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Just over 180 Alexander Group technology community members joined us for the 6th annual XaaS Sales Compensation Symposium.

This two-day virtual event included live polling to easily facilitate real-time practice sharing and drive discussions around industry-related topics such as:

  1. How XaaS Business Metrics Translate to Sales Comp Plan Metrics
  2. Managing Sales Comp Program Effectiveness
  3. Aligning Sales Comp to Support Recurring Revenue Business Models
  4. Using Sales Compensation to Enable Customer Success Strategy
  5. Managing Sales Comp and Quotas During Times of Market Uncertainty
  6. Renewal Complexities
  7. Quotas and Sales Comp for New and Ramping Hires
  8. Open Forum Q&A

Below is a high-level summary of these eight session topics and key findings/poll results.

1. How XaaS Business Metrics Translate to Sales Comp Plan Metrics

Most companies use sales compensation plan measures that easily map to two key XaaS metrics—customer acquisition productivity/costs and net recurring revenue. For example, the Core Rep is typically measured on Net New Sales measure (~40% of companies) or both Net New and Renewal measures (~40% of companies). Interestingly, 20% use a Growth measure (Net New minus Churn), which is more challenging to execute.

2. Managing Sales Comp Program Effectiveness

To evaluate program effectiveness, almost all the companies use business performance, sales team performance/distribution, sales team payouts and sales compensation costs. Unfortunately, only a third are using talent attraction/retention, field feedback and plan design process metrics (e.g., on time rollout), to assess their program’s health. On a positive note, companies are using many pay for performance analytics to evaluate their plans, including pay vs. performance scatter plots (73%), quota attainment percentile distribution (60%), quota performance histograms (56%), pay percentile distribution (41%), and quota size vs. attainment scatter plots (38%).

3. Aligning Sales Comp to Support Recurring Revenue Business Models

Many traditional software and hardware companies have launched XaaS business models. Over the last decade, these hybrid companies have migrated from ‘No Special Treatment’ or ‘Parity’ to ‘Emphasis’ or ‘2-Metric’ sales compensation solutions. Why? To align plans to their XaaS growth and priority. Attendees shared the following current practices:

  • 29% use a ‘Parity’ solution, like ‘Annual Contract Value x 3x Uplift’ or ‘Total Contract Value x Uplift or Bonus’
  • 42% use an ‘Emphasis’ solution, like ‘Annual Contract Value x 4x Uplift’
  • 35% use a ‘2-metric’ solution, like ‘XaaS and Total’ or ‘XaaS and Perpetual’

4. Using Sales Compensation to Enable Customer Success Strategy

There is not one type of Customer Success Manager (CSM) job. In fact, half of companies have two or three CSM job types in their own organization. Most common CSM job owns Adoption (74%) and supports Renewals (74%), Upsell (63%) and Cross-Sell (52%). Many companies have migrated their CSMs to a variable sales compensation plan (68%) with a 75/25-80/20 pay mix (53%). This is a huge market shift from a few years ago when most CSM jobs were on a company plan. Why the shift? CSMs have persuasion reasonability.

5. Managing Sales Comp and Quotas During Times of Market Uncertainty

2/3 of companies expect the current market disruption to have a 5% or more impact on their seller’s pay this fiscal year. Sales compensation practices companies are/will use this FY to address this pay decrease varies depending on their situation (e.g., market impact, reward philosophy and current plan design):

  • 44% made some type of quota or performance adjustment
  • 35% launched some SPIFFs
  • 30% provided some type of draw or guarantee

6. Renewal Complexities

Who owns the subscription Renewal? It depends on if the Renewal is a reorder or a resell and their coverage model. 50% of companies said it was the Core Rep, 50% said it was the Renewal Rep, and 35% said it was the CSM. For many companies, it is a shared responsibility. Many companies compensate their Core Rep on Renewals: two most common solutions include Total measure with 100% Renewal credit (28%) or separate Renewals measure (24%).

7. Quotas and Sales Comp for New and Ramping Hires

Many companies use some type of special compensation and/or quota practice for their new hires as they ramp. Most companies use a draw practice (64%), like a guarantee, or higher of performance or guarantee. However, 21% of companies put their Core Rep straight onto a standard sales compensation plan. It is common to adjust new hire quotas. Half of companies provide a prorated and ramped quota and 35% provide prorated (non-ramped) quota.

8. Open Forum Q&A

Companies explored practices for various hot topics, including sales compensation practices for profitability metrics, multiyear deals, overage, paid leave of absence and windfall policies.

Closing and Complementary Briefing

If you or anyone in your company has any questions on these or other XaaS sales compensation topics, please contact us. We are happy to set up a complimentary briefing to talk about your situation and solution options.

Remember, the right solution is going to be dependent on your company’s business model, strategic goals, coverage models/jobs and operational capability.

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