110201 sales comp ppt

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

37

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

38

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

42

…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

44

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

45

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

46

…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

48

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?

49

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!

50

Thanks!

Contact:

Liz Cobb

•[email protected]

•SalesCompStrategy.com

51

Brad Coffey

•[email protected]

•HubSpot.com

•@BradfordCoffey