How will the Cloud transform your business? Many ISV’s making this transition to cloud have asked for guidance on cloud sales compensation. Landing on a compensation structure that aligns to corporate strategy, drives intended behavior, and is motivating to sellers is essential to financial success.

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What your CEO needs to know about Cloud Sales Compensation

How do you as a Microsoft Partner make money using the Cloud? What are the opportunities here? In my work as a consultant I spend a lot of time helping my customers adopt a Cloud Stragegy for their business. Here are a few insights as well as where to go to find out more about these opportunities.

There is great variation in what kind of experience and insight my customers have into what kind of a cloudy offering they could bring to their current and future customers and what  this all would mean compared to the product they might have today. Some are have good insights into the stragety they need to adopt in the Cloud while others simply have the notion that the Cloud should be kind of benefitial to their business and perhaps become their future revenue stream. What I have found consulting for these companies, not seldom ISVs, is that they all need to gain insights into what their partnership with Microsoft can bring them in terms of benefits and opportunities going forward on a cloudy future path.

Microsoft World Wide Partner Conference (WPC) 2013 is on right now in Huston. If you are not there on site you can follow the action online at the site with live key notes and more.

I have been looking a little at the WPC session list for the conference with an eye on what content you would want to check out if you’re perhaps an ISV who want to learn about the cloud. Also I’ve been in contact with Microsoft Business Enablement Strategist Neeti Gupta to understand more about this space and about such questions as Cloud Sales Compensation.

First – for those of you who follow my blog – some tunes to get us in the mood for this blog post: An amazing video production from the 2007 Bollywood film Partner.

What is Cloud Sales Compensation?

How will the Cloud transform your business? Many ISV’s making this transition to cloud have asked for guidance on cloud sales compensation. Sales compensation design can be a complex & confusing topic and, implemented incorrectly, can cost the organization a lot of money or cause top performers to leave. Landing on a compensation structure that aligns to corporate strategy, drives intended behavior, and is motivating to sellers is essential to financial success. This is especially important when sellers are asked to carry new cloud services that deviate from their traditional On-Premises products.

The main Cloud Sales Compensation concepts

There is a lot of good advice online as many industry experts have simplified Cloud Sales Compensation concepts. I find myself going back to key concepts highlighted by industry experts such as Joel York, author of the blog, Chaotic Flow and Philippe Botteri of Accel Partners. I’d recommend that you keep these five key concepts in mind as you design sales compensation to drive your cloud success.

  1. Recurring revenue, not bookings, is the new performance measure: As you move to sell cloud services, fortunately, the primary principle of sales compensation remains the same - pay the rep in proportion to the value of the deal.  You just need a new way to measure the value of the deal.  For subscription services, instead of unit price (or bookings) of upfront license fees, recurring revenue - either monthly (MRR), quarterly (QRR) or annually (ARR), should be the primary performance measure for your sales teams.  It does not really matter which one you choose as each is an approximation of lifetime value (LTV).  But often companies align the time-frame to their most common contract renewal term; i.e. if you sign annual contracts, then use ARR.
  2. Incent the behavior you want: Sales reps optimize their commissions, not company value.  Do not expect your sales team to change behavior if you don't change their compensation plan.  Your CEO may have a "cloud first" strategy, but your sales force will still drive legacy solutions if that's the quickest path to quota.  Bottom line, you do have to make some changes.
  3. Re-evaluate your sales organization structure and roles: When expanding outside of traditional On-Prem offerings, companies must look into how best to structure their sales force and which sales roles are important to their sales activities. Companies can either keep a single sales force focused on all offerings or have two sales forces – one focused on cloud services and other focused on traditional On-Prem products. Smaller companies tend to have single sales force model with generalist sales role and larger companies have two sales forces which multiple sales roles to meet customer expectations.
  4. Assign two different goals for performance measure: The simplest solution when selling both On-Premises and Cloud offerings is to assign reps two different performance measures: revenue or bookings for On-Premises and recurring revenue, Annual Contract Value (ACV) or Total Contact Value (TCV) for Cloud. This will reduce rep confusion.
  5. Keep the metrics simple and data transparent: Simplicity is important.  If a compensation plan is too complex to understand, then it's too complex to drive behavior. Do not compensate on data that sales cannot access directly or is not 100% transparent. Establish a clear process for sales reps’ questions and disputes.

Adjusting your cloud sales compensation requires some planning and thought, but by keeping your business goals and sales reps’ motivation in mind you can build a sales compensation model for your cloud success.

To learn more have a look at the WPC session list for great content like this:

ISV06 Driving SaaS success; using the right price and the right incentives

Core Theme: Cloud, Breakout Session, Independent Software Vendor , Speaker(s): Yvonne Muench

Moving to the cloud? Of course! Then comes the hard part: how best to go about doing so. Come to this session to hear from Microsoft and leading independent software vendors (ISVs) about the key business challenges they faced and overcame as they moved to the cloud and a software-as-a-service (SaaS) model. You'll learn about how to price your application and how to motivate your sales force. Get insights from industry experts on SaaS pricing norms and potential problems, and learn about a tool you can use to analyze the return on investment (ROI) of different pricing options. And, by seeing concrete examples from Microsoft, ISVs, and venture capital experts, you'll learn about common incentive and compensation models that can drive SaaS success.

Cheers,

Magnus

Windows AzureConferencesPartnershipMicrosoftBusiness
Posted by: Magnus Mårtensson
Last revised: 2013-07-08 01:33 History

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