Rethinking Sales Compensation
Randy Seidl
Board Member | CEO | CRO | Executive Recruiter | Sales Community Leader | Advisor | Consulting
A lot of sales comp plans are stuck in the past.
They reward the quick win but completely miss the mark when it comes to long-term customer success.
If you really want to align your sales team with business growth, you’ve got to rethink how you design compensation.
It’s all about rewarding what actually matters—retention and lifetime value, not just signing contracts.
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Guest: Denise Millard , Chief Partner Officer at Dell Technologies
Date: Wednesday, October 16th
Time: 12PM EST
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How to Deploy Your Sellers in a Consumption Pricing World
The shift to consumption-based pricing in the tech industry is reshaping how companies approach their sales and customer engagement strategies. This new model requires a focus on continual customer interaction to drive product usage, rather than just annual renewals. Key considerations include adapting to different customer types, choosing between committed and uncommitted contracts, and redefining sales team roles and responsibilities.
As the lines between pre-sales, sales, and post-sales blur, companies must carefully plan their coverage models to ensure ongoing customer value and retention in this dynamic pricing environment.?
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Randy's Tips to Sell More ?? Excerpts from Your Go-To Sales Advisor
Designing a Sales Compensation Plan in a Data-Driven System
By Mark Roberge
What the Idea Is
Designing a sales compensation plan in a data-driven system.
Why It Is Valuable
The compensation plan design is typically delegated by the CEO to the head of sales, and the head of sales tends to use the plan from the last company where they worked. Unfortunately, this is a missed opportunity for the CEO to drive high-level corporate strategy to the front line of the business. The compensation plan is arguably the best tool the CEO has to align strategy with execution. I rarely see organizations take advantage of this opportunity.
The opportunity is even more important as the world of IT and software shifts toward a subscription economy. Selling on-premise software decades ago used to entail a long sales cycle, involving placing millions of dollars of equipment into a basement and then spending months training the organization on how to use it. It didn’t matter if the software worked or was easy to use—the purchasing company was stuck with it. However, in today’s world of cloud, subscription, and freemium models, that context no longer exists. Buyers can access and begin using software over the internet, often for free. Using the software is easy. Canceling is even easier. As organizations realize this, they begin to define customer retention as their most important metric—even more important than new revenue acquisition.
While some customer retention issues are rooted in product and customer onboarding, most are rooted in sales—specifically who salespeople choose to sell to, the expectations they set with customers, and what level of success should be expected. As CEOs realize the importance of customer retention to their organization’s success, they have an opportunity to align sales compensation with this metric.
How It Works
From a high level, sales compensation needs to be aligned with lifetime value (LTV), not total contract value (TCV). I’d rather have a salesperson sign a one-year contract for $100K, and the customer renew for ten years and provide positive references, than have a salesperson sign a customer for a three-year contract for $100K per year who never uses the product and does not renew. Unfortunately, most sales commission plans, which are often rooted in TCV, pay the latter salesperson more than the former.
It’s not as simple as paying a salesperson on a retainer for the LTV. If we paid a salesperson 10 percent of the contract for as long as the customer is on board, two negative outcomes can occur. First, we want sellers to be rewarded (or penalized) as close to the good (or bad) behavior as possible. Paying sellers on the annuity fails here. Second, sellers can become lazy. If they have built up an annuity of customers and are getting 10 percent each year, they may stop hunting for new customers and still make a lot of money.
Instead, organizations need to identify their leading indicator to customer retention. This leading indicator is a factual, inspectable event that ideally occurs within the first sixty days of a customer’s lifespan. If the event occurs, there is a high statistical probability that the customer will be around for many years. If it does not, the customer will likely churn at the next renewal time. Leading indicators can be as simple as product setup or product usage. Once identified, the sales compensation plan can compensate sellers with 50 percent of the commission when the contract is signed and 50 percent when the leading indicator is achieved.
Few organizations understand this concept. Modernizing sales compensation strategy is a substantial competitive advantage opportunity.
100% in agreement. Sales leadership has to step up and play a role along with the reps to do what is right for the customer as well as the business.
North Americas Strategic Alliances Manager - Global Cloud Service Providers at Hewlett Packard Enterprise
1 个月I agree with you Randy. Way the comp plans are today, every sales person and management only focuses on Q1,Q2,Q3,& Q4 transactions. ?? While that is important it is equally very important for sales community to be compensated for building long term relationships and road map,aligned with customer long term objectives and goals. The big value comes from building great relationships, trust and partnership.
Partner Ecosystem leader | Sales Leader | Consulting | Industrial IOT | GenAI, Cloud & SaaS | Manufacturing & Smart infrastructure | Investor
1 个月Totally agree. We too often become “coin operated” when the incentives are all short term