Professional Services Sales Compensation Plan

Randy Bastarache
Randy Bastarache Senior Services ConsultantMember

Hello all - I have been tasked with refreshing our sales comp plan for our PS sellers - I would welcome the collective thoughts and guidance on how others are balancing the sales comp challenges - as with all comp plans teh sellers are always complaining - what are some best practices that drive the revenue growth and keep the sellers happy on their comp?

Thank you for sharing . . .

Randy

Answers

  • Spencer Hancock
    Spencer Hancock Senior Member Success Manager Moderator | mod

    Hey Randy,

    This is a very important and challenging question. @Pierre Raynal , @Christine Sei , @Mary Cay Kosten; I would love to hear your perspectives on the challenge that Randy is working.

    Bo DiMuccio and Dave Young lead TSIA Professional Services Research Practice. Here is an on-demand webinar that they did on creating alignment between sales and professional services - https://www.tsia.com/webinars/aligning-professional-services-and-sales-for-bette. You may find some insights that you can use from their presentation.

  • Randy Bastarache
    Randy Bastarache Senior Services Consultant Member

    Thank You Spencer - I will review the webinar.

  • Steven Forth
    Steven Forth Managing Partner Founding Partner | Expert ✭✭✭

    Make sure they incentives align with the strategic plan. Sales people tend to be coin operated and will do what they are paid to do, not what you exhort them to do. It is critical that the sales incentives align with strategy.

    Are professional services meant to (i) lead to new subscription revenues, (ii) support value realization and prevent churn, (iii) be an independent source of revenue, (iv) explore new ideas that will later be rolled into products, (iv) compensate for product shortcomings ... there are many possibilities.

    The other thing to consider is the profit margin on the professional services and the ability of the sales person to impact that profit margin. Too many organizations compensate on top line. If you can find a way to compensate on project profit you are likely to get better results.

  • Randy Bastarache
    Randy Bastarache Senior Services Consultant Member

    @Steven Forth Thank you for the thoughts - I am fully in agreement and have the data internally to analyse the approach - what my question was trying to shake out was actually understanding what type of variable comp plans companies are using - I am trying to find an approach that keeps sales engaged while the business does not take on excessive financial risk - the real issue is the gap between the sales booking to actual revenue - how is this addressed by others?

  • Steven Forth
    Steven Forth Managing Partner Founding Partner | Expert ✭✭✭

    We make sure that the sales person who closed the original deal gets a tail end of the ongoing subscription, but the commission goes down year by year. Generally (there is some difference by service line) ...

    Initial sale - 10%

    Year 2 - 5%

    Year 3 - 2%

    Customer success is responsible for renewals and gets 3% per renewal (they also have some other variable compensation).

  • Randy Bastarache
    Randy Bastarache Senior Services Consultant Member

    @Steven Forth Thank you for the insight - your response is for recurring revenue I believe - my initial question was asking on Professional Services or project revenue - however you response does interest me and i have a couple of questions:

    1) on the initial sale - is the 10% on the TCV (Total Contract Value) or just the first year of recurring?

    2) if you pay yearly not on TCV - is the rep expected to play a role in the client maintenance - i.e. when things go off the rails is the AE called back to manage the relationship?

    3) in recurring deals do you incent the service delivery team for TCV increase as well as CSAT?

    Turning back to Professional Services - how do you measure sales - NWS (New Work Sold) - Billings - Both? how is the variable calculated?

  • Steven Forth
    Steven Forth Managing Partner Founding Partner | Expert ✭✭✭

    Hi @Randy Bastarache

    I think what you are calling 'service delivery' we would call either 'implementation' which is part of customer success or in a few cases our dedicated (and very small) professional services team.

    The first year is on the combined value of the Professional Services and the Subscription, on the subsequent years it is just the subscriptions as our sales team is not active in selling additional professional services, that is mostly done by customer success.

    We invest a lot in customer success, so if a customer goes 'off the rails' it becomes an executive issue to be resolved with customer success and not with the initial sales rep, though they will be consulted and in some cases could be part of the team addressing the issue.

    For sales, the commission in on Year 1 TCV and year 2 subscriptions for the reason given above. We pay commissions based on the invoices (we are a small company and very conservative on how we manage cash).

    Not saying what we do as ideal and it may need to be changed as the amount of professional services work grows and the people doing the work develop a stronger identity.

  • David Sileven
    David Sileven Regional Vice President Professional Services Member
    edited February 1

    Our software license sales reps, for Professional Services opportunities, are individually paid on Billings - not Bookings. The PS sales team has a North America target, no individual comp, and the NA target is based upon Revenue earned and another target based upon margin earned. This ensures that deals are not sold then revenue not realized and that the final delivered margin is considered in the overall payout.

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