Sales compensation plans have evolved alongside recurring revenue models that have changed the way organizations sell. The rise of recurring revenue relies less on the transaction and more on truly satisfying your customers and building long-term relationships. We’ll explore why it’s important to look at your sales compensation plan when focusing on an organisation that thrives on recurring revenue, as well as some examples and questions that come up when incentivising a sales team around streams where the money keeps repeating.
Table of Contents
Understanding the Shift Towards Recurring Revenue:
Evolving Sales Compensation Plans:
FAQs on Evolving Sales Compensation Plans for Recurring Revenue:
1.How can you incentivise new sales while at the same time retaining your existing customer base in a recurring revenue model?
2.How much company data does it take to design reward schemes that make life easier for sales staff in a recurring revenue business?
3.How can organizations ensure sales representatives remain motivated in a recurring revenue model?
4. What hurdles do employees in sales organisations often encounter when transitioning to sales compensation plans designed for bookings of recurring revenue?
Understanding the Shift Towards Recurring Revenue:
Often including subscription payments, renewals or ongoing service agreements, these recurring revenue models can provide more predictable income streams to a business and can foster customer loyalty over time. In order to master the art of recurring revenue, organisations need to rethink how they pay salespeople. The focus must look beyond new logo acquisitions to a broader spectrum of activities that drive long-term value and retention.
Evolving Sales Compensation Plans:
1.Transitioning from Transactional to Relationship-Focused Incentives:
Example: a software company overhauls its sales compensation plan to incentivise representatives not just for closing new deals but also for building durable customer relationships. Sales bonuses are tied to metrics for account retention rather than account acquisition, thereby incentivising sales teams to focus on customer success and satisfaction as much as – or more than – new sales.
2. Incorporating Customer Lifetime Value (CLV) Metrics:
Example: the CLV calculations are included in the sales compensation plan of a provider of subscription-based services. The company tracks average revenue per user (ARPU) and customer churn rates and sales reps are rewarded for their contribution to reaching long-term objectives such as retention and upsell.
3. Aligning Metrics with Revenue Predictability:
Example: A telecommunications company develops performance metrics to be rewarded under its sales compensation plan that are associated with higher principles of revenue predictability, such as annual recurring revenue (ARR) or monthly recurring revenue (MRR). By emphasising activities and sales that generate ‘stickier’ business, the sales teams have an incentive to enhance company valuation.
FAQs on Evolving Sales Compensation Plans for Recurring Revenue:
1.If you have a recurring revenue stream , how do you incentivise salespeople while also preventing them from unnecessarily churning your existing customers?
Ans1.One helpful approach to get this balance right is to consider sales compensation as a holistic process, rather than as just a single compensation window. If organisations refine their tiered commission structures to reward the efforts of stemming churn as well as initiating sales, then sales teams can be motivated towards growing relationships as well as growing the customer base.
2.Give an example of how data analytics can be used to design an effective sales incentive scheme for recurring revenue.
Ans2. Data analytics is the foundation of designing sales compensation plans to deliver around recurring revenue targets. A thorough understanding of customer data can predict trends and give a deeper insight into both the created revenues and the revenue streams over a period of time, and so the performance metrics can be designed to drive value around customers over the long term.
3.How can organizations ensure sales representatives remain motivated in a recurring revenue model?
Ans3. Compensation in a recurring revenue model needs to be structured so that it aligns with metrics that reflect continuing customer success (eg, renewal rates and customer satisfaction scores) while nurturing a culture of recognition, offering continual training and development opportunities, and providing career growth pathways also help to sustain motivation and engagement of sales teams.
4. What are the common pitfalls organisations encounter during this sales compensation transition to recurring revenue?
Ans4.Spanning copious time in terms of delayed fulfillment of budget is probably the most common: it is a resistance to change by sales teams accustomed to earning 100 per cent of their commission by selling only the newest product line, forcing these sales teams to link to longer sales pipelines with current clients. This resistance is mitigated with educating sales reps on the new direction, training them on the new model, and providing them with support, so they can overcome it.
If you’re shifting to that recurring revenue model to drive sustainable growth, then the overhaul of your sales comp plan is just as important as the overhaul of your go-to-market (GTM) strategy. Reward the behaviour you’re looking for, shifting to a recruiting and sales comp plan that promotes customer relationships, considers CLV metrics and that incentivises revenue predictability. Your sales organisation will thank you and your company will, too. With the right approach, with a lingering respect for customer relationships, exhibiting data-driven opportunities, and instilling a culture of continuous reinforcement, they’re ready to learn how to swim in the land of recurring revenue.
