Designing Your First President’s Club

Many senior revenue leaders have asked Insight Partners to help structure their President’s Club contests for the year. Based on these conversations, we’ve laid out some guidelines to make your President’s Club truly memorable, and more importantly, something that really motivates your sales team.

What is President’s Club?

Let’s start with the basics – President’s Club (as known as Achiever’s Club, Winner’s Circle, etc.) is an annual contest that is awarded to an elite group of sales reps, sales leaders, and sales technical resources for achieving specific goals — typically attainment of quota. This concept started way back in 1907 with NCR as a way to motivate and reward top-performing reps, and the reward mechanism has now spread throughout the corporate world. For sellers, the financial incentives for overperformance are significant and motivate many. A President’s Club award that comes with peer recognition and a unique prize is highly motivational for many people. When the contest stakes are meaningful, they can drive high-performing behavior and encourage reps to go above and beyond their normal performance expectations. When deployed well, the incentive can have a material impact on the overall performance of the company.

At what stage of my company’s growth should we introduce a President’s Club?

One question we get often is, am I too small to have a President’s Club? The short answer is that it depends on the culture of your company and the focus you want to place on driving and rewarding the sales team. If your sales team is smaller than 25, you can probably leverage other reward mechanisms (e.g., provide upgraded suites at Sales Kickoff for your top reps) versus having a Club event. Once you begin to scale above 25, the Head of Sales should determine, with the support of your CEO, Finance, HR, and Marketing whether a Club event makes sense for the team, and then jointly align on how to structure the program.

What are the criteria to attend President’s Club? Most organizations seem to pick 100% of quota attainment.

Although achieving 100% of quota is a significant accomplishment and should be recognized with an award and announcement, if you’ve designed your compensation plan and quotas well, 50-65% of your reps should be close to achieving or exceeding 100% of plan. That’s a significant percentage of your organization, and it reduces the exclusivity of President’s Club. Many companies send anywhere from 5% -20% of their top performers, and the percentage depends on how exclusive you want to make the event. The number you send could increase in a year where the company significantly outperforms expectations and decrease when the company underperforms.

So, I should just make it a moving target where 20% win? Then at least I know how much I’ll spend.

There are pros and cons to the two main ways of setting criteria — fixed percentage of team members, and fixed target criteria.

Fixed Percentage of Team

This approach is the most predictable in terms of financial impact. The company determines a set percentage of the sales team that can attend and they use a stack ranking by role to determine the winners. Many companies require that winners achieve a minimum performance threshold (100% of plan) to avoid the risk of sending reps that have underperformed. This is simple to model and simple to explain to the organization.

The challenge with this approach is that it can demotivate some reps. If you’ve outperformed all year and are going to finish at 135% of plan, but would fall outside of the top 20% of reps, should you be left out of the fun? What happens if someone beats you out on the last day of the year for that final spot? Not only would that impact you as a rep, but the story may flow through the organization and could demotivate others.

Fixed Target

This approach sets performance criteria for the reps to win President’s Club. This is typically a percentage of plan and may include a minimum sales dollar/euro amount. For example, if you model out your expected performance for the year and expect 23% of people to achieve 135% or higher, then you should set your award criteria at 135%. Anyone who hits that target and meets any other criteria you stipulate should be able to win the award. The benefit of this approach is that you can recognize everyone that achieves those targets, motivating a broader portion of the organization.

One challenge to this approach is the financial modeling needed to budget appropriately and the risk that more than the expected percentage achieve the target. This could drive up costs but hopefully also comes with a commensurate performance improvement. The other risk is that high performers could relax a bit once they hit the criteria and save some deals for the following year.

What other criteria should be considered?

The most common criteria outside of quota achievement considered is tenure. It’s typical to exclude sales reps who have been on quota for less than 9 months of the year. The reason for this is that it’s difficult to set accurate ramp quotas for new reps, especially if they inherit active territories.

Other criteria can include things like a minimum revenue amount, a minimum amount for a specific product (if you’re trying to ensure balance across products), or a certain amount by region (if you have sales team distributed globally). Just don’t make the contest so complicated that your reps can’t understand it.

Who else besides quota-carrying sales reps should be eligible?

