Creating Commission plans from scratch
Our philosophy on commission plans is distilled down to aligning 3 major parts to a plan:
- Choosing the right plan type for each role
- Picking your primary revenue goals as the major metric for the plan
- Choosing the right secondary goals to incentivize behaviours and keep CS executives motivated
First things first: For which role are we making the plan?
Success metrics for the role
Presales consultants are responsible for the value sell and technical win of a deal. They work over numerous deals with multiple sales reps at any given point of time. However, not every organization has well-defined variable pay for presales consultants and in many cases, they simply don't have variable pay at all.
Why? Their nature of work is difficult to quantify. They sometimes put in a lot of work for a low-value deal because of technical complexity, making it hard to put a number on their efforts.
But ideally, they should be put on variable pay for multiple reasons such as:
- Sales leaders want them to have some skin in the game.
- Having sales reps on variable pay and not presales consultants might lead to friction. Both work together on the same set of deals where one is rewarded for deal closure and the other is not.
- Presales consultants themselves might want an opportunity to make more money.
To remedy the issue of quantifying the work of presales consultants, their fixed pay to variable pay ratio is usually low, somewhere between 80:20 or 85:15. As for sales reps, it can go as high as 50:50 or 60:40.
Now that we know why presales consultants need to be put on variable pay, let’s choose the plan type and metrics. Here, it is important to understand that each role has a specific set of goals critical to the overall business objectives. Their compensation has to be as simple as possible without many variables outside their control like your leaders. Hence, we narrow their success metrics to two engines.
Choosing the right Commission plan type
Before choosing the type of commission plan for a presales consultant, decide how it would be applied. Would it be for the individual deals that they have been tagged against or for the pod/regional attainment that they are a part of?
This is determined on the basis of how the presales team is structured. If a presales consultant is tagged to a few sales reps (where all their deals are handled by them), only attainment can be calculated for all deals. Alternatively, if opportunities from the sales team are assigned to a bunch of presales consultants on a round-robin basis then the pod’s attainment should be used for calculation.
Ideally, you would want to have your sales reps and presale reps on the same plan for the sake of uniformity. To read more about how to set a commission plan for a sales rep, head to this page.
There are 2 plans you can choose from:
- Commission % as part of deal value - X% of deal value, usually reserved for sales reps
- Commission % as part of their attainment - 120% quota attainment indicating 120% of incentive pay.
Choosing the primary success metrics
Now that we have covered compensation structures and commission plans, it’s time to optimize them for your SaaS product, representative type, and the ACV of your customers. In general, we can classify SaaS sales models into 4 broad categories:
High Velocity and Low ACV - SMB
This model would apply to cases where you are selling an easy setup software with minimal or no customization. Not a lot of technical handholding is required. It can also be applied when an inside sales model is used with high velocity.
As suggested earlier, attainment can be rewarded like sales reps. In addition to that, high conversion ratios can also be rewarded. For example, if a presales consultant started working on 20 new opportunities in a given month and closed 10 deals, he has a 50% conversion rate. For different conversion rates, different kickers can be applied.
Low Velocity and High ACV - MM/Enterprise
This model comes in handy when you are selling to large organizations or selling a technically-complex product where closing the deal takes a fairly long time. The prospect needs to be convinced through a proof of concept or a guided trail.
Here, deal conversion ratios aren't taken into consideration as the velocity is going to be low. So, it can be based on attainment with additional weightage to betterment engine factors.
Besides working on the technical aspects of deals, presales consultants also have to work on other initiatives such as comparing with competitors’ products, creating battle cards and creating demo setups for specific industry verticals or use cases.
And most importantly, they serve as the eyes and ears of the product team. They pass on valuable customer feedback to the product team that then analyzes and uses it as input for the product roadmap.
The actions listed above are difficult to quantify because they are all quality-driven. So, managers can oversee them and influence a part of the variable pay based on these initiatives.
Choosing the secondary success metrics
The metrics that we looked into in the earlier section will only address the revenue goals that you have planned for. But, there are non-revenue behaviour-based goals that you would want to reward. Here are a couple of secondary success metrics:
- Number of deals closed: Targets can be set for the number of deals to be closed in a month. If a presales engineer exceeds those numbers, then a fixed amount can be paid for every additional deal for scaling and streamlining the presales process. To be able to handle more than the monthly expected deals is a lot more difficult for a presales person when compared to a salesperson. This task can only be achieved if they have streamlined their systems and processes.
- Deal value kicker: We all know the importance of technical wins when the deal size becomes larger. In scenarios where deal size is 50% greater than the ARPA of the product, it makes sense to add a bonus to the presales engineer and motivate the effort that goes into such complex large deals.
Let’s go over our journey till now and look at what we have learned about designing a perfect compensation plan for your teams:
- Presales consultants have fixed pay to variable ratio of around 85:15 or 80:20 as their nature of work is difficult to quantify
- They should ideally be on a similar commission plan as their sales colleagues.