Sales Compensation in SaaS Companies Annual Survey 2018

Annual Survey — 2018
By Ronen Nir
General Partner, Viola Ventures
SALES
COMPENSATION
In SaaS Companies

© All rights reserved to Viola Ventures 2018 2
SCOPE
The
One of the most discussed topics among Saas
companies is how salespeople should be compensated.
To see where Israeli startups stand vis-à-vis the
international benchmarks, we surveyed both portfolio
and non-portfolio companies about their policies.
We believe that this survey can be used as a great
“sanity check” tool for CEOs, CFOs and CROs, to
help them formulate the rationale for their sales
compensation plan.
We are happy to share the results of the survey along
with our comments, which we hope will be a useful
guide for companies in the future.

What is the annual
quota for an Inside
Salesperson?
Note: All answers are in new ACV (Annual Contract Value)
Most of the responses put the annual quota at
$400-700k / yr which is in line with worldwide
industry benchmarks.
To ensure that the operation is efficient,
keep in mind the following rule:
Inside Sales quota = x8-10 of base salary.
$300-399K
$400-499
$700-1200
$800
$500-599
$600-699
$50-75k
> 1M USD
15.4%
15.4%
7.7%
7.7%
7.7%
7.7%
7.7%
30.8%

What is the annual
quota for a field
salesperson?
(All answers are in new ACV)
The survey results were very clear and in line with
industry benchmarks. A $1-1.2 million quota is a
good place to be, as it will allow for scaling of the
team.
Important to note: These numbers reflect new
ACV only. Any renewal target should be on top
of the desired quota.
$700-800K
$800-1000k
N/A
> 10M USD
$1000-1200k
> $1500k in new ACV
50%
10%
15%
15%

What is the average
commission for
new ACV?
Based on the outcome of the survey, the commission
on new ACV is roughly 10%, i.e. a salesperson with
a $1.2 million quota will get $120k in commission,
which comprises 100% of the variable part of the
compensation.
Remember, however, that due to revenue
recognition, total commissions in the company’s
P&L can even reach 15% of recognized revenue.
5-7% >9% 3-4%
0
5% up to certain
threshold and 20%
over the threshold
Based on total
OTE target
7-9%
15%
15%
30%
25%

What is the
commission rate
for renewal?
It’s surprising that 22.2% of the respondents
don’t give commission at all for renewal. This is a
problematic approach.
Renewal compensation should be around 2-3%
of the contract value and should be provided
even if done by the customer care (rather than
sales) team.
No commission at all
We give commission for renewal,
but it is lower than commission
for new ACV
We give the same commission for
renewal and new ACV
N/A – First year of sale
50%
22.2%
5.6%
22.2%

Who should
be in charge of
renewals?
The subject of who actually does (or should do) the
renewals is controversial. The two most common
approaches in the market are to delegate the
renewals to either sales and customer care.
From our experience, when ASP is low,
customer care is in charge, and when ASP is
high, the sales department is responsible for
the entire customer journey.
Inside sales
The same sales rep who
closed the initial deal
Customer success team
CFO
Finance team member
Account manager
N/A – First year of sale
36.8%
42.1%

Who should
be in charge of
expansion?
As per the controversy around the renewal
question, here we also see a division between the
responsibilities of sales and customer care.
We believe that in the future, renewal
and expansion will merge into the same
department.
Inside sales
The same sales rep who
closed the initial deal
Customer success team
Customer success and
same rep
Account manager and/or
the same reps who closed
the initial deal
57.9%
26.3%

Do you provide
accelerators for
multi-year deal?
There are huge opportunities for improving
a company’s financials by providing the right
accelerators/incentives.
We would expect to see more usage of this tool.
Of course, the entire commission plan is
based on TCV and not ACV
Yes, but we provide reduced commission
for the 2nd and 3rd year
Yes, but only if the customer pays up-
front for the entire contract period
No. We compensate for ACV only
Compensation based on booking
27.8%
5.6%
22.2%
27.8%
16.7%

When do you pay
commission?
The result for this question was surprising. The
world is moving fast towards commission payment
upon collection — especially since free cash-flow is
becoming an increasingly important parameter when
valuating companies.
We would have expected more companies to pay
upon collection and recommend a review of this
policy for companies that don’t.
Upon receiving the P/O
Upon invoicing the
customer
Upon collection
Mix of booking and
15% cash flow
50%
27.8%
16.7%

