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B2B SaaS sales commissions have been evolving over the past few years. More companies are adopting innovative pay models as a way of boosting sales performance with some reporting significant increases in sales productivity.
In such a selling ecosystem as the B2B SaaS, cycles are generally long, products complex, and usually involve recurring revenues. This complexity requires a fairly structured approach to defining sales compensations.
This blog is going to provide a definitive guide to B2B SaaS Sales Commissions; the multiple models, best practices, and strategies that will help companies be more effective in setting up their sales compensation plans.
Understanding sales commissions in B2B SaaS
Sales commissions in B2B SaaS are performance-based incentives given to sales teams based on criteria like the number of deals closed, contract value, or meeting specific sales targets. These incentives encourage sales representatives to achieve or exceed their goals, aligning their efforts with the company's revenue objectives. The role of the B2B SaaS sales commission extends beyond the close of a sale. It is an intelligent way to:
- Drive the right behaviors: Compensation, when it is tied to defined metrics, drives sales activity that supports business objectives.
- Attract and retain top talent: Competitive commission structures help SaaS companies attract and retain the best sales professionals in a dynamic labor market.
- Drive growth: Well-designed commission plans can push salespeople to step outside their comfort zones and drive rapid business growth.
- Customer satisfaction: By relating the success of customers to commissions for sales teams, there can be long-term incentives concerning customer relationships.
Using Compass, they streamlined their commission management by setting up multiple plans for different teams and objectives on a single platform. They also introduced gamification, awarding badges and points to motivate sales members.
As a result, the platform saw a 94% adoption rate, a 12% increase in payouts, and an average distribution of 55,000 points per month, demonstrating how simplified commission plans and gamification can boost both satisfaction and growth.
How do B2B SaaS commission structures differ from traditional models in several ways?
Traditional commission models typically involve straightforward percentage-based payouts on each sale, with a focus on immediate revenue. They often lack complexity, rewarding sales reps based on short-term goals without considering long-term customer retention or recurring revenue. Here is the difference:
- Focus on recurring revenue: The SaaS model focuses on customer lifetime value rather than the one-time sale, so salespeople need to look beyond the first contract to upsell opportunities, renewals, and expansion.
- Longer sales cycles: Complex B2B sales can run into months, necessitating different commission timing. Some firms introduce milestone-based commissions to keep reps engaged during lengthier sales processes.
- Product complexity: SaaS products often require technical knowledge, which drives a different type of commission structure. Companies can include bonuses for product certification in their commission plans to encourage ongoing learning.
- Customer success metrics: Many SaaS companies tie their commissions to the usage and retention of your software by the customer.
- Multi-touch attribution: B2Bs typically involve a multi-touch selling process for a SaaS business, from getting the initial touchpoint to product demos and follow-up conversations. This kind of multi-touch process requires a commission structure that rewards different members of the team at various stages in the selling cycle.
Common types of sales commission structures
Below are the 6 most basic sales commission structures:
- Base salary plus commission: This compensation plan model follows a fixed base salary with commissions on offer, subject to sales performance. It provides a base salary to sales representatives, meanwhile motivating them to reach higher levels with commissions. The base and commission rates could be balanced according to requirements set by the company and the conditions prevailing in the market.
It's effective because B2B SaaS companies generally have longer sales cycles. The salesperson is assured of income even during long-drawn negotiations and, with it, compelled to close deals. Companies can modify the plan by commission rates or adding performance levels to meet goals in such a scheme to encourage the sales team.
- Tiered commission structures: Tiered structures increase commission rates if representatives achieve higher sales goals. For example, at Zoom Video Communications, the increasing commission rates go from 5% to 15% if reps exceed their quota. Say, for example, the Sales Representative can achieve the following in Zoom:
- 7% commission on sales less than 100% of quota
- 9% on sales between 100-120% of quota
- 12% on all sales over 120% of quota
It incentivizes representatives to reach for more than the basic goals for much bigger rewards.
