Compensation ideas for Renewals Reps

I was talking with someone who was in the process of building comp plans for next year and they had a number of challenges regarding reps who handle only renewals and upsells at time of renewal. We referred to them as “Renewals Reps” and I’ll do the same in this article.

Below are some of the challenges they noted along with my feedback:

  • Challenge: We have always done individual quotas for Renewal Reps. How would Team quotas play out? The issue we run into with individual quotas is the constant potential quota adjustments for renewals that are mis-categorized or “Dead on Arrival”.
  • My feedback: Team quotas are used to drive the behavior of teaming. If your Renewals Reps work independently, you don’t want to drive that behavior. Instead, I recommend working to identify what makes a renewal miscategorized or DOA and fix the root cause instead.

  • Challenge: We don’t want the rep to take a hit for events completely out of their control. At the same time, I can’t have a full-time person constantly making individual quota adjustments.
  • My feedback: The need for constant individual quota adjustments makes me wonder if you’re assuming a top-down model. You need to build bottom-up, too. Given the assumptions we can make about quota attainment (example: roughly 60% of reps make quota) and rep ramp time (example: 6 months to productivity), you can work out how many Renewals Reps and at what quota-per-rep it would take to achieve zero churn – or net negative churn which is the real goal.

  • Challenge: If a renewal is due on Sept 30th, it matters that it comes in on or before the 30th and not Oct 1. How can we drive renewals to close in the right time period?
  • My feedback: Consider automatically creating renewal Opportunities in your CRM 90 days before the renewal is due, or whatever the high-end of your average sales cycle for renewals is, with a close date in the appropriate period. Also automatic: assign the Opps to the relevant rep and push them into that rep’s forecast as best case/most likely (not commit). Then the reps will essentially work from their forecast as their “queue” of renewals.

  • Challenge: Finding the right split between Renewal (Retention) and Upsell.  Currently we are 80/20 as we want to emphasize retention and we’re not sure if a different mix would be more appropriate.
  • My feedback: Remember that comp drives behavior. If you want to drive a reduction in churn, you need to over-comp on renewals and contract length. If you want to drive upsell, you need to over-comp on upselling.

  • Challenge: What about incentives for multi-year renewals as long as the ARR stays the same and discount does not increase? We don’t want reps giving additional discounts to lock customers into multi-year terms.
  • My feedback: Customers generally expect discounts for multi-year terms. There’s nothing wrong with not falling in line with that expectation but you need to keep it in mind. Plus, cash now is usually better than cash later. Generally speaking, if a reasonable discount means winning a multi-year contract, I’ll take the win.

Differences in AE/AM sales comp

A friend of mine asked about differences in customer acquisition cost (“CAC”) relative to new customer acquisition, upsell, and expansion. When I said there’s loads of material on why expansion CAC is less than new logo CAC with respect to marketing costs, he said what he was really interested in were differences in sales comp plans and their effect on CAC.

We narrowed our conversation down to the two comp plans of Account Executive, a role typically responsible for new customer acquisition, and Account Manager, a role typically responsible for upsell and expansion.

I’ve seen a handful of differences between AE & AM comp. Using an AE comp plan as a starting point, AM roles typically have:

  • 30-50% of AE on-target earnings (OTE)
  • 70-90% of AE quota
  • Less-aggressive OTE split with 60-70% going to base

Then there are different ratios in the sales units – e.g. all the people supporting the different sales roles. The AE:SE ratio may be 2:1 or 3:1 while I’ve seen as high as 8:1 for AMs. AE Managers might have 4-6 AEs while AM Managers may have as many as 8-10 AMs. All of this has a major impact on the cost of doing business (inclusive of CAC).