Incentive compensation is the driver of sales behaviors and organizational growth. Software-as-a-Service (SaaS) sales compensation plans, in particular, require strategic planning and analysis to ensure all the working parts function like a well-oiled machine. When new plans are rolled out in a new year, it can be easy for leadership to hit the ground running and not look back.
But after a few months, many companies face one of the following unfortunate scenarios: 1) business goals continue to be out of reach, 2) leadership discovers that sales reps aren’t performing as well as expected, or 3) you simply feel like you’re paying too much compensation without progress towards goals. Whatever the reason, you know you could be getting more out of your compensation dollar.
How can these situations be avoided? Continuous analysis and data-driven planning. Over the 14+ years we've collected pay and performance data, we’ve found compensation professionals who focused on achieving the following goals maximized the return from their sales compensation plan (You can also find more tips to improve the ROI of your incentive compensation here).
1. Know What You’re Up Against
Being a SaaS company comes with certain expectations: scale rapidly, grow revenue, and do it all using data-driven methods. These demands also presume some best practices and pitfalls for SaaS sales compensation plans. To really know what you’re up against, you’d usually have to dive into expensive and subjective surveys.
Fortunately, we leveraged aggregated and anonymous empirical data for facts on how sales performance and SaaS commission plans intersect. Historically, Xactly’s extensive database has produced these findings:
- The average target for a primary quota-carrying sales rep (Account Executive) is $1.2 million
- 79% of SaaS sales reps miss their quota and 14% never achieve even 10% of their quota
- The average quota attainment for a SaaS sales rep is 58% (independent of tenure, company size, and market)
- On average, companies with less than $100 million in sales pay 46% more in comp compared to others with over $1 billion in sales, regardless of quota size
Ultimately, these numbers stem from a single company strategy: the sales compensation plan. And because of the unique business demands of the SaaS industry, a poor commissions process could undermine even the best products. On the other hand, with a proper SaaS sales compensation plan in place, a company can aggressively hit goals and even outperform competitors.
2. Simplify Compensation with Best Practices
Now that you have your sales compensation plan in place, it’s a perfect time to question its effectiveness. A surefire way to test this is to assess the simplicity of your plan. Simplicity reduces friction, so tweaking points of tension will help streamline your compensation process.
Look for Trouble
Ask yourself, where are the bottlenecks? Where are comp admins and sales reps getting hung up? Is something not clear to a significant number of people? And one of the most revealing questions you can ask: Where are people most unhappy in the process? Isolating these issues will provide a good first step to getting the most out of your software sales commission plan.
Automate, Automate, Automate
Did we mention automate? Companies that are still using spreadsheets to calculate their software sales commission percentages are at a huge disadvantage—especially because 80% of spreadsheets contain errors. Spreadsheets are slow, error prone, and place undue stress on compensation admins. Not to mention, compensation errors can be costly and lower sales rep productivity. SaaS sales performance management solutions like Xactly Incent™ automate complex calculations and the prior period adjustment process.
The SaaS software also automatically produces an audit-trail for better understanding of the adjustments that need to be made. Today, cells and tables are not only obsolete, but they’re also limited in their potential to drive performance and produce measurable ROI.
The Simpler Your Plan, The Better
Giving your sales rep too many metrics is a huge mistake. In the case of sales compensation data, you’ll certainly get more from less. Incentive plans with even a handful of measures cause confusion and uncertainty in your reps. Don’t bog down your reps with a plan composed of half a dozen accelerator, decelerator, and incentive rules. A lower number of measures means less analysis paralysis.
With a clearer sense of what should be focused on, sales leaders can guide reps towards goals that are aligned with company objectives. So how many measures are best practice? Xactly’s empirical data has found that 3 metrics help drive sales performance.
Reduce Headcount on Deals
How many people did you payout on the last deal? 5 or more is usually symptomatic of an overly complicated compensation model. You could be paying less people for that same amount of work. Optimized payout distribution on deals makes it so you get the most out of your sales compensation dollar. Plus, higher payouts per individual on a deal generates greater incentives for everyone involved.