Inside Sales
Compensation Plan
Prepared by: Itay Link, CFO
Company: Samanage
EXAMPLE #1

Industry
Benchmarks
Defining Commission rates and OTE
ƒƒ Base/Commission split (AE — 50%/50%,
CSM — 60%/40%)
ƒƒ Quotas are 5X – 7X of OTE
ƒƒ Commission rate 8% – 12% of ACV
Example:
ƒƒ AE can sell to 50 customers at average ACV of $20,000
per customer
ƒƒ Quota — Total annual ACV performance is $1M
ƒƒ OTE range (between $200K (5X) – $142K (7X))
ƒƒ Commission (50% of OTE) between $100K – $71K
ƒƒ Commission rate (10% – 7.1%)

Strategic
Guidelines
New Logos — Inside Sales:
ƒƒ Bookings (TCV) vs ACV
ƒƒ Cash up front vs Annual payments
ƒƒ Annual plan? Monthly/Quarterly kickers
ƒƒ Tail on expansion
ƒƒ Recoverable vs Non Recoverable draws
ƒƒ Quota ramp up for new AEs
ƒƒ Account for ramp deals
ƒƒ Professional services?
Expansions/Churn — Customer Success (CSM):
ƒƒ Same bullets as AEs and:
ƒƒ Group or Individual churn goals
ƒƒ Account for reduction upon renewals?
ƒƒ Setting customer base per rep, how/when to move
accounts to CS
ƒƒ Min Expansion period — (e.g. expansion is 1 month
from renewal)

New Logos —
Inside Sales
(Step 1)
Take the annual qouta and break it into the different
months/quarters account for business seasonality
Quota includes Expansions done in the initial 6
months from closing
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec FY17
Annual
Quota
$500,000
Quarterly
Quota
$118,958 $125,000 $113,750 $142,292 $500,000
Monthly
Quota
$31,250 $33,333 $54,375 $35,417 $37,500 $52,083 $33,333 $35,417 $45,000 $41,667 $45,833 $54,792 $500,000
$500 ,000

New Logos —
Inside Sales
(Step 2)
Set ACV  $ Ratio
(goal is to incentivize getting to the annual goal as
quicky as possible to get as more GaaP Revenue)
% of Annual Goal Acv  $ Ratio
Commission
Rate:
0% – 24% 8%
25% – 49% 8.50%
50% – 75% 9%
75% – 99% 9.50%
Goal 100% – 124% 12.50%
Stretch 125% + 25%

New Logos —
Inside Sales
(Step 3)
Set Accelerators
Optimize ACV reduction with
multi year / Paid upfront move
Additional ACV
Commission
Monthly Kicker* 2.50%
2yr Paid Annually 2.00%
3yr Paid Annually 3.00%
2yr Paid Up Front 5.00%
3yr Paid Up Front 7.00%
* Monthly Kicker
Monthly commission while overachieving the monthly
quota (2.5% on the entire monthly ACV performance
Per deal kicker
% is on the
deal ACV

Expansions/Churn —
Customer Success (CSM)
Decide on commission breakdown between
ACV Expansion/Reductions/Churn
No Commission on Renewals
Commission breakdown
Net Expansion (Monthly)
Churn (Quarterly)
70%
30%

Expansions/Churn —
Customer Success
Gross Expansion ACV is paid on the same
basis as New ACV
Churn formula:
150% — (Churn performance / Churn Goal)
Goals
ACV Churn goal
(Quarterly)
$30,000
Churn quarterly
bonus
$4,000
Quarterly Kicker
@ 80% and above
30%
Churn performance
of $40,000 and above
gets $0
Example: Churn is $20,000
Formula: 150% - $20,000/$30,000 = 83.33%
Payout: 83.33% x $4,000 x 130% = $4,333

$1,200,000 quota — New ACV
ƒƒ No Bookings quota, but paid on out-years
ƒƒ 17% payout over 125%
ƒƒ 20% payout over 150%
Bookings (TCV): Paid with no quota credit.
ƒƒ Cash up-front: (scale in relation to ACV % quota)
ƒƒ Annual Payments: 50% second year, 25% 3rd year
Renewals:
ƒƒ 2% on all renewals up to 100% of renewal target
ƒƒ 3% over 100%
ƒƒ Need to get to 85% of renewal number before 125%+
accelerators
Professional Services paid at 3%, 50%, quota relief
Rate table scales annually, not quarterly
Commission payable at the end of each month-
on prior months bookings
12 month contracts min-payment within 45 days
Comp
Highlights

