How much upfront, how much over time, and for how long into the future.
Commission/compensation models for recurring revenue streams (SaaS/subscription)
Answers
Telecommunications - payment up front for commissioned employees after the client has paid the first month. (Commission is usually equal to the first month.)
Outside 1099 employees - after client has paid
1
Doug, I found these two free whitepapers here at Proformative:
"The Recurring Revenue Model: Challenges and Best Practices"
https://www.proformative.com/whitepapers/recurring-revenue-model-challenges-best-practices
If you're interested in compensation models/planning, you might be interested in this free
"Hiring and Keeping the Best"
https://www.proformative.com/whitepapers/hiring-keeping-best
Enjoy!
Best... Sarah
The bible for this kind of stuff in general is by a VC in Boston called David Skok from Matrix Partners.
I strongly recommend three of his articles in particular, but his whole blog is good.
SaaS Economics – Part 1 and 2 (talks about the impacts of adding sales folks to your cash flow cycle in a SaaS business model, including some other factors, and including an
http://www.forentrepreneurs.com/saas-economics-1/
http://www.forentrepreneurs.com/saas-economics-2/
And then recently, he is somehow related to a survey on inside sales people and their compensation and metrics. Might not be exactly what you are looking for (given the question), but should provide some useful guidance.
http://www.forentrepreneurs.com/metrics-and-compensation-for-saas-inside-sales/
Good luck.
1
James;
Great resource; I put it into the Resources section.
Cheers,
Keith
If you are trying to drive high revenue growth in a VC backed SaaS company, upfront commissions will fuel this growth. A good reference guide is "Compensating the Sales Force" by David J. Cichelli. This book can help structure your specific plan for your company.
Doug,
The above are great tools and resources; I'll add my two cents in their context.
1) Maturity (per Rick) is a necessary consideration. If you are trying for non-organic / non-cash-flow-driven growth, up front makes sense.
2)Pay-on-pay and Pay-on-recognition have benefits, but do take into consideration the admin costs of this.
3) Consider the incentive to the Salesperson. If, once they land the deal, the Salesperson is out of the loop, then deferred comp doesn't make sense from an incentive standpoint.
4) Consider who is driving
5) Consider regional laws; some extended comp structures are unenforceable and can cause an incentive for the Salesperson to quit if they land a big deal (as that can accelerate payouts).
6) Consider what you want your team to do; bring in new business or focus on renewals? Are renewals variable, and can the Salesperson impact this, or is it more driven by internal
7) Is there deal-specific risk? Integration, acceptance? Do they have an impact on pricing, terms, or other things that can delay or change the structure of the deal?
8) Are deals blended, as in they can have a recurring component and an up-front component?
9) Can you split roles between "hunters" and "farmers"?
Summary; pay for what *they* can control and for what *you* want to incent.
My prior tech experience, we paid based on one year of revenue. In some cases, we paid based on longer contracts, but if there are just "evergreen" contracts, we were hard pressed to pay more than a percentage based on one year.
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