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Commission/compensation models for recurring revenue streams (SaaS/subscription)

Doug Thompson's Profile

saas commission plansHow much upfront, how much over time, and for how long into the future.

Answers

Dabney Wellford
Title: CFO
Company: Wellford Consulting
(CFO, Wellford Consulting) |

Telecommunications - payment up front for commissioned employees after the client has paid the first month. (Commission is usually equal to the first month.)

Outside 1099 employees - after client has paid

Sarah Jackson
Title: Associate Editor
Company: Proformative
(Associate Editor, Proformative) |

Doug, I found these two free whitepapers here at Proformative:

"The Recurring Revenue Model: Challenges and Best Practices"

https://www.proformative.com/whitepapers/recurring-revenue-model-challenges-best-practices

If you're interested in compensation models/planning, you might be interested in this free white paper here at Proformative titled,

"Hiring and Keeping the Best"

https://www.proformative.com/whitepapers/hiring-keeping-best

Enjoy!

Best... Sarah

James Harland
Title: CFO
Company: SilverRail Technologies
(CFO, SilverRail Technologies) |

The bible for this kind of stuff in general is by a VC in Boston called David Skok from Matrix Partners.

I strongly recommend three of his articles in particular, but his whole blog is good.

SaaS Economics – Part 1 and 2 (talks about the impacts of adding sales folks to your cash flow cycle in a SaaS business model, including some other factors, and including an excel model).

http://www.forentrepreneurs.com/saas-economics-1/
http://www.forentrepreneurs.com/saas-economics-2/

And then recently, he is somehow related to a survey on inside sales people and their compensation and metrics. Might not be exactly what you are looking for (given the question), but should provide some useful guidance.

http://www.forentrepreneurs.com/metrics-and-compensation-for-saas-inside-sales/

Good luck.

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

James;

Great resource; I put it into the Resources section.

Cheers,

Keith

Rick Hernandez
Title: Finance Director
Company: Experian
(Finance Director, Experian) |

If you are trying to drive high revenue growth in a VC backed SaaS company, upfront commissions will fuel this growth. A good reference guide is "Compensating the Sales Force" by David J. Cichelli. This book can help structure your specific plan for your company.

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Doug,

The above are great tools and resources; I'll add my two cents in their context.
1) Maturity (per Rick) is a necessary consideration. If you are trying for non-organic / non-cash-flow-driven growth, up front makes sense.
2)Pay-on-pay and Pay-on-recognition have benefits, but do take into consideration the admin costs of this.
3) Consider the incentive to the Salesperson. If, once they land the deal, the Salesperson is out of the loop, then deferred comp doesn't make sense from an incentive standpoint.
4) Consider who is driving risk; if collections is not the Salesperson's job, then Pay-on-pay makes no operational sense.
5) Consider regional laws; some extended comp structures are unenforceable and can cause an incentive for the Salesperson to quit if they land a big deal (as that can accelerate payouts).
6) Consider what you want your team to do; bring in new business or focus on renewals? Are renewals variable, and can the Salesperson impact this, or is it more driven by internal operations?
7) Is there deal-specific risk? Integration, acceptance? Do they have an impact on pricing, terms, or other things that can delay or change the structure of the deal?
8) Are deals blended, as in they can have a recurring component and an up-front component?
9) Can you split roles between "hunters" and "farmers"?

Summary; pay for what *they* can control and for what *you* want to incent.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

My prior tech experience, we paid based on one year of revenue. In some cases, we paid based on longer contracts, but if there are just "evergreen" contracts, we were hard pressed to pay more than a percentage based on one year.

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