Whether it's managed services or cloud services, technology companies need to adopt new sales compensation and commission plans that reflect monthly recurring revenues (MRR). Many MSPs completed the MRR transition as much as a decade ago. But thousands of VARs are just getting started on the journey.
So what are the first steps? I've seen a lot of MSP and cloud compensation plans. Many are complex, with all sorts of tiered perks and qualifiers. For VARs just beginning the journey I recommend keeping things extremely simple.
A prime example comes from Intronis MSP Solutions by Barracuda.
Example MSP, Cloud Sales Compensation Plans
According to the data protection specialist, there are three standard approaches to compensation plans that work well with recurring revenue deals:
- Annual Contract Value: In this model, sales reps’ compensation is based on the annual value of the managed services contract. A compensation rate between 8 percent and 12 percent of the annual contract value is the industry standard, but about 10 percent is most common, Intronis says.
- Total Contract Value: Similar to ACV, the Total Contract Value model pays sales reps a lump sum based on the value of the contract, and the industry standard rate is roughly 10 percent, Intronis says. The difference is that Total Contract Value plans take into account the total assessed value of the contract, including any one-time upfront costs, the company points out.
- Monthly Recurring Revenue: Here, sales reps will be compensated based on a customer’s monthly fees. Instead of being paid as a lump sum, compensation is paid on a monthly basis over the course of the contract. This is a popular option because it is more predictable and helps limit problems that can come up when compensating sales reps based on future revenue that hasn’t been collected yet, Intronis asserts.
MSP, Cloud Sales: Sunset Clauses
Much like an insurance agent, a sales professional in the MSP or cloud market can build a "book of business" that potentially generates recurring revenues for years or even decades to come.
Should the sales pro earn commissions on that recurring revenue -- forever? That scenario could lead to sales laziness. To combat that scenario, many MSPs use so-called sunset clauses -- tiered commission rates that fade away over a four-quarter cycle. Each new customer win earns a high commission, while customer engagements that are three- and four-quarters old gradually fade to zero commission rates.
Still, many pundits say the sunset clauses should never fade a commission to zero. By earning at least a small commission indefinitely, the salesperson is more motivated to stay in touch with the customer over the long haul -- potentially ensuring higher customer retention rates.
What's Your MSP, Cloud Compensation Plan?
So how do you compensate your sales team -- and how is the strategy working so far? Participate in ChannelE2E's latest quarterly research on Sales and Compensation Plans. Your information will remain confidential. We'll share overall market trends during our September 2016 webcast.