Standard Comp Plan
($125K Variable)
Annual Quota of $1,200,000
% of Annual Quota Comm Rate
0-50% 5.5%
51-100% 11%
101% - 125% 14%
125% - 150% 17%
150%+ 20%
Item % of Annual Quota Rate
Renewals 0-100% of quota 2%
Renewal 100%
quota bonus
1% Retro
Professional
Services
All 2%

Bookings or TCV Multi Years (Cash Up-Front)
ƒƒ 100% compensation as per the detailed criteria in the plan
ƒƒ Quota credit only for uplift in ACV
Non-cancellable multi-years deals (Annual Payments):
ƒƒ Out years to be paid at 50% in 2nd year, 25% in 3rd year
ƒƒ Quota credit only for uplift in ACV

75 % ACV and $ 250K Out years
ACV Actual 800,000
Out years
Total
250,000
Net %
Out Years
Payout
ACV by tier
contribution
per tier
ACV % of
total
O / Y by
tier
commission
% of total
done
575,000 $ 575,000 72% 179,000 9,883
575,000 $225,000 28% 70,313 7,734
$ 800,000 100% 250,000 17,617 7%
260 % ACV and $ 1 M out Years
ACV Actual 3,000,000
Out years
Total
500,000
Net %
Out Years
Payout
ACV by tier
contribution
per tier
ACV % of
total
O / Y by
tier
commission
% of total
done
575,000 $ 575,000 19% 95,833 5,271
575,000 $ 575,000 19% 95,833 10,542
287,500 $ 287,5000 10% 47,917 6,708
172,500 $172,500 6% 28,750 4,888
1,390,000 $ 1,390,000 46% 231,667 46,333
$ 3,000,000 100% 500,000 73,742 15%
Out-Years Examples
100 % ACV and $ 1.15 M Out Years
Out years
Total
1,150,000
Net % Out
Years Payout
ACV by tier
contribution
per tier
ACV % of
total
O / Y by
tier
commission
% of total
done
575,000 $ 575,000 50% 575,000 31,625
575,000 $ 575,000 50% 575,000 63,250
$ 1,150,000 100% 1,150,000 94,875 8%
140 % ACV and $ 1.2 M Out Years
Out years
Total
1,000,000
Net % Out
Years Payout
ACV by tier
contribution
per tier
ACV % of
total
O / Y by
tier
commission
% of total
done
575,000 $ 575,000 36% 357,143 19,643
575,000 $ 575,000 36% 357,143 39,286
287,500 $ 287,5000 18% 178,571 25,000
172,500 $172,500 11% 107,143 18,214
$ 1,610,000 100% 1,000,000 102,143 10%

Total Cost View
Sales rep average "New ARR" quota $1,100,000
Average quota attainment 80%
New ARR production $880,000
Sales rep average "Renewal" quota $1,100,000
Average quota attainment 90%
renewal ARR production $990,000
Sales rep total contribution to ARR $1,870,000
Field gross margin 85%
Sales rep contribution to ARR Margin $1,589,500
Sales team cost
Sales rep - comp cost to company $300,000
SDR - comp cost to company $126,000
SA - comp cost to company $260,000
G&A (office etx) $15,000
Travel $24,000
Total Costs $701,000
Sales rep net production $888,500

About
Ronen Nir
About
Viola Ventures
Ronen is a General Partner at Viola Ventures. His investment
areas of focus include SaaS, big data, cyber security and internet.
Ronen is currently a board member in Samanage, ironSource,
Perfecto Mobile, enSilo, Redis Labs, and CodeFresh. He also
served as a board member at Shunra (acquired by HP), Amadesa
(acquired by Live Person), Kampyle (acquired by Medallia) and
Cloudyn (acquired by Microsoft).
Ronen blogs at:
www.viola-group.com/violanotes/author/ronen-nir
Viola Ventures (formerly Carmel Ventures) is a venture capital
firm with over $1 billion AUM, that invests in Israeli-related early
stage companies.
The fund is part of Viola, Israel’s leading tech-oriented
investment group. Viola Ventures is managed by six partners,
and has backed a substantial share of Israel’s exits, including
Actimize, RedBend, DesignArt, CopperGate, Exelate and ECI.
Website:
www.viola-group.com/fund/violaventures

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