CRO/Head of Sales always attends. They’re the host of the event so even if the organization doesn’t achieve overall company goals, the Head of Sales needs to be there. If you have leaders that oversee an entire region (EMEA), it is also common to see them attend if members of their team are also attending.
Sales Leaders are typically included based on their team achieving 100% of plan. For player-coaches, it’s possible to include a personal performance requirement in addition to the team performance.
BDRs/SDRs/Sales Engineers, Sales Ops. Some companies exclude these support functions in an effort to keep the award exclusively to quota-carrying reps. Personally, I’ve always liked the idea of rewarding a small percentage of sales support functions. This type of recognition can have a material impact on the motivation of team members who typically don’t have a high variable component to their pay. However, given the roles these individuals have, they shouldn’t be eligible to have 20% of the organization win the award. Typically, this group is limited based on overall sales performance with a varying percentage of individuals being eligible based on how the organization performed; for example, if the organization hit 100% of its sales target, 5% of support personnel could be eligible with that number scaling to a higher percentage as the performance of the sales org increases. The selection is done by the head of sales with input from the team leaders and alignment from finance on budgeting.
Non-Sales Functions. In most companies, the President’s Club is a sales award only, and other groups are not eligible to participate. However, some companies may elect to allow a small number of non-sales people (customer success, product development, services, and marketing) to win the award as a motivational tool; in these cases, the number of non-sales people should be significantly smaller than the sales attendees. Remember, this contest is designed to motivate front-line sales reps and reward them for outperforming. Usually “wild card” non-sales slots are not used until your sales organization scales to a much larger size (e.g. +75).
Executives. This depends on the size of the sales organization and the number of individuals attending the President’s Club. The CEO should attend since this sends the signal that sales is important to the company — plus, it gives the sales team access to the CEO. For larger companies where there are 20-30 people attending, it may make sense for other direct reports of the CEO to attend. This further shows the company’s support for the sales organization and having the company’s top executives in attendance sends that message. This is also an opportunity for the executives to hear about what’s on the sales reps’ minds and understand the challenges they’re facing in the market.

So, we’ve figured out who should win and what the criteria is, but what exactly are the awards?

The most typical award is to participate in a group trip — an event where all the winners go together to celebrate their success with their peers and the executive team. The trips are usually to beach resorts or to interesting tourist destinations in North America (Napa Valley, NYC or Cancun, Mexico) or Europe (London, Paris, Rome). The location of the trip depends on the size of your team, the budget you have and the location of your organization. If you’re just starting out with your first PClub, then we recommend that you keep it local to your region and expand the locations to international over time (as additional motivation as your company grows).

What’s included in the trip?

Most award trips are all-expenses paid for both the winner and their significant other. This includes coach airfare, standard hotel rooms, dinners and activities. If an individual wants to upgrade their airplane seats or hotel room, they can do this at their own expense.

Are the trips taxable?

Yes, award trips are taxable (even if you have a few hours of training included) and are not considered business trips. In the U.S., the attendees are responsible for the taxes on the trip amount. This is fairly common, although some companies may choose to gross up the paycheck of award winners to cover these taxes.

We’ve never had incentives like this before, what’s the best way to start?

It’s tempting to go straight to the amazing destinations and hope for the best. However, if you haven’t established a culture of contests, the impact that you get from the trip will be muted. We recommend a multi-year path to build up the hype and drive a culture of competition in your organization. If you’re not sure where to start or if it’s later in the year and you are just kicking this off, we recommend going with an award of some type rather than a trip. There are a few standard award categories that companies use.

Travel vouchers: These are simple and easy, but they don’t establish a way to show off to the winners’ peer group that they’re one of a select group of winners. If you go down this route, we’d suggest that you create an internal page for winners to share some photos from their award trip.
Cars: Some companies award one-year leases for high-end cars. The challenge with this is the insurance requirement — does the company cover or does the employee? Additionally, what do you do if the employee leaves the company before the lease is up? Our experience with these types of awards is that they’re difficult to administer and therefore we don’t recommend them.
Watches: Rolex or similar high-end watches are good contest prizes. Not only are they motivating, but they can be worn as a badge of success for years to come. Personalize the watch by having the company logo engraved on the back.

Once you’ve started to build the culture of competition, then you can up the game by doing a moderate trip, and then bump it up again the following year with a trip to a more unique destination.

One thing to keep in mind is that your awards, destinations, and events should all take into consideration the diverse nature of your sales team members and the culture of your business.

At what stage should we do President’s Club?

As mentioned above, President’s Club awards can be given at any stage of a company’s development. However, trips should probably not be considered until you have 30 or more sales reps. The reason for this is that if you only have 10 sales reps and only 20% can win the trip, you’ll have the executive team hanging out with only 2 reps. We’d recommend that until you scale to 30 reps, you stick to vouchers, cash awards, or watches.

When and how do we announce this incentive?

To get the maximum value from the contest, we suggest a staged approach to the announcement.

At the sales kickoff, announce that this year, the contest prize will be a President’s Club trip with the location to be announced in Q2. Get the hype going at kickoff but keep the location a secret. In Q2, send out an email or print announcement to each sales rep’s home announcing the contest location. This gives maximum impact on the announcement and ups the excitement level. In Q3 you should be ready to email a video of the venue to further motivate the organization. Q3 is also when you should start a regular cadence of tracking and announcing the standings of those people who are eligible for incentive. In Q4, send out monthly notices counting down to the end of the year. And, shortly after year-end, send out the announcement of who won the award.

What kind of budget should I have for this type of event?

Watches, car leases, and travel vouchers offer the opportunity to spend $8-10,000 per winner. Trips will vary based on destination and the types of activities included, but a good rule of thumb is $15,000 per couple.

This is a significant expense. Sales operations should manage the structure, the program, and report on the results. We recommend you hire an event planner to manage the booking of the trip, flights, hotels, and activities, including a final dinner. Depending on the size of your team, you could manage this internally with Ops and the support of marketing, and an administrative assistant.