- Recurring commissions: This system ensures commission as long as a customer account remains active. This works with the SaaS subscription models, helping salespeople retain customers for a long period. Representatives earn a percentage of the money coming in continually.
This keeps them focused on building enduring relations with their clients, not on quick, shaky deals. Harvard Business Review research supports that recurring commissions are effective for building long-term client relationships.
- Accelerators and incentives: These are additional incentives to exceed targets. They are designed to motivate sales representatives to strive for performance above quota with the use of additional commission rates or bonuses. This model can lead to a significant increase in sales productivity along with revenue growth. Accelerators generally start at key thresholds, with some type of tiered system giving much to top performers.
- Multiply commission plans: Some B2B SaaS companies have commission-rate-modifying plans depending on various factors. These could be plans that adjust the commission rates about certain criteria: product type, customer segment, or even deal profitability. Because these plans are flexible, companies can, therefore, incentivize specific sales types in ways that align with broader business objectives.
- Residual commission model: Residual models matter a lot for companies that care about customer success. This is a method for tying sales rewards to long-term client value and a way to motivate the salesperson to help the client grow, rather than just "make the sale.".
Best Practices for designing B2B SaaS sales commission plans
Following are the best practices for designing a great B2B SaaS sales commission plan.
- Align the commission plans with company goals: Commission plans must be aligned and drive the key business objectives. For example, when the company started targeting businesses instead of individual customers.
- Simplify the commission structure: A straightforward commission structure is essential. A simple model, such as a base salary plus commission, is often more effective than complex plans that include multiple variables like accelerators or decelerators.
- Include buffers in quotas: To avoid discouragement among sales teams, incorporate buffers between quotas and expected performance. Setting quotas slightly higher than anticipated revenue can create a more attainable environment for sales representatives.
- Maintain Transparency: Clearly show how commissions are calculated. Create trust and motivation among the salespeople through real-time dashboards displaying the commissions.
- Regularly review and adjust plans: Sales compensation plans should not remain static. Regular reviews are necessary to adapt to changing market conditions, company strategies, and team dynamics. This ensures that the compensation structure remains relevant and effective.
- On-time payouts: Implement systems that pay commissions quickly and accurately that keep your sales team motivated and trusted.
- Bring in data-driven insights: Use analytics to improve the commission structure constantly. This will ensure that plans are aligned with company goals.
Challenges in implementing sales commission plans
A few challenges while implementing sales commission plans are:
- Data accuracy: Make sure all sales are tracked and allocated correctly. Invest money in better analytics tools to ensure commission calculations are fair and accurate.
- Plan complexity: The rewards should be clear, but not too complicated. If your company has complex plans, simplify it by focusing on some major measures, the outcome will be better sales results.
- Market changes: Adapt plans to new situations and new products in the market.
- Sales team buy-in: Getting new or revised compensation plans approved. Include sales leaders in developing the revised plan to have their buy-in and also to ensure smooth implementation.
- Cash Flow Management: Strike a Balance between paying the commissions and the welfare of the company. One should not supersede the other, making the company go broke.
- Legal and compliance: Considering complex rules on geolocation-related sales pay. Check if the sales commission plans worldwide are in adherence to local laws and rules.
- Motivate long-term thinking: Sell not for today but for the whole customer life cycle. This can be addressed by the ability to take into account customer retention metrics in commission calculations.
- Turnover: Managing commission structures when salespeople leave in the middle of a deal or while in an active transaction. Put together a fair process of commissioning and account hand-off.
5 best software for B2B SaaS sales commission
Here is the list of 5 best B2B SaaS Sales Commission Software you can choose from:
1. Compass
Compass provides real-time visibility into the sales performance and commissions of the organization. It is a complete sales commission tracking software for B2B SaaS while keeping teams motivated and on course.
Compass automates complex commission calculations, eliminating the need for spreadsheets and reducing errors. This feature is crucial for maintaining accurate and timely payouts.
The platform provides powerful analytics and reporting tools enabling businesses to track real-time performance and payouts. Users can visualize data trends across different dimensions such as regions, teams, and programs, which aids in making informed business decisions.
