Strategies for selling cloud-based services are significantly different than traditional sales models with one-time incentives based on the price of the product sold. New incentives and channel strategies must align with subscription-based revenues and focus on achieving customer acquisition, but just as importantly, retention, expansion and renewals. This changes the focus from only chasing net new sales to optimizing the lifetime value of a customer or deal.
There are many different ways to structure a cloud-based incentive plan. However, the common focus should be to emphasize ongoing service and support delivery. Cloud-based incentive programs should be designed to encourage the sales reps to focus on what is best for the buyer. Several key considerations to achieve this include:
- Eliminate conflict between one-time sales and subscription-based sales
- Involve sales team in the cloud transition to maintain momentum
- Structure commissions so they are paid in-line with customer subscriptions with retention metrics
- Place responsibility for customer success partially with the sales reps so they will take accountability for customer growth
- Provide sales training to help reps adapt to the fast and frequent changes in the cloud-based sales cycle
Possible structures for cloud-based sales incentives may include:
- A percent of monthly subscription income
- Upfront commission equal in value to 2-3 months of subscription fees, or a percent of the first month’s revenue on a services contract
- Upfront commission based on a percent of the full-year value of the subscription
- A combination of base salary and commissions
- Commissions based on quarterly billings
Regardless of the chosen incentive plan, it is critical that sales incentives be clear and simple for sales reps to understand. Making frequent changes or using overly complicated incentive structures can create distrust and dissatisfaction among sales teams.
Cloud-based offerings require substantially more renewals data than traditional products or services that renewal annually do. If your business is currently relying on three or four technology systems to manage your customer data and build renewals quotes, the renewals process is likely to become excessively time-consuming and more error-prone. One solution is to automate as many aspects of the renewals process as possible to reduce workloads.
With a sales channel that functions as an extension of your internal sales team, it is important to include your channel partners in your transition to a cloud-based model. This should include developing a value proposition for your channel partners and distributing product support information, marketing, and sales tools.
There are many hurdles that you will need overcome in order to incent channel partners, including:
- Fear of lost revenue: With low initial price points, cloud offerings can suffer in the first 2-3 years. Combat this fear with cloud-based incentives that augment existing revenue sources and that are based on total contract value of a deal.
- Fear of failure: This transition represents a learning curve for your channel partners. One way to quell this fear is by providing product and sales training to develop their sales skills and technical knowledge and build confidence and readiness for the transition.
- Resistance to change: This resistance is often tied directly to the fear of failure and lost revenue and often can be overcome by designing incentives that are focused heavily on the beginning of the sales cycle. By motivating channel partners in the early phases of the transition, they are more likely to become comfortable with the new cloud-based model early on.