The Right Sales Compensation Plan for SaaS

Money — it’s the center of the sales universe.

Everyone knows that if you want your sales team to bring in more revenue, you need a competitive sales compensation plan that pushes reps to close more deals at a higher Average Sales Price.

However, as a Software-as-a-Service business, you can’t adopt the same compensation plan as a traditional sales team and assume it’ll work well for your team. Your team isn’t like every other sales team — you need to reward different behaviors and push for very different performance-based metrics.

SaaS requires a different set of rules, and a different type of sales compensation plan. Here’s how to build a comp plan that doesn’t work for every sales team, but works great for your SaaS sales team.

The Challenge of SaaS Sales

As a SaaS sales leader, you’re facing many of the same problems as other sales teams, but they’re often more intense at a SaaS business. Recurring revenue is the lifeblood of your business, and churn is a constant concern. It’s crucial that your compensation plan is set up to motivate your sales team to maximize contract value over time.

There are many factors that go into structuring an optimal deal for SaaS, and all of these factors can be accounted for in a nuanced compensation plan. However, if you just ignore these complications and assume your sales team is the same as any other, your sales results will suffer. You need to codify the sales behaviors you want to encourage with a SaaS-specific comp plan.

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Incentivize Good Behaviors

The key to building a SaaS compensation plan is to offer a higher commission rate not only when reps close a deal, but when they close that deal in optimal fashion. For example, discounting is always a challenge in sales, but SaaS prospects may see your pricing tiers are mere suggestions, instead of a set price. You also have the added complication of deals that could be signed for a 1-year term, or for multi-year terms. You could also have deals that are paid out in monthly billing cycles, or up-front.

If reps get the same payout for closing a 1-year deal as a 3-year deal, why would they ever push for longer terms? However, you know that the longer contract offers more stable revenue for your business, which is something you’d like to encourage.

Consider rewarding reps who close deals with:

Without these additions to your sales compensation plan, reps might easily give out discounts to a buyer in order to close the deal this month and hit quota. Now, your comp plan rewards reps if they close a deal that meets these SaaS-friendly criteria. Using this plan, you will push reps to close deals your way, instead of their way.

Keep It Simple

The worst thing you can do is create a compensation plan that is so complex, your reps can’t immediately understand their own pay. Because of all of these variables in SaaS, it’s easy to start adding in all sorts of variables and tiers within the plan. As you build out your company’s comp plan, make sure it remains easy to follow.

One of the best options is a 50-50 split  — 50% of rep pay is base salary and 50% is commission. This is ideal, because reps are motivated to earn that extra 50%, but still have solid base pay to fall back on. This plan is simple enough that no rep will get confused about the general terms, but you can also easily add a short list of the incentivized behaviors you want to push. With the 50-50 plan, reps will understand exactly what will bump up their commission and be driven to close deals to maximize recurring revenue.

One last tip: make sure that the top rep on your team is always well rewarded. You want the ace rep to serve as aspiration for every rep on your team, driving healthy competition and showing what is possible to every other rep. With the right SaaS compensation plan, you’ll see your revenues soar.

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