We are happy to share another edition of Viola’s Sales Compensation Survey.
Sales Compensation has been in our focus for the past few years. We’ve developed benchmarks and published data on companies that use a SaaS business model.
In the past year, we have seen a growth in adoption of Usage-Based Pricing (UBP) strategies in lieu of the traditional Subscription strategy.
Both UBP and Subscription are alternative strategies for pricing SaaS. Each has its own advantages and is best suited for different circumstances based on the type of product, market structure, sales dynamics, etc.
UBP and Subscription, differ, not only in the environments that they thrive in but also in operational elements such as organizational structure, compensation, incentives, etc.
As the deployment of UBP is still a relatively nascent phenomenon, we sought to benchmark existing practices and provide guidelines for entrepreneurs and executives across a variety of sales compensation topics.
Our questions in this survey focused on two main categories: sales organization structure and compensation structure.
With dozens of responses, we believe this dataset can shine a light on emerging best practices.
Our key takeaways can be summed up in five major points:
1) The chosen pricing strategy, whether UBP or Subscription, affects the ratio between the Average Sales Price and the Average Contract Value. UBP starts at a lower initial sale or ASP and then grows by an average of 3x from ASP to ACV, reaching similar levels as Subscription. In our dataset, the median of both strategies leveled out at an ACV of $100-199K. These results are in line with the idea that with a Subscription model, most of the value is captured initially, as opposed to UBP, where value is built throughout the contract in a “land and expand” approach.
2) Both Sales and Customer Success (CS) act in tandem to generate revenues. When compared with Subscription models, UBP relies more heavily on CS, creating more leverage for each salesperson. As product adoption is achieved over time, the CS role is pivotal in attaining expansion. On average, UBP companies have 30% more CS FTEs for every Sales FTE.
3) Quotas for Inside Sales and Field Sales increase over time. UBP companies set higher quotas than Subscription companies. It is important to note that at UBP companies, as the responsibility of expansion lies with both Sales and CS, Sales teams usually retire quotas beyond initial engagement and can deliver overall higher quotas per salesperson.
4) CS compensation is evolving to mimic Sales compensation, which is structured around Base plus OTE (on track earnings) commissions, or bonuses. UBP companies still lag in standardization and maturity of the compensation structure. We expect this to change as adoption increases.
5) UBP quotas for both Sales and CS are still evolving. We encourage UBP companies to retire quotas against revenue or usage metrics such as total usage, incremental usage, etc. Companies should set to align sales organization incentives with the company’s overall incentives. Unique to UBP is that these incentives are also inherently aligned with the customer’s attained value.
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