Done effectively, President’s Club trips and similar incentives can energize an organization and drive significant outperformance. They can also help retain and motivate top talent. So, while you’re thinking about your plans for the new year, give some thought to where you’d like to celebrate your success and start planning for President’s Club.

How to Plan a Virtual SKO that Educates, Motivates, and Entertains

November and December are always frantic times for sales leaders, as they are focused on closing out the current year while simultaneously preparing for the upcoming year. There are a hundred things to consider, from redesigning compensation plans to setting quotas, and capacity planning. And then there is the daunting challenge of hosting the sales kickoff (SKO). Each year, sales leaders develop multi-day, in-person events to train and update their sales teams on new techniques, processes, and tools, celebrate the successes of the past year, and energize the team for the year to come. With increasingly distributed teams, lingering concerns about the pandemic, and constrained budgets, more teams may be considering hosting sales kickoffs virtually.

Key Insights

With increasingly distributed teams, lingering pandemic concerns, and tighter budgets, teams are considering hosting virtual team events, including sales kickoffs (SKOs).
Planning a virtual SKO requires different planning and presentation than simply hosting your normal SKO over video conferencing.
Virtual SKOs can offer unexpected benefits from physical events, including opening the SKO to the entire company and offering guest speakers who may have previously been out of budget.

Making a sales kickoff virtual isn’t just doing last year’s event over video; it’s fundamentally different in both planning and presentation. And if you plan ahead and follow these tips, it can be even better than those in-person events. One of the biggest opportunities is the ability to extend the SKO into a full company kick-off. For a minimal additional cost and effort, everyone in the firm can hear the vision of the CEO and sales leaders, get insight into the sales strategy, and most importantly, understand precisely their role in helping sales achieve its goals. Another key benefit of the virtual event is the flexibility it offers when booking guest speakers: By avoiding the logistics of flying guest speakers to events, you can engage someone from anywhere in the world, or even engage someone previously outside of your budget range.

Virtual SKOs require a different approach than in-person events

To help you plan a successful virtual sales kickoff, here are 5 key considerations and a few useful tips from our portfolio and from Jacco van der Kooij, Managing Director of Winning by Design.

Drive impactful engagement

It’s easy to multitask during a virtual event, so you have to create something that is compelling and holds the audience’s attention.

Hype it up by leveraging short-burst videos to create breaks in the presentations and mix in music to change the mood.
Keep the sessions short and succinct — approximately 45 minutes.
Spread the sessions over a few days with no more than a 4-hour session block, rather than holding an 8-hour-long marathon event.
Leverage music, video, and interactive presentation tools to shake things up.

Plan and practice

We’ve all had those moments where the video platform doesn’t work right, or a presenter forgets that they’re on mute. In a normal meeting, it’s mildly annoying; in an SKO with 100+ people on the call, it’s disastrous.

Double the amount of time needed to create the event.
Test your technology with each speaker, and always have a backup plan.
Practice the transitions to create smooth and natural handoffs.
Record sessions in advance, and stick to the timing.
Have one dedicated moderator and one dedicated tech support person.

Teach them something new

This is true even in physical events, and in a virtual one, you can’t keep your audience captive.

Use breakout rooms to engage smaller groups.
Assign pre-work for attendees.
Train the trainers in advance. Make certain that they can drive impactful sessions.
Ask your reps in advance for feedback on what they want to hear or learn about. Also, at the end of a segment, ask one member of the audience to summarize their key takeaways. Then have them select the next person to do the same.

Let them catch up with their peers

One of the best parts of SKOs is being able to share best practices and war stories with peers. Make your virtual event memorable by giving them this capability when they weren’t expecting it.

Plan specific times for catch-up sessions.
Create coffee chats or happy hours with random assignments of attendees to breakout rooms.
Create “wedding table” assignments for breakout rooms to ensure teams socialize.

Keep it going after the event

Because a virtual event costs a fraction of a physical event, you can hold follow-on events throughout the year.

Create a reinforcement program to drive home key learnings from the SKO.
Host a mid-year event. Things change rapidly; a mid-year meeting allows you to course-correct.
Use Slack channels or Teams chats to collect ideas live during the sessions and to communicate with the attendees throughout the year.

The shift from physical events to virtual may seem daunting, but if you keep the above considerations in mind, you will create a game-changing event. Take advantage of technology and the reduced cost to expand the reach of your event and energize the whole organization, not just sales. But most importantly, remember that during your event, you should always aim to educate, motivate, and entertain.

10 Steps to Crush Your Sales Kickoff (SKO) Event

If you are a sales leader, you likely spent the last few weeks scrambling to close deals before the year end. As a result, you’re probably starting January by finalizing your compensation plans and quotas and planning two of your most important events of the year: the Sales Kickoff (SKO) and President’s Club.

Key Insights

Sales Kickoffs (SKOs) and President’s Clubs are two of the most important events of the year for revenue teams.
SKOs should energize the organization, inform and excite everyone about the company’s strategy for the year, and get the whole sales team heading in the same direction.
The most successful SKOs are well-prepared, align around key themes and messaging, celebrate the previous year’s success, and are delivered in an engaging, interactive format.

