights reserved to Viola Ventures 2018 10 When do you pay commission? The result for this question was surprising. The world is moving fast towards commission payment upon collection — especially since free cash-flow is becoming an increasingly important parameter when valuating companies. We would have expected more companies to pay upon collection and recommend a review of this policy for companies that don’t. Upon receiving the P/O Upon invoicing the customer Upon collection Mix of booking and 15% cash flow 50% 27.8% 16.7%
  • 11. © All rights reserved to Viola Ventures 2018 11 Inside Sales Compensation Plan Prepared by: Itay Link, CFO Company: Samanage EXAMPLE #1
  • 12. © All rights reserved to Viola Ventures 2018 12 Industry Benchmarks Defining Commission rates and OTE ƒƒ Base/Commission split (AE — 50%/50%, CSM — 60%/40%) ƒƒ Quotas are 5X – 7X of OTE ƒƒ Commission rate 8% – 12% of ACV Example: ƒƒ AE can sell to 50 customers at average ACV of $20,000 per customer ƒƒ Quota — Total annual ACV performance is $1M ƒƒ OTE range (between $200K (5X) – $142K (7X)) ƒƒ Commission (50% of OTE) between $100K – $71K ƒƒ Commission rate (10% – 7.1%)
  • 13. © All rights reserved to Viola Ventures 2018 13 Strategic Guidelines New Logos — Inside Sales: ƒƒ Bookings (TCV) vs ACV ƒƒ Cash up front vs Annual payments ƒƒ Annual plan? Monthly/Quarterly kickers ƒƒ Tail on expansion ƒƒ Recoverable vs Non Recoverable draws ƒƒ Quota ramp up for new AEs ƒƒ Account for ramp deals ƒƒ Professional services? Expansions/Churn — Customer Success (CSM): ƒƒ Same bullets as AEs and: ƒƒ Group or Individual churn goals ƒƒ Account for reduction upon renewals? ƒƒ Setting customer base per rep, how/when to move accounts to CS ƒƒ Min Expansion period — (e.g. expansion is 1 month from renewal)
  • 14. © All rights reserved to Viola Ventures 2018 14 New Logos — Inside Sales (Step 1) Take the annual qouta and break it into the different months/quarters account for business seasonality Quota includes Expansions done in the initial 6 months from closing Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec FY17 Annual Quota $500,000 Quarterly Quota $118,958 $125,000 $113,750 $142,292 $500,000 Monthly Quota $31,250 $33,333 $54,375 $35,417 $37,500 $52,083 $33,333 $35,417 $45,000 $41,667 $45,833 $54,792 $500,000 $500 ,000
  • 15. © All rights reserved to Viola Ventures 2018 15 New Logos — Inside Sales (Step 2) Set ACV  $ Ratio (goal is to incentivize getting to the annual goal as quicky as possible to get as more GaaP Revenue) % of Annual Goal Acv  $ Ratio Commission Rate: 0% – 24% 8% 25% – 49% 8.50% 50% – 75% 9% 75% – 99% 9.50% Goal 100% – 124% 12.50% Stretch 125% + 25%
  • 16. © All rights reserved to Viola Ventures 2018 16 New Logos — Inside Sales (Step 3) Set Accelerators Optimize ACV reduction with multi year / Paid upfront move Additional ACV Commission Monthly Kicker* 2.50% 2yr Paid Annually 2.00% 3yr Paid Annually 3.00% 2yr Paid Up Front 5.00% 3yr Paid Up Front 7.00% * Monthly Kicker Monthly commission while overachieving the monthly quota (2.5% on the entire monthly ACV performance Per deal kicker % is on the deal ACV
  • 17. © All rights reserved to Viola Ventures 2018 17 Expansions/Churn — Customer Success (CSM) Decide on commission breakdown between ACV Expansion/Reductions/Churn No Commission on Renewals Commission breakdown Net Expansion (Monthly) Churn (Quarterly) 70% 30%
  • 18. © All rights reserved to Viola Ventures 2018 18 Expansions/Churn — Customer Success Gross Expansion ACV is paid on the same basis as New ACV Churn formula: 150% — (Churn performance / Churn Goal) Goals ACV Churn goal (Quarterly) $30,000 Churn quarterly bonus $4,000 Quarterly Kicker @ 80% and above 30% Churn performance of $40,000 and above gets $0 Example: Churn is $20,000 Formula: 150% - $20,000/$30,000 = 83.33% Payout: 83.33% x $4,000 x 130% = $4,333
  • 19. 19© All rights reserved to Viola Ventures 2018 Enterprise Sales compensation plan EXAMPLE #2
