Saas · Compensation

Should a SaaS company pay bonus to sales reps on clients' renewals?

Felipe Goettems Co-founder at Singularities Capital

August 10th, 2015

Let's assume a SaaS company pays 20% of ACV to sales reps. The average length of a contract lasts for 12 months.

Should the company pay the sales rep once again at the renewal, even if this renewal negotiation is entirely made by a customer success rep? What's the industry standard on that dynamic?  

Rob Edenzon Acting Vice President, Sales at Armorway Inc.

August 10th, 2015

Compensation drives activity.

Before asking the comp question, ask yourself what you want sales people to do everyday.  Do you want new customers?  Upsells of existing customers?  High renewal rates?  Build your corporate level goals first.  They determine your sales goals.  Once you establish the goals, build a comp plan that drives reps to exceed the goals.

Order is crucial.  Goals first.  Then comp.

If customer success drives renewals, and you know for sure that no "sales" effort is required, then determine if having customer success drive renewals fits your revenue strategy.  If it does, make sure you have a comp plan for the customer success group.

Matthew Mellor EVP of Innovation at Zelis Healthcare

August 10th, 2015

We provide SaaS services, and we do not pay commissions on renewals. However:

1. They will get commission on upsell opportunities with the same client, and

2. There is part of their overall compensation that's tied to customer loyalty--the percent of our current book of business that renews.

Rob G

August 10th, 2015

It all depends.   Designing a sales comp plan is not easy. Rob E is right, your comp plan needs to be designed to support company goals and should NOT be a stand-alone activity.  Be careful/thoughtful to reward the right behavior and discourage wrong behavior - its often a fine balance.   there is no question that you want current customers to be successful and renew so some part of your team needs to own the activities to support those goals. You also need a consistent flow of new customers to grow the business - typically the more difficult of the 2 and typically requires a different skill set than customer success and renewals.  You want to encourage your reps to share leads and work together and not hoard opportunities.  You will certainly run into scenarios where the line is blurred:  1 rep sells a new customer who wants to run a pilot program for 1 division.  What happens next year when the pilot is successful and the customer expands the scope to include 5 more divisions?   The new business rep may not have been involved in the renewal negotiations, but the lions share of the 'new' renewal revenue stemmed from his/her original efforts. You want your new business rep working with those divisions toward an expanded contract.  You want this rep to do the right thing and close the initial sale and not over-reach up front just to pad his/her commission check.  A success rep is working with a current customer who acquires another company.  Does the customer success rep have the skills to close what in all other aspects is a 'new' customer? You don't want the success rep to hoard this new opportunity because s/he fears s/he won't get comped.  You likely want the success rep to do the right thing and turn this over to a new business rep.  This won't happen if the success rep won't get comped and the new business rep won't take the time if this is seen as only 'renewal' business on which s/he won't get comped.  The most important paragraph in your compensation plan is the one that says "This sales compensation plan is a guideline and is subject to modification at any time.  Most importantly you are expected to do the right thing for the company.  Management has final say regarding compensation for all sales contracts".  There is no 'industry standard', but it is common practice to overlap compensation (new business reps get additional comp for helping with renewals and renewal reps get additional compensation to assist in new business opportunities) such to encourage the right activities. 

Richard Harris Top 25 Inside Sales Leader, Public Speaker, 40 Most Inspiring Leader, Sales Trainer, Start-Up Advisor, SalesHacker

August 10th, 2015

If the sales rep wants to be compensated for something beyond the first year then they must be actively involved in the upsell, crosssell, or the renewal.

Another thing to consider would be having the reps sell more than one year at a time. Multi-year deals can be beneficial for the org too such as attracting better logos, as well as improving cash-flow which can help offset the need for funding. I've seen multi-year deals truly be a game changer for Saas orgs. 

My question for you would also be, where is your question coming from? Just curiosity? Do you have a sales rep complaining they should be getting comped? Are you working to build a customer success team and there seems to be tension between sales and CS?

Anton Yakovlev Founder of four successful businesses on two continents who can help you do the same

August 10th, 2015

There is also an intermediate approach, when a company pays for renewals, but less compensation than on first acquisition. Or, sometimes, it is called 'new customer premium'. It could be a percent, or a fixed compensation. 

The whole idea is to create a motivation to acquire better customers, but not to demotivate a sales rep from finding new customers as soon as he or she got enough paying customers on their account. You need to find a good balance between these two. 

Jakob Thusgaard ►► We Sell and Create Revenue for B2B SaaS Companies

August 10th, 2015

What works best in my experience is having either customer success reps or renewal executives focus on the renewal.

You're unlikely to want reps to be able to choose between either comp on new/add-on sales OR renewal commission.

That said I agree with Rob above: "Goals first. Then comp. "