Commission programs for SaaS revenue?

What I did at a past SaaS company was base commissions on the initial 12 month locked in portion of a contract, which we paid out 3 months after the initiation of the contract, thus knowing that the customer was "real" and paying. We netted out any cancelled customer commissions from future commissions. That is, if a customer cancelled at month 6, we would pull half of the already-paid commission out of the employee's next paycheck. In the second year of a contract we would pay out that second annual portion. Since it was an ongoing customer at that point we did not need to have the same 3 month delay that we have for first year customers.

Not that bad to keep track of, but we had a relatively small sales team. I'm sure there are many other ways to skin this particular cat, though.

Building on Mark's answer, a model that we are engaged in is to offer a full commission for year 1 (say 20% of the first year contract) and then a smaller commission for each year that the customer renews (say 6%). This keeps the sales person motivated to ensure that the customer renews year over year while acknowledging the fact that the effort to get a customer to renew is less than the effort needed to win the business in the first place.

Of course, you have to sort out issues with changes in sales personnel, customer satisfaction with their account executive, etc. But these are manageable issues.

The approach Donald outlines makes sense specially if the salesperson retains responsibility for the relationship after implementation. Without the ongoing renewal commission there is no incentive to monitor and maintain the relationship.

In our model, the relationship transitions from the salesperson to Customer Service upon implementation, so we base the commission on the first year's SaaS revenue only. We pay the commission out unconditionally after the first month, because once the customer is transitioned to customer service, you cannot penalize the salesperson. Customer service has responsibility for identifying "bad" sales if they exist before that commission payment date.

Of course, this model requires paying a higher percentage commission than if the salesperson participates in subsequent years.

What we do at Intacct is pay our sales reps a commission on the first year of a new contract. After our customer is up and running on our solution, we have account managers who are responsible for the ongoing customer relationship, and these account managers are paid commissions on renewals and add-ons. Commissions are paid 1 month after the contract is signed. There are nuances to consider, such as how to pay commissions when a customer adds new users to their subscription before the end of their contract, but the new user licenses co-terminate along with the original subscription. Xactly is a good solution to manage the sales compensation system and to provide examples of best practices for a SaaS-based business.

some good thoughts here, including avoiding gotchas: http://chaotic-flow.com/saas-sales-compensation-made-easy/