Designed well, these two events should excite the sales team for the year ahead. They help you set and sell a strategy that inspires everyone to roll up their sleeves (again), and also celebrate the team’s accomplishments from the previous year. If you put in the effort and attention to detail, you’ll put yourself in the driver’s seat as you scale up your business.

How to design a successful sales kickoff

SKOs may have a bad reputation amongst sales reps. This is largely due to a history of poorly planned events, filled with boring presentations, delivered to hundreds of people simultaneously with minimal interaction. Nobody wants to sit through that. To top it all off, these events are costly, and reps are out of the field for 2-3 days, meaning that there isn’t any revenue being generated.

Executed well, SKOs should energize the organization, inform and excite everyone about the company’s strategy for the year, and get the whole sales team heading in the same direction. If you adhere to the following criteria, you’ll deliver a sales kickoff that will align your team and make them productive this year and beyond.

Have a well-defined strategy for the year. This is your chance to explain the strategy to the entire sales organization and rally them around a common aspiration. Make sure that the message is clear and that all the presentations delivered during SKO align with that strategy. Ensure your reps know their role in executing the strategy by giving them clear marching orders, as well as collateral that supports their key talking points with prospects and customers.
Make the content interactive. Back-to-back presentations are boring for anyone, so refrain from a parade of presenters and instead create a series of workshops or rotational sessions. The best kickoffs combine amazing presenters (who present for 60 minutes in the main room) with round-robin sessions and workshops for 30-45 minutes. The best workshops impact how the sales team engages their prospects and clients and/or leverage and explain the tools and techniques that help them to do their jobs. The movement and change in pace will keep the sales reps’ attention, and the interactivity helps ensure that all reps are participating. If there are new products or features being launched, this is the opportunity to ensure that everyone is aligned on the messaging and sales pitch. Marketing, product, and tech leaders, along with the CEO, should describe their strategies and how their activities will support the sales team.
Celebrate successes from the past year. SKOs provide the opportunity to have a formal look back on the previous year (what worked, what didn’t) and applaud your superstars. Take some time to talk through what happened — both good and bad — and then highlight anyone who achieved plan or showed exceptional effort to help another rep or the overall team. Small award plaques are a great way to present top performers with something that acknowledges the value they have contributed to the company. Bring them up on stage while their peers applaud them, have someone read a sentence of why they’re being recognized (e.g. Sally Jones achieved 145% of plan and $750k in sales), and take a picture with the CRO and CEO. By proactively building a culture of success and recognition in your business you will make your team excited and proud to be recognized in front of their peers.
Leverage themes and imagery. We’ve all sat through dozens of kickoffs where we are going to “Race for 202X” or “Ignite Sales 202X” or something similar. Those themes sound corny and can fall flat if they’re not woven throughout the entire meeting. Likewise, these types of themes can have a major impact if they’re integrated into all communications, internal branding, and contests for the remainder of the year. That theme should show up in your contests (i.e., Q1 – Start your Engines, Q4 – the Final Lap). Pick a theme, stick with it, and make sure it’s different from themes used in the last two years. Work with marketing to be creative. Sales themes can become tired and overused.
Be prepared for the meeting. If possible, you should communicate sales territories, compensation plans, and quotas in advance of the SKO. Clarity in segmentation, compensation, and territories will help to ensure your sales teams apply the material presented to their specific situation. Plans don’t have to be 100% complete, but the closer to final you can be, the better the outcome of your kickoff. If the sales reps go into the sales meeting blind, the best they’ll be able to do is apply it to last year’s activities. More likely, they’ll just listen without being able to truly connect the material with the activities expected of them. This is one reason that SKOs are often in late January or early February. The timing enables management to finalize strategy and plans before presenting to the team.
Get new hires off to a great start. If you’re going to hire new sales reps, try make sure that they’re onboarded in time to join the kickoff sessions. There is no better way to indoctrinate them into your team’s culture than by surrounding them with their teammates and sharing stories. One of the best parts about an SKO is the networking that your teams can do, especially if you have a global team. Having your new hires meet the top reps from each region will help accelerate their onboarding process. For those that join after the kickoff, you can repurpose some of the material for your onboarding training.
Keep logistics simple. Pick a location that is near (the majority of) your team or easy to get to. You don’t want to have people waste an entire day getting to the location or getting home. Also, plan dinners at the hotel or nearby restaurants. This ensures that you can continue to build a solid networking experience for your sales teams and that they don’t waste too much time going to a new location after sitting in sessions all day. Finally, don’t forget to provide enough time for breaks. Your teams will still need to engage with customers, so give them sufficient time to catch up on emails and calls in between sessions.
Stick to a reasonable budget. Because you’re celebrating success and kicking off the new year, you want a venue and event that reflects the company. We’re not suggesting that you host your kickoff at the Ritz Carlton, but make sure that the venue is designed for corporate events, and then invest in the key items that will make the event memorable. Make certain that you have audiovisual (AV) support, lapel microphones, large projector screens, and the ability to play music over the AV (which is essential to fill the time as presenters walk to the stage). Invest in a few small gifts for attendees (notebooks with the company logo, clothes with the company logo, or similar), a little something for them to take the experience away with them. These should preferably reflect the theme for the year (e.g., “Racing to Win”). Expect to spend around $2,000 per attendee for a professional event. This spending guidance varies based on the location, duration of the event, distance traveled, etc.
Require attendance. 100% of your reps should be there to hear the company’s strategy and to network with their peers. If you’ve announced a save-the-date well in advance, you should require 100% attendance; sales reps should be expected to modify customer meetings or other plans if you’ve given enough notice. The best SKOs also have 100% attendance from the executive team — that’s right, even your CIO and General Counsel should be there — this is the chance to show the sales organization that the entire company is behind them and supports their efforts. Given the investment in the SKO, you should maximize the ROI through full attendance.
Assign an owner and rehearse. Successful SKOs are successful because someone has been orchestrating the event and sales leaders are engaged early in planning the agenda and cadence of the content. Someone in your company should be managing the SKO, whether this is sales ops, sales enablement, marketing, or if you have a larger organization, an event manager. This person or team will ensure that presenters practice their speeches, stay on time, and ensure smooth handoff between presenters. Even if you are doing an SKO for the first time and you don’t have a dedicated team working on your SKO, you can still make this work with some basic project planning.

