Q&A: How To Comp on Usage-Based SaaS Pricing
Q: How do you compensate your sales team when there’s a high percentage of usage-based SaaS pricing?
A: When it comes to implementing usage-based pricing models, it’s important to consider what your compensation plans will look like. We take the approach of splitting the compensation into two components which have helped companies perform 15%+ better within a quarter (versus trying to harmonize around one metric).
The biggest challenge for these comp plans is on the cash flow management side. The usage/revenue/cash is often months behind the sales motion so we recommend compensating separately on the sales motion (the quota) and on the cash collection (the residual).
1. The Quota
Quota is matched to the specific sales behavior you’re looking for from your sales team; this is how your reps can achieve high accelerator payments. Quota credit is given based on sign-up, contract signature, first payment, etc. (basically whenever you consider the customer a customer.)
2. The Residual
This is how you manage cash flow if customers don’t use your service evenly, but will create a passive income stream to your reps. We recommend that residuals are flat-rate payouts for a defined period of time. And for those who like to think of the residual as “golden handcuffs”, let’s dispel that myth — the size of the residual doesn’t actually appear to have a strong correlation with employee retention!
We advocate for putting more weight towards the quota component when comping on usage-based SaaS pricing as it’s related to the specific behavior you’re looking for from your reps!
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