Key Highlights from Softletter Sales Compensation and Efficiency Survey, Part I of II

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The Softletter 2016 Direct Sales Compensation and Efficiency Survey was launched in October of 2015 and closed in January of 2016. The MatrixCX (Allegiance) online system (www.allegiance.com) was used to generate and manage the survey. The purpose of this survey was to develop a comprehensive analysis of current practices in software industry direct sales compensation and success measurements or efficiency of a direct sales force. This survey had respondents answer 47 detailed questions to give us an accurate snapshot of their sales compensation practices, results and measurements. The survey recorded 258 valid responses. The single largest group, 46% of respondents, reported their title as Owner, Founder, or President and CEO of their companies. This was followed by 20% identifying themselves as Vice President or Executive Vice-President of Sales or Sales and Marketing. The balance of respondents were senior sales managers, Directors, CFO’s, COO’s or other mid-level management positions responsible for sales and/or sales compensation within their respective companies. 20% of those taking the survey were international, with representation primarily from Canada and EU countries. These numbers are very much in line with our previous sales compensation research.

Of the companies responding, 63%, were from the Software as a Service (SaaS) Sector. This was followed by 11% from On-Premise firms (including desktop and server firms, and 13% OEM. This extract from the survey only includes summaries from the participating SaaS companies.  Results from on-premise and OEM firms will be broken out independently in the upcoming 2016  The Softletter Sales Compensation and Efficiency Report (the new report will be released in April).

An important point we wish to make is that after years of analysis and research, we have discovered sales compensation numbers do not shift significantly over time. We are aware that new sales methodologies, books, and “breakthroughs” are being introduced on a constant basis to replace the previous new sales methodologies, books, and “breakthroughs.” And yes, SaaS does eliminate the time a direct sales representative may spend on the road. Yes, customers are taking advantage of online resources, sales cycles, depending on the market, can shrink, and providing good quality content for prospective customers is important. But nothing in our numbers indicates that direct sales is going away, particularly in larger and “enterprise” sales. Before contracts are signed and checks written, the need for personal sales management remains vital.

Please note: Percentages have rounded up or down and may not total 100%. Numbers of particular significance have been bolded.

Development stage of the company

No significant customer revenue 13%
Privately owned, privately funded  57%
Privately owned, venture funded  11%
Public  20%

These numbers are in line with our previous surveys, with the exception of Public, which continues to increase from our 2009 study of 7%. This reflects the fact that the SaaS is now the mainstream model for how software is sold and the number of publicly held companies

Current revenues

Under $1 million  28%
$1 to $5 million  30%
$6 to $25 million  17%
$26 to $75 million  7%
$76 to $100 million  2%
$100 million +  17%

These numbers for all our surveys, since we first asked this question in 2006, have remained remarkably stable. The one standout is the 17% number reporting $100 million+, a testament to the mainstreaming of SaaS.

What class of software does your company primarily sell?

On-premise (includes client server and desktop/retail)  24%
OEM (Software that is embedded in another company’s product)  13%
SaaS (Software as a Service)  63%

We included this breakout to indicate the shift in the industry over time. In 2006, the SaaS number would have been around 10%.

What is the primary market for your software and services?

 Business to business (B2B)  98%
 Business to consumer (includes online gaming and edutainment; B2C)  2%%
 Both B2B and B2C  0%

Since the SaaS rebirth, the model has been dominated by B2B and we do not expect this to change.

What is the average revenue size of the companies who purchase your software and services?

 Businesses with over $100 million in sales  22%
 Mid‐market businesses with over $10 million in sales  30%
 Small businesses with under $10 million in sales  36%
 Government (includes federal/regional/local)  2%
 Other (please specify):  11%

How is your sales force primarily organized?

 Regionally by geography 46%
 Vertically by customer business type  22%
 Named Accounts  13%
 New business vs renewal business  17%
 Other (please specify):  2%

Geographic breakout of sales forces remains the most popular means to organize a sales force.

Do you sell your software/services via a direct sales force (defined as personnel who are authorized and regularly meet face to face with key decision makers during the sales cycle)?

Yes  76%
No  22%

A great deal of virtual ink has been spilled over the belief that self-education, social marketing, and online information will result in the replacement of direct sales forces in software. This is not happening.

Does your company have a separate sales team responsible for renewals?

Yes 44%
No  53%
Other (please specify):  3%

The percentage answering yes has risen steadily over the years.

On average, how long does it take for a new direct sale to close?

Under 30 days  9%
31 to 60 days  3%
61 to 90 days  25%
91 to 120 days  16%
121 to 150 days  22%
151 to 180 days  6%
180+ days  19%

The 25% of respondents reporting that sales close in 61 to 90 days functions as an important median for SaaS.

How long does it take on average for a new direct sales person to make their first sale?

Under 30 days  6%
31 to 60 days  16%
61 to 90 days  12%
91 to 120 days  22%
121 to 50 days  3%
151 to 180 days  6%
180+ days  19%

How soon do your direct sales personnel receive their variable compensation after the close of a sale?

Immediately or next pay period 12%
Within a month  22%
Within 45 days  16%
Within three months  22%
More than three months  1%
After payments are received from customers  16%
After the service or software has been delivered and has begun operating  3%
Other (please specify):  9%

SaaS companies expecting to fund their companies via deferment of payment to their sales force should rethink this approach.

If your direct sales representatives reached their sales targets, quota’s and/or bonuses as prescribed, what is their annual total “on target earnings” or OTE (including base salary and all other money payments)?

 $140k or less  50%
 $141 to $170k  25%
 $171 to $200k  6%
 $201 to $230k  9%
 $231 to $260k  6%
 $261k +  3%

Which direct sales count towards your representatives’ quota/personal sales goals?

All newly booked sales (new or existing accounts)  69%
Sales to new accounts only  26%
Sales to new accounts and a % of sales to existing accounts  6%

Are your direct sales representatives measured and compensated for maintaining customer satisfaction with existing accounts?

Yes  16%
No  46%
Partially, support organization has primary responsibility  34%
Partially, support organization has secondary responsibility  3%

Please provide the average percentage of your direct sales rep’s compensation that is tied to maintaining customer satisfaction with existing accounts

Less than 10%  40%
10 to 25%  60%

There were no responses to the other percentages listed. The above two responses demonstrate that SaaS salespeople are expected to maintain some level of relationship

Did you meet or exceed your yearly direct sales plan?

No, we did not meet our sales plan  50%
Yes, we met but did not exceed plan  25%
Yes, we exceeded our sales plan  25%

 Part II of this article will focus on further sales compensation metrics and compensation policies.

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