The SKO is your chance to start the year strong and get your team motivated and excited about the new year. Remember, align the team on a single strategy with a few big bets. Celebrate the previous year’s successes, but focus attention on what needs to be done this year. Make your kickoff the jumpstart that your organization needs to ensure this year is your most successful year yet.

Setting Quotas in B2B SaaS Sales When Facing High Exchange Rate Volatility

Key Insights:

While typically normal changes in foreign exchange rates (FX) have limited impacts on SaaS companies, 2022 has not been a normal year.
Reps closing deals in denominated currencies other than the one applied to their quota should neither gain nor lose due to FX changes.
We recommend setting exchange rates at the start of each quota measurement period.

In 2022, the United States (US) Federal Reserve hiked interest rates in order to fight rising inflation. This has made dollar-denominated bonds more attractive versus those based on other currencies. In addition, US assets are increasingly viewed as a safe haven since the American economy has been less affected by fuel price shocks and by the war in Ukraine. Consequently, the dollar has strengthened against other currencies.

Exchange rate impact on company performance

The general impact of a stronger local currency on multinational companies is negative.

Consider a US-based company’s response to a stronger dollar. If the US company raises prices in Europe, then unit sales will likely drop by more than the price increase as buyers switch to cheaper European alternatives. If the US company leaves its European prices fixed, then the value of each unit sold declines when converted to dollars.

There are some offsets to this lose-lose scenario. First, the stronger dollar lowers the cost of goods and services purchased abroad. Second, producers of differentiated solutions face lower price elasticity; in lay terms, companies can increase prices to some extent without experiencing as much of a drop-off in unit sales as would companies selling commodities.

While the puts and takes described above mean normal changes in foreign exchange rates (FX) will have limited impacts on SaaS ScaleUps, 2022 has not been a normal year. In the 23 years spanning 1999 to 2021, the euro has only fallen more than 10% relative to the dollar three times (see Figure 1). Thus far, the euro is down nearly 15% relative to the dollar.

Begins in 1999 at -15% and ends past 2021 -14.3%.Notes: (1) Change is from start of year to end of year except for 2022 which is YTD through Oct 7th (2) The 24-year average is 0% with a standard deviation of 9.9%. (3) Source: https://www.macrotrends.net/2548/euro-dollar-exchange-rate-historical-chart — Figure 1: €-to-$ Annual Exchange Rate Change
Source: macrotrends.net

Change is from start of year to end of year except for 2022 which is YTD through Oct 7th. The 24-year average is 0% with a standard deviation of 9.9%

Exchange rate impact on quota attainment

Let’s explore the impact of FX on quota attainment for sales professionals. For simplicity, and because it mirrors the current state of the world, we will compare a US-based rep to a Germany-based rep.

For our range of examples, we will assume:

Reps start 2022 with quotas based on the Jan 1st exchange rate of 1.1371 €/$. Quotas are thus $1M when denominated in dollars and €880K when denominated in euros.
Prices per deal are set at the beginning of the year at $100K or €88K.
The Euro/Dollar exchange rate is down 15% YTD.

In the first scenario, imagine each rep only sells domestically. In this situation, there is no FX impact for the reps other than the fact that it will be easier for the German rep to sell against US-based competitors who may have to raise prices (or limit discounts) to make up for the exchange rate impact.

Next, consider a German rep whose quota is in euros but who sells to US prospects using dollar-denominated contracts at $100K per deal. If this rep’s plan applied floating FX rates, then she would receive a credit of €101K instead of €85K for each sale at current rates. Hence, the rep benefits from the floating exchange rate. Had the FX rate been fixed, there would be no impact on quota attainment.

Assuming the company is based in Europe, they benefit as well since the increase in euro-denominated bookings more than offsets the extra commission paid to the rep in the floating FX scenario. If the FX rate were fixed, the company benefits even more.

