Cannibalization of sales. When you’re shifting from perpetual licenses to a subscription business model, this can definitely be a concern. We know that a subscription model is healthy for companies, but salespeople may worry about how this shift will impact their commission.
When you start collecting payments for recurring services over some period of time rather than receiving payments upfront for a one-time transaction, there will be an impact on your compensation models. With the one-time sale, compensation is much simpler: you just pay some percentage of a license fee plus some type of bonus structure for over-achievement. This compensation system doesn’t work with subscriptions.
So how do you pay commission on recurring revenue? You need to come up with new ways to incentivize your sales team based on your business objectives.
Here are just a couple of examples of subscription sales compensation models that align with a company’s overall strategic business objectives:
- If you’re focusing on market share capture, you could design a compensation plan based on Annual Contract Value (ACV)
- If you’re focusing on long-term commitment, you could weight compensation towards Total Contract Value (TCV), Upsells, or Renewals
With a subscription model, you need to constantly make enhancements to your subscription sales compensation packages so they align with your strategic initiatives. And you need to factor in churn and downsells as well as part of the natural lifecycle of subscriptions.
In this article, Channel Dynamics co-founder Moheb Moses, highlights 5 different subscription sales compensation models with 5 different objectives. Read the full article at: www.arnnet.com.au
To learn more about sales metrics to consider when designing your subscription sales compensation plans (as well as other important subscription metrics), check out: PADRE – New Operating Metrics for the New Subscription Business Model.
And tell us about your subscription sales compensation strategies in Comments below.