Sales Compensation at Scale ($50M - $100M)
We discuss the importance of analyzing assumptions and taking a fresh look at sales compensation as organizations reach $50-$100M in revenue - and much more.
“Show me the incentives and I’ll show you the outcome” - Charlie Munger
As an organization moves from $50-$100M in revenue, it enters a phase of maturity that is rare to witness. Achieving this level of growth, from zero revenue and no clients, is truly remarkable. In the past, reaching $100M in revenue was considered the benchmark to go public. Nevertheless, preparing for an eventual IPO is likely the next macro step for the company, and this will impact how sales compensation is structured in the current phase.
Why Analyzing Assumptions is Essential for Long-Term Planning
Typically, organizations at this level follow either a 6 or 12 month planning cycle, which is determined by the macro environment. By now, the company has accumulated a wealth of data regarding its go-to-market strategy, sales rep productivity, sales ramp, average annual contract value, and cost to acquire new clients. It's common for companies to continue operating in the same way as they always have, assuming that if it's not broken, why fix it? That may not actually be the case.
The best course of action is to take a step back with the business operations team and analyze all the assumptions made thus far. This includes everything from territory design to lead generation channels to RevOps systems. Although it's a major undertaking, it's essential to do this exercise to gain more confidence in creating longer-term plans and to take a fresh look at compensation bands for the entire organization, including sales reps.
Introducing New Products: Strategizing Your Sales Team’s Incentive
At this stage, organizations often diversify their offerings and introduce new products, which can create both opportunities and conflicts for sales reps. While many companies try to incentivize sales reps with additional spiffs for the new product, I recommend against this approach as it can lead to a lack of focus in the sales organization.
Instead, I suggest starting by giving the new product to existing clients at a discounted rate to acquire feedback and insights on the post-sales process. This should be managed by a few stand out employees in the Customer Success organization initially.
Once enough information has been collected and the new product is ready for market, create a new sales team dedicated to the product with their own commission plan. Use the existing infrastructure of your company, but incorporate a startup mentality and compensation strategy for the new product. Manage the new product on a separate profit and loss statement from the core product.
Note - If possible, loop in the original renaissance reps who helped the company reach this stage of growth. Many of them will be excited to return back to an early stage environment within the company.
Channel Sales Success: Tips for Launching and Managing a Partner Program
Channel sales refers to partnering with resellers and affiliates who can sell or refer your products, allowing organizations to expand their reach without increasing their sales headcount. Although margins are typically better, effectively onboarding and managing these partners can be challenging.
Some companies launch their channel sales program during the $10-$50M phase, while others wait until later. As a general guideline, it's worth exploring building a channel sales team once you have an established sales playbook, a successful internal process for onboarding multiple direct sales reps, and at least $20M in ARR.
The number one thing that kills Channel sales departments is internal conflict. This conflict can be about lead management, customer confusion, and most commonly over sales compensation. If you’re just launching your Channel sales division, compensate all parties involved in a successful partner transaction. This includes your Channel sales rep, Client direct rep if they were involved, and most importantly the new partner. If a partner finds that he can’t rely on your company to compensate them for a transaction then they’ll simply focus their energy on other vendors.
For a successful launch of channel sales in an organization, it is crucial for internal teams to collaborate and facilitate partner success. While this may have an initial impact on business margins, providing double compensation to internal reps can align the business towards achieving the common goal of partner success. C-level management should emphasize the significance and importance of Channel partner success. Company alignment is critical to preventing internal conflicts.
Customer Success vs. Account Management: Should You Split Up Your Post-Sales Team?
Reviewing all your assumptions also applies to post-sales activities. Your customer support team is likely handling customer inquiries, renewals, and upsells in addition to addressing tickets.
Customer success and account management are two critical functions in any business that deals with customers. While both are focused on ensuring customer satisfaction, they differ in their approach and scope.
Account Management teams ensure that customers achieve their desired outcomes by providing proactive support, training, and guidance on product usage.
Customer Success teams focus on building and maintaining long-term relationships with customers by acting as a strategic advisor, identifying new opportunities for growth, and maximizing revenue potential. Customer Success is responsible for cross-selling and upselling products or services, ensuring customer retention and growth.
Ultimately, both functions are essential for maintaining a satisfied and loyal customer base, and businesses should strive to strike a balance between the two. The first question to answer is whether your business can afford to split these teams up based on your business fundamentals.
Account Management will generally have a base salary with a one time annual bonus depending on performance.
Customer Success, however, will start to have a compensation plan that looks more like a sales compensation plan.
In order to turn the Customer Success department into a profit center, start by trying to answer the following questions with your business operations analyst:
What annual revenue should each Customer Success rep oversee?
What number of clients should be given to each Customer Success rep?
What growth must be achieved by the Customer Success department to make this viable for your business?
What are the core differences between Account Management and Customer Success for your business?
Compensation Plans for Sales Reps: Keep it Simple
Simplicity is key when it comes to compensation plans, at all stages of growth. Sales reps in large companies often struggle to describe their own plan, which defeats the purpose. To avoid this, keep accelerators at a minimum, reorganize teams as needed, and ensure that the entire sales organization is aligned with the company's goals.
Remember, if your sales reps can't explain how they earn their compensation, the plan is too complicated. Keep it simple and make sure everyone is focused on the business' north star