Companies can use either gross or growth metrics in their sales compensation plans. Gross metrics measure the total value while growth metrics measure the incremental value. There are two typical growth metric calculations companies use—net-churn and year-over-year. Regardless of the measure/calculation type, there are multiple measure options based on a jobs Land, Expand and/or Renewal focus.
Gross metrics are positive only calculations that “fill up a seller’s bucket.” Although they are not technically ‘growth’ metrics, companies typically set bigger quotas aligned to a territory’s growth potential. Gross metric options include new logo, expansion, renewal and all the combinations thereof (see table below). Gross metrics are simple to calculate and easy to understand. They are the most common metric used in sales compensation plans.
Gross Metric Options
Growth net-churn metrics include ongoing positive and negative calculations that both “fill and spill the seller’s bucket.” These metrics focus the seller on driving new business while keeping them accountable for any churn. These metrics are more complicated to administer, track and communicate. They also do not directly reward a seller for any difficult ‘resell’ renewals and/or expected reductions outside of a seller’s control. Growth net-churn metrics include new business or existing customer business minus churn including cancelations and downgrades. While enticing, this metric is not used often due to high performance fluctuations, negative calculations and administrative complexity.
Growth Net-Churn Metric Options
Growth year-over-year (or quarter-over-quarter or month-over-month) metrics compare two period’s performance and must be calculated at the end of the later period. These metrics focus the seller on driving growth over a specified period. These metrics are generally positive calculations; however, they can be negative when there is no growth. Growth year-over-year metrics include new logo, expansion, renewal and all the combinations thereof (see table below). Growth year-over-year metrics rely on accurate period over period comparisons and therefore are not used often either.
Growth Year-Over-Year- Metrics
The following waterfall graphic includes the new logo, expand, renewal and churn ACV dollars for a seller over a two-year period.
Year 1 and Year 2 ACV Sales
Gross Metric Calculation
Growth Net-Churn Metric Calculation
Growth Year-Over-Year Metrics
There are two other measures that companies use to measure growth success – Net Revenue Retention (NRR) and Gross Revenue Retention (GRR). Some people may confuse NRR with Growth Net-Churn Metrics listed above. For this reason, we want to clarify that NRR (and its companion metric GRR) are rate (%) metrics and are business metrics typically used to measure expansion and renewal health. They both use starting Annual Recurring Revenue (ARR) – or monthly recurring revenue – which includes all recurring revenue business for the last year (or month) regardless of when it was sold. In other words, it is different than last year’s (or month’s) contracts sold.
If you are wrestling with how best to measure your sales team’s growth or any other challenges, contact us today to schedule a complimentary one-hour session with one our technology practice leaders.