Create Better Comp Plans

So why should I read this newsletter vs 1,000 others?

Great question and the fact is, maybe you shouldn’t.?

This newsletter is focused on helping business with recurring revenue find and fix revenue leaks.?

Some of this leakage is known, most is not.

Ill share the root cause(s) of these leaks as well as provide guidance on how best to patch them up.

I know about these leaks as I’ve spent the last 20 years scaling SaaS companies, leading my last two to successful exits as Chief Revenue Officer.?

Content to expect:

Pricing/packaging – fastest way to increase profits

Discounting and it’s ramifications on retention, CAC payback, etc.

Reducing employee attrition

Customer Support:?Creating advocates from detractors

ICP/segmentation strategies

Importance of speed to lead and lead distribution

KPIs to track

Cost of Mis-hires and how to reduce those

Moving Customer Success from reactive to proactive

More…

But to kick things off, comp plans.?

Most are not as effective as they could be and some are terrible, impede growth and cause deals to slow down.

6 items to think about when designing comp plans:

After over a decade of designing comp plans for SaaS companies, as well as reviewing hundreds of plans, here are the top 6 pieces of advice:

1. Start with the Why

You need to start by understanding why you’re putting together compensation plans in the first place.?The reason you're adding variable comp to someone in sales, CS, partnerships, RevOps, marketing, or even product is to drive specific behaviors and outcomes.?That’s really what it all comes down to.

You need to have keen understanding into the specific behaviors or levers you need to focus on to hit your monthly, quarterly or yearly targets.?Dive into your data and look at where the opportunity lies.

Far too often these plans are put together only focusing on lagging indicators such as quarterly sales targets, inbound leads/opportunities, or annual net retention.?But if you’ve identified that more upfront payments, more multi-years, driving more leads from a specific customer segment, or conducting more quarterly business reviews (QBRs) will help accelerate growth, make sure you include them in your comp plans.??

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2)????????Don’t overcomplicate it.

The problem with #1 is that you can get too in the weeds and start identifying too many items you want your team to focus on.?For example, you might want your sales reps to sell more multi-year agreements, get more upfront payments, sell more of a specific package, sell more licenses upfront, generate their own opportunities and reduce discounts.?You then slam all those into a comp plan and guess what happens??You move the needle on none of those items.?Pick the 2-3 (tops) that will have the most dramatic impact on the business and focus on those.?If the compensation sheet starts looking like a complex matrix, or if your compensation plan is more than 2 pages long, it’s too complex.

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3)????????Focus on the controllable

I’m a big proponent of making sure items in the comp plan are controllable by that individual.?If a customer churns after one year, and the sales rep had nothing to do with the customer post sale (by design), then that rep shouldn’t be penalized.?Alternatively, a sales rep should not be paid on any renewals in that scenario.

What’s also generally out of Customer Success or sales hands is collections.?I’ve never liked leveraging those teams for that.?Usually, there are financial process improvements that can be made to help with this.?But, having your dedicated Customer Success Manager reach out to ask for payment isn't going to make any strides in building the relationships they’re in charge of building.?Nor is it time well spent for your sales team to try to hunt down late invoices.

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4)???????Don’t set unrealistic targets

Every leader wants to showcase a high on-target earning (OTE) number to attract the best talent.?But if you’re creating unrealistic targets just to bump the OTE that you’re presenting to candidates or your current team, it’ll come back to haunt you.?First, it won’t take long for everyone to figure out the goals are unattainable.?Then, the motivation and energy will be gone as the team isn't interested in putting in that extra effort to achieve 70% of their target.?After that, you’ll start to see your top talent leave.?But it doesn't stop there.?You will also start having challenges recruiting the same talent you could before because this information is now widely known and circulated online (companies like RepVue).?Set realistic goals and give the team the support they need to achieve it.

5) ???????Don’t cap variable

I’m against ever creating a cap.?I know there are specific reasons I won’t go into here on why this might need to be a consideration as you grow in excess of $100M ARR, for example, but there’s never a good reason to cap if you’re below this.?I spoke to a CEO once who had commission caps as there was concern of the high payouts if some monster deal, that they’ve never been close to selling before, came in.?He pegged the likelihood of that at close to 0%, which is how he was selling the idea to his team, that it probably won't happen.?So by his own account, it’ll never happen and even if it does, why the heck not have that rep make a fortune??What a great story.?Use it, market it, sell it.?But, by creating a cap there’s now a stigma associated with the compensation that it’s capped whereas other companies in the same industry are uncapping their commission.?It’s harder to recruit top talent with capped commissions and sometimes harder to keep them as well.

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6)???Think hard about Clawbacks

Although there’s a time and a place for clawbacks, they tend to be overused.?Remember, any clawback will be looked upon as demotivating.?There are plenty of reasons why you need to put them in place, but when you do make sure it’s very transparent to the individual as to why and what triggers it.

When asked whether I’d?

1)?pay a rep before a customer pays, or once a POC is signed, and have a clawback OR

2)?pay the rep once the customer pays?

Nine times out of ten the latter makes more sense.?It keeps that rep more engaged, it’s less of a burden on finance having to handle clawbacks and it helps with cash flow.

Compensation can be supremely complex, and there are a lot more factors in comp design such as bonuses, overachievement %, etc to think about.

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If you’re looking to revamp or create new comp plans and have questions, please reach out to me at [email protected] or book time with me at atlasrevenuegroup.com.