  • 20. © All rights reserved to Viola Ventures 2018 20 $1,200,000 quota — New ACV ƒƒ No Bookings quota, but paid on out-years ƒƒ 17% payout over 125% ƒƒ 20% payout over 150% Bookings (TCV): Paid with no quota credit. ƒƒ Cash up-front: (scale in relation to ACV % quota) ƒƒ Annual Payments: 50% second year, 25% 3rd year Renewals: ƒƒ 2% on all renewals up to 100% of renewal target ƒƒ 3% over 100% ƒƒ Need to get to 85% of renewal number before 125%+ accelerators Professional Services paid at 3%, 50%, quota relief Rate table scales annually, not quarterly Commission payable at the end of each month- on prior months bookings 12 month contracts min-payment within 45 days Comp Highlights
  • 21. © All rights reserved to Viola Ventures 2018 21 Standard Comp Plan ($125K Variable) Annual Quota of $1,200,000 % of Annual Quota Comm Rate 0-50% 5.5% 51-100% 11% 101% - 125% 14% 125% - 150% 17% 150%+ 20% Item % of Annual Quota Rate Renewals 0-100% of quota 2% Renewal 100% quota bonus 1% Retro Professional Services All 2%
  • 22. © All rights reserved to Viola Ventures 2018 22 Bookings or TCV Multi Years (Cash Up-Front) ƒƒ 100% compensation as per the detailed criteria in the plan ƒƒ Quota credit only for uplift in ACV Non-cancellable multi-years deals (Annual Payments): ƒƒ Out years to be paid at 50% in 2nd year, 25% in 3rd year ƒƒ Quota credit only for uplift in ACV
  • 23. © All rights reserved to Viola Ventures 2018 23 75 % ACV and $ 250K Out years ACV Actual 800,000 Out years Total 250,000 Net % Out Years Payout ACV by tier contribution per tier ACV % of total O / Y by tier commission % of total done 575,000 $ 575,000 72% 179,000 9,883 575,000 $225,000 28% 70,313 7,734 $ 800,000 100% 250,000 17,617 7% 260 % ACV and $ 1 M out Years ACV Actual 3,000,000 Out years Total 500,000 Net % Out Years Payout ACV by tier contribution per tier ACV % of total O / Y by tier commission % of total done 575,000 $ 575,000 19% 95,833 5,271 575,000 $ 575,000 19% 95,833 10,542 287,500 $ 287,5000 10% 47,917 6,708 172,500 $172,500 6% 28,750 4,888 1,390,000 $ 1,390,000 46% 231,667 46,333 $ 3,000,000 100% 500,000 73,742 15% Out-Years Examples 100 % ACV and $ 1.15 M Out Years ACV Actual 1,150,000 Out years Total 1,150,000 Net % Out Years Payout ACV by tier contribution per tier ACV % of total O / Y by tier commission % of total done 575,000 $ 575,000 50% 575,000 31,625 575,000 $ 575,000 50% 575,000 63,250 $ 1,150,000 100% 1,150,000 94,875 8% 140 % ACV and $ 1.2 M Out Years ACV Actual 1,610,000 Out years Total 1,000,000 Net % Out Years Payout ACV by tier contribution per tier ACV % of total O / Y by tier commission % of total done 575,000 $ 575,000 36% 357,143 19,643 575,000 $ 575,000 36% 357,143 39,286 287,500 $ 287,5000 18% 178,571 25,000 172,500 $172,500 11% 107,143 18,214 $ 1,610,000 100% 1,000,000 102,143 10%
  • 24. © All rights reserved to Viola Ventures 2018 24 Total Cost View Sales rep average "New ARR" quota $1,100,000 Average quota attainment 80% New ARR production $880,000 Sales rep average "Renewal" quota $1,100,000 Average quota attainment 90% renewal ARR production $990,000 Sales rep total contribution to ARR $1,870,000 Field gross margin 85% Sales rep contribution to ARR Margin $1,589,500 Sales team cost Sales rep - comp cost to company $300,000 SDR - comp cost to company $126,000 SA - comp cost to company $260,000 G&A (office etx) $15,000 Travel $24,000 Total Costs $701,000 Sales rep net production $888,500
  • 25. © All rights reserved to Viola Ventures 2018 25 About Ronen Nir About Viola Ventures Ronen is a General Partner at Viola Ventures. His investment areas of focus include SaaS, big data, cyber security and internet. Ronen is currently a board member in Samanage, ironSource, Perfecto Mobile, enSilo, Redis Labs, and CodeFresh. He also served as a board member at Shunra (acquired by HP), Amadesa (acquired by Live Person), Kampyle (acquired by Medallia) and Cloudyn (acquired by Microsoft). Ronen blogs at: www.viola-group.com/violanotes/author/ronen-nir Viola Ventures (formerly Carmel Ventures) is a venture capital firm with over $1 billion AUM, that invests in Israeli-related early stage companies. The fund is part of Viola, Israel’s leading tech-oriented investment group. Viola Ventures is managed by six partners, and has backed a substantial share of Israel’s exits, including Actimize, RedBend, DesignArt, CopperGate, Exelate and ECI. Website: www.viola-group.com/fund/violaventures
  • 26. Ackerstein Towers Building D, 12 Abba Eban Avenue, Herzliya 46120, Israel www.viola-group.com © All rights reserved to Viola Ventures 2018 graphicdesign:nuritblok