Global market volatility has made creating long-term consistent revenue harder than ever before. 79 percent of companies are facing more pressure to deliver on increasing targets, according to Forrester.1 That’s only making it harder.
You need to be able to create long-term revenue without sending your reps on a “close at any cost” frenzy. To do that, you need to rethink your incentive design and ensure they’re aligned to your business goals (what we call Intelligent Revenue).
At Xactly, we've found success using a strategy called The Rule of 'X."
It’s a sales incentive strategy that rewards sellers for closing deals that generate higher contract value. Here’s how it works.
The Rule of X: Motivating Reps to Bring in Better Deals
The Rule of X motivates reps to structure deals with annual price increases to create long-term contract value. The goal is for sellers to target deals as close to the Rule of 10 as possible. That fills your pipeline with opportunities that generate revenue now and in future quarters.
For example, a two-year contract with a four percent increase would be a Rule of 6 deal (2 years + 4% annual increase = Rule of 6 deal).
Imagine you have two reps close a three-year deal, each for $300k. The reps each structure these deals differently. The first deal is a flat annual rate of $100k over three years. The second is set up as a Rule of 8 deal and has an annual five percent price increase (e.g., $95k year one, $100k year two, $105k year three).
At first glance, the deals bring in the same amount of net revenue, so what’s the big deal? The second deal’s structure does two important things the first does not.
The annual price increase helps maintain contract value. It combats inflation by increasing the revenue brought in each year. It also creates a cycle where customers expect price increases. That way they’re already operating in that mode come renewal time.
Using the Rule of 'X', the second deal creates more value using the same sales resources. It gives you more bang for your buck.
When it comes to your unique compensation plans, the specifics will vary. In general, you should place a minimum Rule of ‘X’ value for every deal. Then increase the rewards the higher the Rule of ‘X’ on a deal is.
It’s More Than Just Paying Reps for Deals
Tactics like the Rule of ‘X’ help you align your incentive compensation efforts more closely with your boardroom strategy. When you’re able to do that successfully, we call it Intelligent Revenue.
But incentive compensation is only one part of it. You need to be able to look at your entire go-to-market plan in depth. Then use intelligent insights to create strategic territories, quotas, incentives, and forecasts.
And we can help. Learn more about how you can get started on our Intelligent Revenue resources page.