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Commission programs for SaaS revenue?

We are looking to provide SaaS pricing which will include the cost of hosting, updates, support and access to the software. Does anyone have experience in a commission program for these types of sales?

Answers

Mark Stokes
Title: CFO
Company: Private
(CFO, Private) |

What I did at a past SaaS company was base commissions on the initial 12 month locked in portion of a contract, which we paid out 3 months after the initiation of the contract, thus knowing that the customer was "real" and paying. We netted out any cancelled customer commissions from future commissions. That is, if a customer cancelled at month 6, we would pull half of the already-paid commission out of the employee's next paycheck. In the second year of a contract we would pay out that second annual portion. Since it was an ongoing customer at that point we did not need to have the same 3 month delay that we have for first year customers.

Not that bad to keep track of, but we had a relatively small sales team. I'm sure there are many other ways to skin this particular cat, though.

Topic Expert
Donald Koscheka
Title: Principal
Company: Bluecloud Communications
(Principal, Bluecloud Communications) |

Building on Mark's answer, a model that we are engaged in is to offer a full commission for year 1 (say 20% of the first year contract) and then a smaller commission for each year that the customer renews (say 6%). This keeps the sales person motivated to ensure that the customer renews year over year while acknowledging the fact that the effort to get a customer to renew is less than the effort needed to win the business in the first place.

Of course, you have to sort out issues with changes in sales personnel, customer satisfaction with their account executive, etc. But these are manageable issues.

Mark Canes
Title: President
Company: Blue Link Associates Limited
(President, Blue Link Associates Limited) |

The approach Donald outlines makes sense specially if the salesperson retains responsibility for the relationship after implementation. Without the ongoing renewal commission there is no incentive to monitor and maintain the relationship.

In our model, the relationship transitions from the salesperson to Customer Service upon implementation, so we base the commission on the first year's SaaS revenue only. We pay the commission out unconditionally after the first month, because once the customer is transitioned to customer service, you cannot penalize the salesperson. Customer service has responsibility for identifying "bad" sales if they exist before that commission payment date.

Of course, this model requires paying a higher percentage commission than if the salesperson participates in subsequent years.

Topic Expert
Marc Linden
Title: CFO
Company: Intacct
(CFO, Intacct) |

What we do at Intacct is pay our sales reps a commission on the first year of a new contract. After our customer is up and running on our solution, we have account managers who are responsible for the ongoing customer relationship, and these account managers are paid commissions on renewals and add-ons. Commissions are paid 1 month after the contract is signed. There are nuances to consider, such as how to pay commissions when a customer adds new users to their subscription before the end of their contract, but the new user licenses co-terminate along with the original subscription. Xactly is a good solution to manage the sales compensation system and to provide examples of best practices for a SaaS-based business.

Andrea Bornschlegel
Title: Fractional CFO/Controller
Company: Financial Consultant
(Fractional CFO/Controller, Financial Consultant) |

some good thoughts here, including avoiding gotchas: http://chaotic-flow.com/saas-sales-compensation-made-easy/

Niroo Rad
Title: Founder
Company: SalesStar
(Founder, SalesStar) |

Lots of very helpful comments, thank you for sharing.

I am wondering how much of a commercial loss it may be to pay commission for SaaS sales; every month (a month in rear) from month 2, pay on set % of gross margin and university applied to all commission payments?

The advantages I see in this or similar approach is; simple and low cost to administer, maintains constant commission cash flow payment retaining the attention for subscription renewal sales.

By basing it on an annual renewal contract for the monthly paying commission one can also cater for unforeseen cost increases, minimise termination / staff related issues and son.

Make the gross margin legitimate and fair which reduces the financial risks and exposures. At the sane time make SaaS based sales commission a little higher and offer bands against increasing monthly revenues.

Would appreciate any comments and advice.
Thanks

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