Sunday, September 27, 2009

SaaS Inside Sales Compensation Plan

Building the right compensation plan for your SaaS inside sales reps is imperative and complicated. One size does not fit all, but I have gone ahead and constructed one as a guide/example for folks to use with full quota carrying reps.

There are two metrics you need in order to build the most accurate compensation plans: First you need to know how much you are planning to sell your software for per seat/user per month. The second is your total Sales & Marketing cost of sale. S&M COS includes all marketing cost and sales overhead.

Once you have your S&M COS for the month, divide that number by the number of seats/users sold in the month. Let's say your total S&M COS calculation came out to $500 for the month of September. If your billing at $50 per seat with a S&M cost of $500, it would take about 10 months to recoup the S&M cost per seat. If your recouping your cost in less than 1 year's time (<12 months) your doing things properly and on your way to becoming a successful and profitable SaaS company.

Now let's get a little more granular. Say your a start-up and not certain of your total S&M cost of sale and all you want to do now is argue that your incremental cost and pay of an inside salesperson is reasonable. Here is an example:

Step 1: Pay Structure
-You want to pay your inside sales reps 40% base and 60% commission
-You want to pay them $48K base and $72K commission OTE of $120K (good salary)

Step 2: Cost of the individual (just using an industry average)
-Take industry average of 1.2x to 1.4X base salary for the individuals cost to the company (I will use 1.2X since your a start-up and your costs are probably still fairly low)
-Cost to the company for base salary is 1.2X of $48K=$57,600
-Cost to the company for commission is 7.65% (FICA and Medicare) or in this case $77,508
-Total cost to the company for the individual is $135,108

Step 3: Determine the price per seat for your software per month

Step 4: Do the math
-If a rep sells a 225 user deal in September it covers the incremental cost of that employee. 225 x $50 per user x 12 months = $135,000

Step 5: Understanding the power of SaaS
-This is recurring revenue, so the goal is to keep the customer for years to come. In years 2, 3, and beyond is where you really start to make money and your total cost of sales starts to drop substantially.

Bookmark and Share

Sunday, September 20, 2009

When Inside Sales Tenure Becomes an Anchor

How many times have you heard this from one of your top performing inside sales reps, "I have been doing this for several years and I am 100% at plan for the year. I just want to be left alone, so that I can do my job." Welcome the two biggest anchors of personal growth for most sales people.....tenure and quota attainment. Be careful, two of your biggest assets could be a latent liability if you are not careful.

Tenure and quota achievement are two great things to have on your sales team. I wish all my reps possessed both. But the potential problem for you as a seasoned, quota achieving sales person is becoming status quo. Everyone can always improve. Take Tiger Woods for example. He is by far the world's best golfer, so why does he need a 60 year old swing coach? Because he knows how important the fundamentals of golf are and even his swing gets off track. He constantly is pushing himself to get better and he insists on having multiple coaches who push him to be the best at all times.

This is the type of team I want to lead. Folks who never are happy with quota attainment, folks who understand change and the importance of changing with it. I push my teams to be creative and Web 2.0, but I never forget about the basics of selling and how to create value for our clients. It's easy to get off track when you have mastered your product and processes. It's my job as a leader to keep the team up to date with the times and constantly fine tuning the basics.

Here are some of the basics in which I preach and teach:
1. Ask...Why is that important to you?
2. Establish baselines. If they want to increase revenues by 20% using your product...find out what their revenues are today.
3. The ability to listen.
4. Never answer for the customer...let them tell you themselves even if you know the answer.
5. Never sell futures.
6. Be consultative.
7. No when to walk away from the deal.

Bookmark and Share