The reverse is of course true for a US rep whose quota is in dollars but who sells into Germany using euro-denominated contracts. An €88K deal converts to $87K instead of $100K if quota credit is subject to a floating exchange rate. With a fixed FX rate, the US rep is ‘protected’ and would experience no impact.

The stronger dollar is detrimental to the US-based company whose euro-denominated sales convert to fewer dollars than expected given the pricing set at the start of the year. Allowing the FX rate applied to quota credit to float transfers some of the company’s pain to the rep.

Our recommendation

One of the key best practices in sales compensation design is that reps should be compensated for their direct effort over what they can control. Since FX is out of their control, reps closing deals in denominated currencies other than the one applied to their quota should neither gain nor lose due to FX changes. Hence, we recommend setting exchange rates at the start of each quota measurement period. Fortunately, this approach is also easier for quota administration.

Our recommendation of a fixed FX rate for quota credit concentrates all FX benefits and risks in the hands of management. Even without elaborate hedging, organizations can protect themselves from FX risk by sourcing talent locally and by borrowing in local currency.

The silver lining is that strongly negative FX impacts are rare. They apply to companies with a strengthening local currency who conduct a large amount of business denominated in a weaker foreign currency and who lack the natural hedges described previously. Finally and fortunately, currency swings exceeding +/-15% are relatively rare in developed nations.

SaaS Pricing Tactics for a High-Inflation Environment

Key Takeaways

●   Inflation is at its highest level in 40 years, creating a different environment for technology businesses.
●   Inflation impacts ScaleUp valuations, margins, and cost of capital.
●   Better price management is the best way to take action in an inflationary environment.

Inflation is at its highest point in 40 years, and software ScaleUps should act to ensure their prices don’t get left behind. A recent reading of the U.S. all items Consumer Price Index (CPI) suggests that, at its recent peak, inflation rose at an annualized rate of 9.1% in the U.S. For comparison, at the start of 2021, that number was 1.4%.

Generally, a CPI of between 2% and 3% per year is considered healthy — it suggests that the economy is expanding and wages are increasing in a controlled, predictable manner. You would have to go back to January 2012 to find an instance when U.S. inflation exceeded 3%, and all the way back to 1981 to find inflation as high as the current levels.

Historically, software and SaaS prices have lagged behind the CPI and continue to do so. With the notable exception of 2015, software inflation has been far below that of consumer goods for at least a decade, usually oscillating around the 0% mark. Even since the pandemic, as hardware prices surged up to 20% over the past two years, software prices rose only around 5% to 7%. This means that your software contract values fall because price increases haven’t kept pace with overall inflation.

Tech stocks have historically fared poorly during bouts of elevated inflation. As stock values fall it becomes harder for tech companies of all sizes to raise capital. In addition, while the price of software typically lags behind CPI inflation, costs don’t. During times of inflation, software companies see a significant increase in the costs of hardware, infrastructure, and labor. This squeezes margins and increases cash burn unless ScaleUps act to keep pricing current with the times.

SaaS Pricing Provides Untapped Potential

Properly setting prices is an untapped opportunity for SaaS providers to squeeze more value out of what they offer. We often see companies who haven’t touched their pricing for three years or more — which might explain the lack of inflationary growth in the sector. Usually this means companies have built up a significant amount of pricing power through market growth and product improvement which they haven’t yet monetized. While this was also the case well before the current inflationary environment, now the opportunities are even greater — while the risks of not adapting your pricing are more severe.

The opportunities for ScaleUps to review their pricing lie in multiple paths. You can change your price metric, your packaging, or simply how much you charge. While, historically, companies have been able to generate significant revenue from either price-metric or packaging changes, in the current environment, a well-thought-out price-level change or contract-based escalators (see below) can also add significantly to your revenue growth.

The work of determining pricing is also never done, is all the more critical in today’s high-inflation environment. Thus, ScaleUps can continue to dynamically assess their pricing as inflation ebbs (hopefully soon) and flows. It allows you to see whether pricing changes reflect the value of what is on offer, and when and if adjustments need to be made.

4 Tactics ScaleUps Can Use To Combat Inflationary Pressures

The challenge of inflation is not insurmountable. There are a number of ways to respond, and it is not a matter of either/or. Any B2B SaaS business facing margin erosion has a number of options open to them:

Add price escalation terms to contracts. If you have pricing power, we would strongly recommend you consider including price escalation terms into your software contracts so that your prices can keep pace with both your costs and the significant investment in product that is typical of most ScaleUps. In general, we recommend that pricing escalators consist of an inflation component (typically CPI) as the baseline, plus between 3-5% to cover any significant product improvements that customers get “for free” with their current subscription. You should also consider allowing your sales teams to negotiate these numbers down as needed to maintain strong win rates – but for less price-sensitive customers it can provide a helpful boost in future contract years.
Review your pricing. Compare your prices with the value you generate. If you are underselling, maybe this is the time to review your pricing strategy (by changing metric or packaging) or increase your prices to match what the customer is willing to pay. While this can be a very effective measure, it’s important to think carefully about your price changes and how they will be received by the market. For more information on the “right” way to increase price, see our checklist for success.
Focus on premium products. If you’re selling a portfolio of products rather than just one, it’s important to keep in mind that premium options in your portfolio are likely to have higher margins and provide higher average contract values. In times where inflation drives up costs, guiding customers who are willing to pay for more expensive products and services can be a good way to improve margins and cash flow.
Optimize the costs you can control. As my colleague Eli Potter wrote, “a useful framework for strategic cost optimization… helps companies evaluate the trade-offs between benefits, costs, risks and viability of different cost-optimization initiatives.” She recommends a four-step process:
1. Asset management
2. Align infrastructure to reduce demand
3. Rationalize portfolio and infrastructure
4. Offer tiered, need-based service levels

Regardless of how high price levels go, or how “transitory” the current inflationary cycle proves to be, CxOs who are able to apply the right strategies will be well-positioned both in today’s inflationary environment and the future.