Compass supports various commission structures suitable for SaaS business models, including recurring commissions for customer retention. This flexibility allows companies to align their compensation strategies with their specific business goals and sales processes.
2. CaptivateIQ
It offers leading companies like Carta and Gong the most comprehensive, AI-driven calculation and modeling capability to design and manage complex commission plans. CaptivateIQ automates the calculation of sales commissions, ensuring accuracy and timeliness.
It allows businesses to create flexible commission plans that align with their specific sales strategies. The software integrates seamlessly with existing sales and financial systems, providing real-time reporting and analytics to help sales teams track their performance and earnings.
3. Spiff
With its intuitive, drag-and-drop visual plan builder and real-time commission statements, fast-growing SaaS companies like Intercom and Clearbit have used Spiff effectively.
Spiff focuses on automating commission calculations to reduce manual errors and save time. Its platform offers customizable commission structures, allowing companies to adapt their compensation plans as needed.
Spiff also provides transparent reporting features, which enable sales representatives to view their earnings and performance metrics clearly.
4. Xactly Incent
Harnessed with advanced analytics and AI, Xactly Incent is the sales compensation strategy that makes a leading difference for enterprise companies like Salesforce and HP. Xactly Incent is designed for incentive compensation management, particularly in complex sales environments.
It supports various commission structures, including tiered and residual commissions, which reward both customer acquisition and retention. The software offers robust analytics tools to measure the effectiveness of compensation plans and align them with business goals.
5. Performio
This is best for large SaaS companies because it has multi-currency support and compliance tracking across large and sometimes geographically dispersed sales teams.
Performio provides a comprehensive solution for managing sales commissions with a strong emphasis on flexibility. It allows organizations to design intricate commission plans tailored to their needs.
The platform features real-time data synchronization with other business systems, ensuring that commission calculations are based on accurate and up-to-date information.
Conclusion
An effective B2B SaaS sales commission structure is always at the core of any growth-oriented and sales team-motivating process. Companies can build efficient incentive systems aligned with their business goals and market dynamics by understanding the unique aspects of SaaS sales, putting in place best practices, and using advanced commission management software.
As the B2B SaaS landscape continues to change, so too must commission structures. Ultimately, the effectiveness of the B2B SaaS companies that can view their sales commission structures as not just an element of static compensation but as a dynamic tool driving business strategy and fostering high-performance sales cultures will set them apart from the rest. Schedule a call with Compass and see how it can transform your sales compensation plan into doing wonders.
FAQs
1. How often should a B2B SaaS sales commission structure be reviewed?
Review your structure at least annually; with quarterly check-ins, ensure you are aligned with business goals and changing market conditions. Do so more often to be agile in a fast-moving market.
2. What is the right mix between base salary and commission for a B2B SaaS sales role?
The key to SaaS compensation varies. Most successful SaaS companies use a 60:40 or 70:30 ratio of base salary to commission, which tends to allow for competitive fixed pay while maintaining a strong performance incentive.
3. How can we incentivize customer retention in our commission structure?
Set up ongoing commissions, based on when customers renew or grow their contracts, or link some of the commission to customer satisfaction scores or usage numbers. Create policies for paying commissions for renewals over several years.
4. Should we cap commissions for top performers?
Most experts suggest not capping commissions, since it might make high performers lose their motivation. Rather, use accelerators for outstanding results. Consider the accelerator model, where for overperformance, commission rates double.
5. How can we make sure our commission structure grows with the company's success?
Make the plan flexible, have different levels that can grow, and check on goals and targets often to change them. Use multipliers in the commission system, a detail that makes remuneration straightforward to adjust with the company's growth and a changing point of interest.
6. What metrics should be used to check how well our B2B SaaS sales incentive structure works?
Key metrics include sales productivity, customer acquisition cost, customer lifetime value, renewal rates, and overall revenue growth. It is also about the level of satisfaction and retention rate of your sales team.
