SaaS Renewals Comp Plan

Are you looking to build a compensation plan for your renewals team? What is important to consider? How do we get results?

A member of the Sales Enablement Society (https://discussions.sesociety.org/) asked for guidance and advice on designing and building a SaaS renewal comp plan which aligned with the finance team and motivating for the customer success team. The answers may help others as we move into planning sessions for the upcoming year.

Winning By Design has a great SaaS model built around recurring impact (renewal, upsell, cross-sell) for clients and is a great resource for this type of planning with finance for Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR). Let's dive into a few of the considerations for planning below.

Align with finance to fund your customer success team budget

As a high-level estimate, you want to reserve ~20% of Annual Contract Value (ACV) in?subsequent renewal years to preserve funding for your customer success team. For example, if your ACV is $50K, then you want to allocate $10K from each annual renewal to fund the CS budget (for multiyear contracts, use 20% of each anniversary.)

For 100 accounts renewing annually, the above will provide about $1M budget at par for a $5M ARR SaaS org. Now let's factor in growth.

Motivating the customer success team

Design of the compensation plan will include the performance against success metrics and revenue goals.

Growth for SaaS orgs is compounded by higher renewal rates with increased client spend. Investors use Net Revenue Retention (NRR) to assess the value and health of a Saas revenue engine.

Net Revenue Retention takes into account the total revenue minus any revenue churn (caused by departing customers, or customers who have downgraded) plus any revenue expansion from upgrades, cross-sells or upsells.

As a best practice, it is desirable to have account and revenue churn between 3% and 10% and leading SaaS orgs are delivering NRR >125%. We can use these as goals to base incentives for the customer success team.

In the example below, there is a strong focus on?increasing NRR to 125% or greater:

• Qualify for variable comp when renewal rate attains 90% (meaning renew at least 9 of 10 accounts)
• Variable comp is calculated at 8% of?NRR, meaning amounts greater than par renewal revenue. For multiyear renewals, use 8% on first year ACV, with?bonus for multi-year?contract (e.g. 8.8% for 2-year, 10% for 3-year)
• For high-performance reward an incentive accelerator unlocks at NRR goal (125%<), variable comp bursts from 8% to 15%
• If your NRR performance is measured quarterly, align the variable compensation with same period to accommodate the rhythm of business

Getting to the results

New revenue from renewals are typically from these 3 sources:

1. ACV increase, usually client value/impact driven
2. Upsell into higher value plan, usually client-driven consumption/usage
3. Cross-sell complimentary solutions for revenue expansion, usually from acquisition

So sellers can get there based on different pathways - if a specific area of focus is needed, you can align incentives appropriately.

The modeling for the SaaS renewal compensation is sourced from experience through leading practitioners in the SaaS space and through enablement resources such as Pavilion, Sales Impact Academy, and SaaS investment portfolio operational teams.

If you need help building your SaaS compensation model, there are a number of professional resources available to assist; reach out through LinkedIn to start those conversations and drive success for your teams.