MSPmentor Blog

A Really Simple Sales Compensation Plan (RSSP) for MSPs

Warning:  Anyone looking for an in-depth review of organizational science or motivational theory, please stop reading and hit the Harvard Business Review for more.  Those who believe that the very best managed services sales people are coin-operated machines, driven by cash, bling, aka serious cheese, read on to explore a Really Simple Sales Plan (RSSP) that works.

I have always thought that the most effective commission plans err on the side of very simple.  To co-opt the contemporary phrase, the plan should be clear enough for a fifth grader to grasp. No algorithms, statistics or complex math of any kind. We want our sales team focused on selling our solutions and making customers happy, not doing linear regressions on an HP-12C.  Addition and multiplication with dollar signs attached are the only mathematics inside a Really Simple Sales Plan.

So let’s start with the basics. What types of behavior should a Really Simple Sales Plan drive?  We want to incent behavior that drives the valuation of my MSP business through the roof – behaviors that build the financial multiples that bankers and buyers use as yardsticks to determine purchase price.
  1. Revenue Generation: The most obvious.  We want our sales pros to fuel recurring revenue growth by closing new logo business on long-term annuity type MSP contracts.
  2. Stickiness: We want our sales pros looking for upsells into their install base – while NOT losing the hunger for new customer conquests.
  3. Profit Generation: We want our sales pros to drive profit by selling the service types with the highest gross profit margins on board.
  4. Strategy Alignment: We want our sales pros aggressively selling new services that are solidly aligned with our product direction.
  5. Satisfaction: We want our sales pros acting with integrity – doing what’s right – to help create a delighted customer experience.
Sounds hard. Complicated. But it doesn’t need to be. Here is a template for an RSSP that is 100% in sync with our MSP business objectives.

- FY 2011 Managed Services Sales Plan -

Sales Executive: Phil LaForge
Territory:
Western Region
Salary: $50,000 per year

1.  New Customer Contracts: You will be paid a commission equal to 5% of the Total Contract Value (TCV).
  • Monthly Recurring Revenue (MRR): $3,000
  • Contract Term: 24 Months
  • Total Contract Value (TCV): 24 months X $3,000 = $72,000 Commission Calculation: $72,000 X 5% = $3,600
2. Existing Customer Renewals: You will be paid a commission equal to 2.5% of the Total Contract Value (TCV).
  • Monthly Recurring Revenue (MRR): $5,000
  • Contract Term: 24 Months
  • Total Contract Value (TCV): 24 months X $5,000 = $120,000
  • Commission Calculation: $120,000 X 2.5% = $3,000
3.  New Cloud Services Kicker: Your commission percentage will be increased by 1% on any contract that includes monitoring and management of one or more Windows or Linux machine cloud instance(s).

4.  Rules of the Road:
  • a. You will be paid any commissions due to you in the pay period following the close of the contract.
  • b. If you negotiate a contract that allows “termination for convenience” your commission will be calculated as a three-month contract.
  • c. You must have recorded and maintained the opportunity in SalesForce to be eligible for commission payment.
  • d. If you separate from the company, commissions due as of the date of separation will be paid in your final paycheck.
  • e. The company can change any/all elements of this plan based on our business requirements.


- End of Sales Plan -


Next Steps

That’s it.  If the lawyers and HR Department stay out of it, the entire plan sits well on one page.  Of course “your mileage may vary.” You might use higher or lower commission multipliers based on base salary levels, market OTE (on-target earnings), average deal size, average sales cycle and profit targets. You can implement different commission variables and still keep the elegance in place.