Sales Compensation Planning: 4 Learnings from ScaleUp Software Revenue Leaders

It’s sales compensation planning season! Insight Partners and QuotaPath, a sales compensation management platform and Insight portfolio company, recently hosted an event with 150 revenue leaders from some of the fastest-growing ScaleUp companies. Of the many discussions, topics like how to attract and retain sales talent and the principles of sales compensation design were top of mind.

Based on the discussion, here are 4 learnings to consider as you plan for next year.

Learning #1: Draws (and alternatives to draws) give reps time to ramp up

Draws are effectively an advance or loan against future, unearned sales commissions to allow reps to earn their variable pay while ramping. (Remember, it can take 6-9 months in SMB/mid-market and 12 months in enterprise for a rep to be fully productive). There are 2 flavors: Recoverable draws must be returned if the rep fails to later earn her commissions; non-recoverable draws the rep can keep even if he fails to later earn those commissions. If you do not offer them already, consider draws to allow for a smooth transition as reps onboard, learn the products, grasp the sales pitch and messaging, and build pipeline.

If draws are not a fit, there are other options.

One is a ramped quota, which prorates the full quota based on their ramp time and how long they will be on quota for the year. Keep in mind, this only helps compensation levels if the comp plans pay based on quota performance.

Second – and less common – is an MBO (management by objective) plan during the ramping period. For instance, new hires earn their variable by earning training certifications, completing mock demos, holding discovery calls, generating qualified pipeline, or progressing deals from early to late stages. 3 tips for choosing these objectives:

Choose leading indicators of future success (i.e., they actually drive bookings);
Ensure they cannot be gamed (e.g., that a rep cannot artificially inflate pipe gen);
Your team must commit the required bandwidth to write, approve, and grade performance against MBOs

Lastly, tools like SetSail (an Insight portfolio company) offer micro-incentives as reps achieve specific milestones. Each micro-incentive reinforces desired behaviors and improves rep and team performance.

Learning #2: Compensating AE’s on renewals might make sense

As companies scale, renewing your customer base becomes even more important. Responsibility for renewals depends on your GTM organization: earlier companies might have AEs owning renewals. In more mature companies, customer success managers, account managers, or renewal managers might own renewals.

Therefore, first determine who is accountable for the renewal number. Since it might involve multiple roles, it is key to clarify the primary owner. If the AE can influence the renewal, it is safe to include renewals in their variable compensation; however, if the AE is solely focused on new business and you have other roles responsible for renewals, don’t dilute their plans by adding renewals, as it will distract them from new ARR.

If AE’s influence renewals and you want to incent them, here are a few options:

Flat rate. Provide a flat commission rate on the renewal ARR. This is the simplest method and is best when you want to keep reps focused on new ARR, but the AM or CSM team is not capable of handling a specific subset of renewals. This flat rate should be low (e.g., ¼ of their rate on new/expansion) and make sure you monitor the volume of renewals that AEs work on to ensure the sales organization is still primarily focused on new business sales.
Renewal quota. Provide a separate quota on renewals in addition to their new ARR quota. This is appropriate when you don’t yet have renewal-focused roles (e.g., CSMs) and sales reps are reliably involved in a significant number of renewals (and must make time for them). Careful setting quotas if (a) customers renew early or (b) a significant number of renewals are auto-renewal.
Special bonus. Pay a bonus for working on specific renewals, manager-approved. This method is best when, like option 1, the AE does not usually do renewals, but extraordinary circumstances call for their involvement (e.g., a strategic customer’s renewal with a heavy competitive presence).

Learning #3: Incent for multi-year contracts to drive bigger deals and improved retention

If a rep cannot influence the term of a contract, then multi-year incentives are not necessary. But if a rep’s involvement can lead to a longer-term contract, consider multi-year incentives. Multi-year deals have many benefits: you’ll see lower annual churn because fewer customers will be up for renewal in a given year; in negotiations, reps can get a ‘win’ in return for a discount; and you can improve cash flow if the customer pays up-front.

