To hit the ground running as a SaaS VP of Marketing or CMO, these questions will help you build a long term plan and start delivering value right...
A B2B SaaS company is often only sustainable with a high-performing sales team. At the end of the day, even if your product is groundbreaking, it’s only worth as much as the revenue it produces. And in order to get that revenue, your salespeople are indispensable. Your sales team may be a highly motivated bunch, but it’s still difficult to ensure your team is operating at its peak performance consistently.
To reach optimal performance levels, one strategy your SaaS company can leverage is to put your sales team on incentive compensation plans. These plans, sometimes called accelerators, offer additional income based on performance on top of base salary. A well-thought-out incentive compensation plan can increase team morale, motivation, and revenue and ultimately help your business grow.
When building your SaaS incentive compensation plan, follow these steps, and you’ll be on the right track to achieving T2D3 growth. Check out this blog to learn more about T2D3 growth.
1. Incentivize the correct actions
You need to decide what actions or results to incentivize. When doing this, make sure that the results or actions are aligned with your business's long-term growth goals.
First, make sure the actions or results are sustainable. Oftentimes sales teams are measured strictly on volume, such as by total revenue or licenses sold. Incentivize your sales team to produce recurrent revenue (ARR/MRR) instead of one-time revenue sources.
Second, SaaS sales managers occasionally put an emphasis on selling a specific product or service package to certain customers. This is great, but something to keep in mind here — new products and services can often be more difficult to sell than established ones. They can be harder to explain or unfamiliar to the customer. On top of that, sometimes, your sales team may just not yet have the resources or marketing materials they need for this new product (like they would on more established ones), leaving both them and the customer in the dark. Consequently, your SaaS sales incentives should reflect this reality, pushing your sales team to sell this new addition to your value proposition.
2. Pay for outcomes, not actions
Sales incentives should only be paid out when your desired business outcome is met. This is generally indicated by signed purchase orders or ideally money in your bank account.
However, if you have members of your sales team such as a Business Development Representative (BDR) who only work with leads in the early stages, (and subsequently hand-off leads to Account Executives) you may consider including incentives here based off those leads.
3. Incentivize your sales team aligned with long-term goals in mind
A well-balanced SaaS incentive program will incentivize your team to reach revenue goals and other business objectives and targets that are important to the company. These can range from customer testimonials, referrals to potential prospects, or customers in a specific vertical you want to enter.
Tieing business objectives and revenue in your SaaS sales incentive program can help cross-departmentally align your team if implemented the correct way. If you want to learn more about setting goals and objectives, read about managing your sales and marketing team’s OKRs.
4. Pay people based on location, and vertical
Your SaaS sales incentive plan should give your talented sales team a competitive compensation package relative to their location, experience, and industry.
Depending on where your team is located, you may have to pay more due to living costs or simply the market rate for talent in that area.
Suppose your business is looking to expand to a new industry or vertical. In that case, you may need to provide extra incentives (relative to revenue) to your sales team since this will be a difficult task in comparison to a sales member selling services in an existing industry vertical.
5. Incentivize the right people based on role
Sales incentive compensation plans should be fair to all employees, this means that, for example, a senior salesperson selling to your largest accounts should be receiving higher compensation than a junior sales team member prospecting leads.
An incentive program for your company should take this consideration into thought based on these criteria:
- Individual sales representatives with an assigned territory to reach a target number based on their territory.
- Specialists that service all territories should be paid based on a comprehensive target number.
- Sales managers of multiple team members need to be paid based on the team’s combined target.
When creating your sales compensation plan, make sure to incentivize the highest level of performance from your entire sales team. This will help make sure everyone is performing to their best ability and is aligned with the company’s growth goals.
6. Find the best ratio of variable/fixed pay for each role
Provide individualized (for each role) variable/fixed pay ratios that make up the “On Target Earnings” (OTE) for each salesperson.
Your SaaS sales representatives’ OTE should be set in accordance with market compensation for your specific industry. This will help mitigate turnover and ensure that you can retain top talent on your team.
When determining fixed vs. variable compensation for your team, think about how critical the individual is to your SaaS company’s desired outcomes. If they have only a small impact, your fixed compensation should outweigh the variable. This is true in the inverse case too, if one of your reps has a huge impact on closing deals, the variable compensation of their OTE should be a higher ratio in comparison to the fixed compensation.
7. Support your market segmentation
Segment your sales team’s accountability that supports your growth goals.
An easy place to start is timezone-based segmentation. You can align your team’s availability with the time selling needs to happen. For companies that reach across multiple verticals, you can also align your segments across verticals, and in the case of a robust product suite, solution segmentation can be implemented as well.
A good place to start is segmenting your markets by a classical East vs. West of the Mississippi, this can help your sales team understand the size of the opportunity for each individual.
8. Accelerate your team
You may find that you have top talent on your team, but sometimes the best salespeople are lazy. This means that you should have a SaaS sales incentive plan that provides extra motivation to them.
What does this look like?
Here are some examples of great sales accelerators to push your SaaS sales team to the next level. It’s also recommended that you have a cap on possible incentives. Without a cap, you may find your team benefiting specific individuals unfairly.
9. Tread cautiously with clawbacks
Clawbacks occur when a salesperson has to return their variable incentive payment. This can happen if a client never ends up paying their invoice or they churn within a time period defined in your SaaS sales incentive plan.
The first case is easily preventable, don’t pay out incentives to your sales team until the money is in the bank. This will ensure that your sales team continuously follow-ups with their deals until they become true, paying customers. A clawback based on customer churn also incentivizes your sales team to follow through with their customers to increase customer retention rates.
The clawback period is individualized for each SaaS company, however, it should take into account the period of time it takes for a customer to realize the value you provide. You can start from a range of 3-6 months and should be adjusted accordingly as you learn more.
One of the main problems of clawbacks is your sales, accounting, and finance departments spending too much time calculating earrings and continuously adjusting payouts to sales team members. You should only implement clawbacks if you’re able to keep the system simple. There are also solutions that solve this problem such as Performio to help your team calculate payouts and stay focused on the right tasks.
*Double-check with your legal team to ensure you’re not violating any employment laws when implementing clawbacks. The last thing a growing SaaS company needs is a long, costly legal battle.
When sharing the model with your sales team, make sure that all aspects of incentive-based compensation are clearly defined so as not to cause any confusion or frustrations amongst the team.
If you still have questions about the right SaaS sales incentive model for your company, we made this template to get you started.
For more information on how to build an incentive plan for your B2B SaaS sales team, check out this blog.