Creating a Motivating Sales Compensation Model to Drive Recurring Revenue

Creating the right sales compensation model that is fair and fosters the right behavior within a sales organization is not easy. Organizations struggle with finding the right balance for their team while serving the corporate objectives of the organization.

Recently, I had the opportunity to attend the Nexgen Cloud Conference & Expo in San Diego and to hear four leading Service Providers discuss their challenges in finding the right winning sales compensation formula to drive recurring revenue for their organizations.  And it became clear from this discussion that traditional sales models and compensation plans do not work for cloud based recurring revenue models.  With the buyer’s journey becoming much more dynamic as opposed to the traditional funnel approach, not only are sales compensation plans important, but the sales model needs to change to be aligned with how buyers want to engage with organizations.  Buyers do not want to be sold, they want to be served.  It is the role of the sales team to identify the business objectives of the buyer and lead the buyer to a solution.  Sales teams need to be problem solvers who take a consultative approach.

 When our Partner Success Managers work with our Partners, we advise that before they put pen to paper, that they review their business model and how they go to market as this will impact how their sales compensation plan should be structured to align with their overall annual corporate objectives. 

We work with our partners to define their business model based on whether it is centric, leading complimentary or trailing complimentary?  For example, if you are offering backup services, is this the only service that you offer and therefore the only service that your sales team has in their arsenal to sell.  If yes, then your compensation plan will be heavily weighted to selling cloud backup services as opposed to sell once, collect once transactions.  The plan needs to include provisions to incent and motivate the selling of services.  If you are using a compensation plan from five years ago and wondering why your team is not selling your services, it is likely because you have the wrong compensation plan. 

However, if you are a leading or trailing complimentary business model, this means that you have other services beyond backup that you sell, therefore, you need to develop a compensation plan that triggers the behavior that you need from your sales team in order to meet your overall revenue targets and corporate objectives.  If you want your team to sell more backup services, then you will need to consider adding in multipliers or incentives for your team to promote and sell more of your backup services along other services.  Or you might consider including a bundled approach into the comp plan for every service that they sell that includes backup services, they could receive 1X more than what they would get for only selling one service.  If one of your corporate objectives is to capture new customers, then you might consider compensating based on number of new profiled customers rather than revenue.  Another consideration would be to include a team incentive that pays a bonus if everyone meets their service revenue targets for the year.  Not only would this motivate individuals to sell more services to drive more recurring revenue, but his would also cultivate team morale within your organization.

It is human nature to do what is easy, therefore, if you want to drive more recurring revenue from your services, then you need to identify and develop a sales compensation plan that promotes the selling of services.

During the session at the Nexgen Conference, it was mentioned that marketing is playing an even more important role in the delivery of more inbound sales ready leads.  A question that was posed, but not really answered during this session was “Should you compensate marketing for good inbound leads – so everyone can share the wealth?”  What are your thoughts?  Given the changing buyer’s journey and marketing’s role in generating more inbound leads – should they also be compensated for sales leads and wins? 

Let us know your thoughts.