Transcript
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
Scaling the BusinessScaling the Business
Search for Product/Market FitSearch for Product/Market Fit
Search for Repeatable & Scalable Sales Model
Search for Repeatable & Scalable Sales Model
Conserve Cash Invest Aggressively
Company Stage - Skok
David Skok Presentation to MTLC Dec 2010
Product Stage Influences Design Bookings Sell to
anyone
Reward repeatability
Industry focus Partners
Manage churn Margins
Early Majority
Late Majority
Laggards
Time
Innovators
Technology Adoption LifecycleTechnology Adoption Lifecycle
Customers’ buying habits impact on roles & metrics
Sales Comp Design
Design your Sales Strategy
Skok - Sales Strategy Impact on CACA 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 PLANConsiderations 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
Base
Target Incentive
Upside
Point of ExcellenceTop 10% of performers
Target Total Comp (TTC)Aka: On Target Earnings (OTE)
MIXRatio of base and incentive relative to TTC
Comp Philosophy for Target Pay*
40th 50th 60th 75th 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
7. Staffing Excessive Adequate Light Lean
Lower target pay Higher target pay
* Sales Compensation Made Simple World at Work Press P.42
Mix and Upside
* Sales Compensation Made Simple World at Work Press P.42
90 8050
Payout Components
• Limit confusion– no more than 3– weight by priority
• Reward volume– ARR, MRR, churn…
• Not duties– updating CRM– funnel activities
• Rate: TIC/quotaBase
Target Incentive
Upside
Upfront ARR50%
MRR35%
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 PLANConsiderations for Monitoring Success
Assessing the Plan
• Performance reports• Employee motivation• Tell all graphs
– Pay for Performance– Attainment Distribution
• Return on investment - CCOS
Pay for PerformanceWhat 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
Perc
ent o
f Rep
s
Percent of Quota
Desired distribution – team of winnersUse 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 DRIVERSConsiderations 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
What would you do?
Sell a $150K software installation
engagement.
Sell a $150K software installation
engagement.
Sell a $1,000/month SaaS Subscription of your
software with a 3 year contract.
Sell a $1,000/month SaaS Subscription of your
software with a 3 year contract.
Problem: SaaS and On-Premise
• Confirm strategy• Redesign job roles
The Cash Flow Gap -Skok
CashGap
(Slightly later breakeven point, because Gross Profit is less than MRR)
11 months to breakeven
David Skok Presentation to MTLC Dec 2010
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
HUBSPOTConsiderations 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 MarketingOutbound 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
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HubSpot’s Marketing Platform
Get Found Convert Analyze Advice
Create SEO MobileSocial Media
Promotion
Drive Conversion
Marketing Automation
Social Media
AnalysisAnalysis Support Experts
WordPress
SeoMoz Coder HootSuite Unbounce Marketo Radian6Google
AnalyticsOn Your
OwnConsultant
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Sales Model
HubSpot
http://www.forentrepreneurs.com/sales-complexity/
SaaS Sales Comp - HubSpot Case Study
Compensation Structure – Strategy Match
Early Majority
Late Majority
Laggards
Innovators
Search for Product Market Fit
Product Adoption Lifecycle
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
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Base(50%)
Target Incentive
(50%)
Upside
Corporate Strategy >> Comp Structure
• Quota based on new MRR
• All Month-to-Month contracts
• Clawbacks
• 100% kicker for new MRR above quota
VelocityRetention
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
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…for a while
Search for a Repeatable Sales Process
Early Majority
Late Majority
Laggards
Innovators
Search for a Scalable & Repeatable Sales Process
Comp and LTV Misalignment
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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
• 30% of inbound funnel
Optimize for repeatability
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Base(50%)
Target Incentive
(50%)
Upside
Corporate Strategy >> Comp Structure
• Quota based on MRR
• Amount based on historical LTV tier (upside for 2x standard)
• Clawbacks – 3mo
VelocityRetention
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…but LTV calculations are unclear and often a lagging indicator
New cohorts retained at much higher rates
Cus
tom
er C
ohor
tIt worked …for a while
Scaling the Business
Early Majority
Late Majority
Laggards
Innovators
Scaling the Business
Phase 3: Scaling
Scale core funnel and begin to test new growth opportunities
Experiment selectively with adjacent product / market fits• 80% of inbound funnel
Optimize for growth
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Base(50%)
Target Incentive
(50%)
Upside
Corporate Strategy >> Comp Structure
• Quota based on MRR*
• Payout partially based on contract
• Clawbacks – 6mo
VelocityRetention
• 100% kicker for new MRR above quota
* Start considering fit with manager comp plans
Will this work?
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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!
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Thanks!
Contact:
Liz Cobb
•cobb@salescompstrategy.com
•SalesCompStrategy.com
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Brad Coffey
•bcoffey@hubspot.com
•HubSpot.com
•@BradfordCoffey
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