OK, it’s a really simple model, but does it accomplish the business goals.  Lets give our RSSP a quick run through.
  1. Revenue Generation: CHECK.  The core commission calculation and termination for convenience clause drives locked in Total Contract Value.  Just what the bankers like the most.
  2. Stickiness and Satisfaction: CHECK.  It’s short sighted not to pay reps on renewals.  We want reps listening for new opportunities and being a sounding board for customer concerns.  Plus, nothing aggravates an MSP buyer more than having their rep drop off the face of the earth after the ink dries.  On the other hand, using a lower percentage multiplier for renewals is a completely reasonable way to make sure that reps stay hungry “hunters” rather than passive “farmers”
  3. Profit Generation and Strategy Alignment: CHECK.  Deal “Kickers” are a great way to drive sales of higher margin services.  And a great way to introduce new offerings.  Pay the kicker on the entire TCV and you’ll see reps get higher margin products in the funnel much faster.
Is your sales plan directly linked to the valuation of the business? Is it simple enough that your reps stay focused on the customer and trust that the commission plan just works?  If you can’t answer yes to both, build your own version of the RSSP and see motivated sales reps bring home more business and keep customers happier than ever.

Phil LaForge is VP and GM, service providers at Nimsoft. Monthly guest blogs such as this one are part of MSPmentor's annual platinum sponsorship. Read all of Nimsoft's guest blogs here.

Discuss this Blog Entry 11

Geoff Vincent (not verified)
on Dec 3, 2010
Hi Phil ...like the blog. I'm also a big fan of simple sales comp plans. I've seen some that run 2-3 pages with qualifiers, caveats, etc etc. ...they just don't work. One page? Perfect. I recently developed a sales comp calculator is also simple, but effective. I invite you to check it out at: www.bizcompare.com/resources/sales_compensation_plan_and_calculator/. Thanks Geoff
on Mar 31, 2011
One thing I would like to add is the importance of evaluating non-selling impact that compensation plans may have on your organization. When dealing with sales commissions, its important to have an adequate reporting tool in place. The commission statement tool in the following link saves time every month when you go to send statements from you commissions spreadsheet. (http://www.oneclickcommissions.com/ms.html) Give it a shot and let me know what you think. Thanks again for the guest post Phil, will check back soon.
Joe Panettieri (not verified)
on Mar 31, 2011
Michael: Are you affiliated with OneClickCommissions.com? Geoff: Are you affiliated with BizCompare.com? We always request that readers disclose their affiliations when posting URLs, etc. -jp
Krish (not verified)
on Aug 22, 2011
Here is a link for free sample sales commission plan, for those who wants to set-up a simple sales commission plan. The entire agreement between a rep and his company is provided here. You can use this and modify according to your requirement. Also there are lots of other free agreements are there in this website. http://contracts.onecle.com/arcsight/sales-commission-plan-2007.shtml Krish http://www.easy-commission.com/faq.aspx
Joe Panettieri (not verified)
on Jun 13, 2012
Krish, Hakeen: Thanks for the links. The guest blog from Phil LaForge remains among our most widely read ever. -jp
Hakeem (not verified)
on Jun 10, 2012
Very interesting , the challenge I find with Sales Plans is that 1.Written/developed for the wrong people and not the people who will benefit from using them i.e. management not the sales team 2.Over complicated 3.Not following any business methodology and hence just store data 4. Often activity driven. I have actually written a full post on this topic at http://examplesofsalesplans.com
Roland (not verified)
on Sep 23, 2012
Paying commissions on total contract value is nuts. As a sales rep, I'd cut the price in half to ensure getting commission rather than try to hold the line on price and risk the sale evaporating. Cost to perform the job is not my worry if I'm comp'd on total contract value.
Joe Panettieri (not verified)
on Sep 25, 2012
Hey Roland, Thanks for the two cents. This is one of our best-read blogs ever, so healthy debate is always welcome. -jp
Rob Ryan (not verified)
on Oct 8, 2013

Fantastic post Joe P! Keep it up. The simplicity yet thorough depth of activity and goal-business alignment is great.

on Oct 9, 2013

Hi Rob,

I can't take credit for this one. Phil LaForge, formerly of Nimsoft, wrote the blog above. It remains one of our most-read items every week.
-jp

lb (not verified)
on Dec 6, 2013

I have landed a super huge account for my company (their biggest one in 25 years of existence) and management and myself are at a loss on how compensation should work. Can you help?

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