Sale commission for someone who brings a big fish (SaaS model)
I was wondering what is a reasonable/fare commission for someone (call him an agent) who can introduce us to a potential big client. I estimate the client can generate at minimum 400K-600K a year for our SaaS service.
The commission will be given only if a contract is signed AND it generates revenues. The model for the client is 'pay as you go' and the client pays for our service (we provide result of some kind of a process).
My first intuition is to pay X% until the agent receives $Y. Example, on Jan we received $100 so the contractor will get X% (once he got to $Y we stop paying). Does it make sense or does anyone have a better model.
Software Negotiation Business Model Saas
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Will the salesperson be involved with this client beyond the initial signing? – Jeff O 11 years ago
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this is an ad-hoc issue. Give a good word, push it politically. full stop. – Adhg 11 years ago
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I am wondering the same as JeffO above regarding whether the salesperson will stay on to support the client - in which case it would merit them earning the on-going percentage. At the same time, I think your idea to set a cap on it is wise, and overall your plan is great. Good luck figuring out what the cap is, however. I would certainly approach it from percentage of profit (as opposed to revenue), however, and make sure you are able to communicate this transparently (and objectively) to your salesperson. And don't feel bad about giving them a great deal. That, after all, is a good incentive. – Kosta Kontos 11 years ago
2 Answers
Make sure you look at how much margin they bring in rather than how much revenue - it is all too easy to arrive at a figure of say, 20%, and then realise that once you have factored in your costs etc that the employee is making more from the deal than you are.
You do not necessarily need to set the rep a margin target per se but when working out your commission structure make sure you apply it to the margin element. Also remember your costs can change but it is much harder to change someone's compensation plan without demoralising them so leave enough room that you can absorb minor cost increases whilst not having to impact the individual employee.
I would also link the commission plan to how often the customer is billed or paid - I worked for a large US software company who used to pay sales 3 years commission on a 3 year deal at the time of signing not thinking that the rep then leaves and their replacement has to then manage a customer whom they cannot get any revenue from as the account has already committed its spend and the company has paid the commission for that two years earlier to someone else!
What you suggest seems fair, i.e. a percentage of revenue, with an upper-limit, but maybe a time-based limit would be better? Personally, I prefer to know exactly when an agreement will expire, so I'd select the time-limit, rather than the upper-earnings limit.
Now the tricky question of the percentage and time-limit combination. If you expect the client to stick around long-term (many years), then it makes sense for everyone to have a low percentage and a long period, e.g. 20% over five years. If not, then maybe 35% over three years, or even 50% over two years. These are obviously just convenient numbers and you'd select suitable ones for you particular scenario.
