Some of the most successful managed service providers have discovered a rather troubling trend: Their best sales pros are getting a little lazy living off recurring commissions, and aren’t motivated enough to go out and close new business toward the end of a fiscal year.
The issue was mentioned during a breakout session at the Ingram Micro Seismic partner conference in Chicago earlier today. In order to combat the problem and keep salespeople motivated year-round, some managed service providers are now building “sunset clauses” into their compensation programs. Here’s how the approach works.
First, a little more on the problem: Assume a salesperson has a particularly strong Q1 and Q2. In some cases, they may start kicking back and living off the recurring revenue streams they helped to build. But with sunset clauses, MSPs can offer tiered commission rates that fade away over a four-quarter cycle.
Each piece of new business earns a high commission, while customer engagements that are three- and four-quarters old gradually fade to zero commission rates.
This is just one way to keep your managed services sales force motivated. Surely, there must be dozens of other options… Readers?
Posted In: Sales
Tags: Ingram Micro Seismic Partner Conference | Justin Crotty | managed service provider commission | managed service provider compensation | managed service provider sales | managed services commission | managed services compensation | Managed services sales
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While although I might agree with a fading commission rate, I don’t agree with reducing that to zero after a period of any time. Why? In some organizations if your sales organization are also account managers, what motivation would they have to keep in contact with the 1-2 year old Managed Services contract? None, at least monetarily. They need motivation to keep the client happy and not just from a technology standpoint. Account Managers are cruicial in maintaining the client-relationship for recurring revenue.
Here is a great article that you and your readers may find interesting/useful:
http://www.saasblogs.com/2008/07/31/compensating-your-saas-sales-team/
It’s focused on compensation plans for SaaS sales teams, but the premise is basically the same.
Jesse: Thanks for the info. Can you tell our readers a little bit about Apprenda? I think SaaSBlogs is sort of associated with Apprenda.
We have found a good solution in simply offering a decent commission up front with each sale, and only a small portion of the recurring revenue over a 3 month period. We couple that with account management being handed off to inside customer support personnel and also a technical account manager. We work in teams internally and a new partner is assigned to a team after the initial sale. That team consists of an account management lead, a technical lead and a team of technical support personnel. The team manages all issues for that partner account. The team is compensated (on top of their regular pay) with quarterly bonuses based on their KPIs which include having happy partners.
Amy Luby
http://www.mspsn.com
Amy: I’m hearing from quite a few folks who use that quarterly bonus approach. It came up a bit today during the Ingram event in Chicago.
Joe: We’re also compensating with quarterly bonuses based on KPIs. We’ve found it quite effective and motivational to our support staff.
From a salesperson’s perspective, I can testify to the difficulty in finding new clients. It is much easier to sell more services to existing clients than to bring new clients on board.
I agree with the notion of an up-front rewards for new clients, with a lower recurring revenue rate. It is up to the company to continue to provide new services for their account managers to market to their existing clients, and provide similar up-front rewards for these. This will give them a financial reason to keep in touch, and provide good customer service.
Stuart: Gary Beechum from MSP University raised similar points yesterday at the Ingram event. His key point: Keep going back to existing clients until those clients are using ALL of your services.
Basically, keep a grid spreadsheet of your clients, and check off each new service they sign up for until every box has a check mark.
Gary’s points sounded so simple, but I suspect most MSPs don’t have a master CRM system or even a simple centralized spreadsheet listing all clients and current services purchased.
Hi Joe,
Yes, SaaSBlogs is the blog of the founders of Apprenda.
Apprenda is a SaaS platform company, and located here in the Albany area. Their solutions helps ISV’s bring SaaS solutions to market much quicker, by allowing them to focus on the software functionality and not the intricacies of the delivery method. Revenue modeling, provisioning, usage metering, etc is all handled by the platform. You can obviously find out a lot more on their website - http://www.apprenda.com
The points raised about selling more services into a single account were just brought up to me by a potential MSP partner. They have a comp plan that fades as well, but every time they sell a new service into an existing client the revenue plans starts fresh for that product/service.
For their reps it is a great motivator to do what’s easiest - rather than only hunt for new prospects they understand the customer’s business, keep in touch with them, and continue to offer them new solutions that solve their problems.
It always seems so simple when I hear someone else say it though.
A few ideas on this subject:
1. Your salespeople should be hunters, not farmers. Leave the farming to your Account Management team and always have your salespeople out looking for more business.
2. While selling what you can into existing accounts is important, it’s not a way to grow your business long term in the SMB space. They can only buy so much…you’ve got to be focused on getting new accounts.
3. There are simple solutions to the comp structure to keep a salesperson hustling. One - combine activity quotas with financial quotas. That way you can make sure they make a minimum of X calls a day, X meeting per week, etc. Activity leads to sales.
Mike Cooch
http://www.everonit.com
http://www.smbitpros.com
I’m new to this business. I just acquired a small MSP in Florida that needs to fixing. Can someone suggest some guidelines on commissions (what % of revenue)? Thanks.
rzielin,
We’ve mostly compensated sales with a % of monthly revenue over a fixed period of time for our managed services offerings, usually 1 year. Our sales staff performs no account management duties, if they did, they’d see longer payouts. For other subscriptions we sell, we offer the first 2 months recurring revenue as the sales incentive, in addition to the normal paycheck. On a side note, if you’d like some overall msp business assistance, I can help, I’ve been working within and managing an MSP for eight years.
I’m embarking on moving my Company to an MSP model and find these comments really useful. Any other pointers/ideas on comm for Sales would be appreciated. At present I pay a % of the annual contract value on signing, and then a smaller % on renewal to keep the sales person engaged.
It’s interesting to read the idea’s on sunset clauses, as we don’t yet have the infrastructure for multi-level account management and the sales person also account manages.
http://www.uniqueonline.net