3. Dynamically Align Your Comp Plan with Business Objectives
The type of sales which reps are winning or losing constantly redefine a company’s business goals. If you can’t get the wins for new business, renewing contracts, reducing churn, or up-selling (expand selling) to align with business objectives, it’s time reevaluate your compensation plan.
Say your churn is unusually high, you know that altering the comp plan to include accelerator bonuses for reducing churn could bring those numbers back to a reasonable percentage. But the trick is to have instant visibility into this data and a dynamic method to make those changes (sorry, spreadsheets won’t cut it!).
4. Partner Sales and Compensation Department
Remember when we suggested pinpointing where employees are most unhappy in the compensation process? The relationship between your acting comp admins and reps might be a good place to start. It’s easy to forget that sales and finance are, in fact, on the same team. Sure, there are angry phone calls from sales to comp admins. Then, there are the unresponsive emails from finance. But bridging this gap between departments is a lot easier than you would think.
To partner sales and finance, you should only focus on one element of the commission process: visibility. Reps and managers need to be able to view performance and sales quota attainment at a moment’s notice, in real-time. To achieve this level of transparency, Xactly Incent™ provide reps dashboards detailing their objectives and progress in easy-to-digest graphs and charts. With this visibility in place, our customers have reported some notable transformations:
- Unnecessary emails and phone calls between sales and finance disappear
- “Shadow accounting,” sales reps using valuable time keeping their own records, is reduced
- Compensation department sees how their work positively affects the bottom line
- Sales and Finance become friends (really!)
5. Weed Out Poor Performers and Reward High Performers
Finding the sweet spot for compensation in the past was more an estimation, a mix of precedent and intuition, than a science. But big-data has changed that, providing you with hard data to inform your decisions. With these metrics, you can discover, with certainty, which reps are hitting on-target earnings (OTE) and determine whether you’re overpaying for poor performance, even if your compensation model is perfectly at market for OTE. To this end, Xactly Insights uses empirical and cross-company data to generate monthly benchmarks that cut out the guesswork.
This is 12 years-worth of hard numbers you can use to compare your reps’ performance to competitors and industry standards. Of course, charts and graphs alone aren’t going to transform your SaaS sales commission plan. But understanding that this information makes plans a means to boost sales performance is a step towards achieving measurable results.
To start, you’ll want to analyze your sales performance bell curve in three parts: beginning, middle, and end. This bell curve tells a story and sales and finance leaders are often left very surprised once they use Xactly Insights™ to translate what it’s saying.
Beginning of the Curve
Determine if your plan is incentivizing poor performance. This means evaluating if your base makes it easy to stick around or, worse, if you have payouts in place that actually encourage inactivity. Beyond weeding out those poor performers, modifying your plan often sparks just the right amount of incentive to push these reps to the middle of the curve and beyond.
Middle of the Curve
Ah, yes, the dreaded “frozen middle”, the space where sales reps with average performance just seem to go and never leave. The reasons for this standstill are plenty. Maybe your reps don’t understand your plan. Maybe the base pay is too high.
Or maybe your quotas are unrealistic. But without access to the right data, you’ll never know for sure. Using Xactly Insights, you can isolate these potential top-performers and make the necessary comp model adjustments to “thaw” the middle.
End of the Curve
Speaking of top performers, are you paying your best reps enough? A good way to confirm is the “convertible test.” Next time to you see a top rep pull into the office, check the parking lot to see if they’re driving around in a brand-new sports car. If not, you can be certain another company would be willing to pay them so they can be.
If you want a more scientific way to determine whether you’re paying your top reps at least market value, you can tap into Xactly Insights’ data and compare your commission for top performance to your industry and peers. Remember a comp plan isn’t simply the cost of doing business. It’s your best defense against turnover.
Improving Your SaaS Comp Plan Recap
There are endless ways to go in and improve your SaaS compensation plan. But there are only a few ways guaranteed to drive measurable performance from your reps and subsequently your bottom line. Yes, every company is different, but stick to these general tips and you’ll be on your way to tightening that next rev of your SaaS sales comp plan.
- Leverage data on industry pitfalls to avoid and conventions to embrace
- Simplify your plan! Cut down those measures and automate
- Make your comp plan moves with your business goals
- Ensure you’re paying appropriately and rewarding top performance