Below are 3 ways to incent multi-year contracts:

Higher commission rates. For example, if the base commission rate is 10% of ARR and your average term is 1-year, pay 13% of ARR for 2-year deals and 15% for 3-year deals. This aligns incentives and is manageable to administer. (Note: we recommend retiring quota on only the annual or year 1 amount).
Commission years 2+. Pay a bonus with a lower commission rate on the contract value of years 2 and beyond, while still retiring from quota only year 1’s ARR. This is easy for a rep to understand but can be difficult to administer, and this is best for when year 1 ARR is different from years 2+.
Pay on TCV. Commission the total contract value (TCV). This is the most lucrative design, and therefore the most expensive. And if you retire quota on TCV, you will have to set quotas on TCV, too, which is very complex. Since TCV provides such a strong incentive on term, be careful that your reps will not sacrifice annual amounts in return for contract term in negotiations. This design is the riskiest way to incent for multi-year.

Learning #4: Some compensation design principles hold true no matter what

Beyond the trends, a few design principles are useful in any sales compensation plan, which will help you to maximize rep productivity, hit your company objectives, and build a pay-for-performance culture:

Simple is better. Keep plans simple so reps understand their plan and how to maximize their earnings. Complicated plans create confusion, and commonly drive unintended behaviors that are not in line with the intention of the plan.
Align comp plan to strategy. Sales comp is the caboose, not the engine. Define a clear company strategy first, then design the plan to reinforce that strategy.
3 measures max. Do not exceed 3 measures on a plan, and each measure should be weighted 20%+ to ensure the rep focuses on it.
Lucrative accelerators to reward high performance. More than 80 percent of companies have sales accelerators, according to a survey by QuotaPath and Pavilion. Top performers should be rewarded to encourage superior performance, to retain them, and to inspire others to overachieve.
Get plans out on time. Try to release plans during sales kickoff. At the start of the year, reps should know the company’s strategy, how the plan pays them for the behaviors that align to that strategy, and how a rep can maximize their compensation under the new scheme.

2023 is different: How to handle economic uncertainty

With rising interest rates and other economic headwinds in store for 2023, your focus has shifted from growth to efficient growth. As part of sales compensation planning, consider the following:

Analyze your Compensation Cost of Sales. For every dollar of ARR you bring in, how much are you paying commercial teams? Does that cost structure align to your company’s financial goals? What happens to CCOS if performance is lower than expected?
Scenario plan for deteriorating economic conditions. It’s better to have a plan and not need it than need a plan and not have it. What performance indicators (KPIs) will inform us if a plan or quota reset is needed? How might we reset annual quotas or re-balance territories after H1? What on-strategy SPIFs could we roll out to keep reps whole if performance is very low.

Arguably, the most valuable resource in your entire GTM is your seller’s time. By nailing your sales compensation plans, AE’s will spend their time in the right areas, which in turn accelerates growth and achieves the company strategy.

This article was co-authored by Kelly O’Halloran at QuotaPath. To discover, compare, build, and customize compensation models visit Compensation Hub, a new, free resource from QuotaPath. And, to learn more about QuotaPath’s compensation and commission platform, book a time to chat!

6 Steps to Getting Sales Rep Hiring Right

Sales reps are the most expensive GTM resources and the backbone of growth, yet all too often sales and HR leaders overlook the process behind successful hiring. Leaders are often vague about what sort of background they want to hire for. Or they thoughtfully spell out what they’re seeking but don’t stick to it in practice. Worse, after only a fraction work out, they fail to learn from it and the turnover treadmill continues — reducing sales efficiency and team morale. So building a process to hire great AEs is a worthy investment of time that will pay dividends for years. This article lays out a 6-step process to maximize your chances of hiring great reps that have the background, skills, and knowledge to be successful — and move the needle for your business.

Step 1: Define responsibilities

Start with the seller’s day-to-day responsibilities and what success looks like. What are they responsible for across new logos, expansion, renewals, and adoption? Are they selling into mid-market, enterprise, or large global accounts? Is it a highly consultative sale with a dozen stakeholders, or is it a transactional process for a small company? Is the product complex, requiring them to answer technical questions or conduct bespoke demos, or is it straightforward? What industries will they sell into? Beyond their responsibilities, what does success look like? For example, she self-sources one-quarter of her pipeline, closes deals in 4 months on average, and ends the year with a mix of mostly small and medium-sized deals alongside one or two large ones.

Step 2: Analyze today’s team

Next, examine the attributes of today’s high and low-performing reps. What do your top sellers have in common? What do they do well? Which skills and knowledge did they have when they were hired, and which did they instead learn on the job? For those who didn’t work out, why were they unsuccessful? Recognize those patterns and document them. Depending on the size of your team, over-index on the more recent hires that more closely represent the next 10 reps you’ll bring on board.

Step 3: Identify rep competencies

Organize your rep competencies into four buckets (the following is not comprehensive):

Industry & Product, such as previous experience in your industry and the end customer’s industry, how those end customers make more revenue or lower costs, pain points, and product knowledge
Selling Skills, such as prospecting, qualification, objection handling, discovery, use case articulation, negotiation, deal strategy, building a business case, time management, trust-building, and internal collaboration with SDRs and SEs
Abilities, or the soft skills applicable beyond just sales, including executive presence, grit, extraversion, curiosity, attention to detail, polish, confidence, and coachability
Background and previous roles, such as selling into the enterprise or to a particular buyer; new logo rep, or an account manager; specific companies they worked for; startup or mature company experience; and years of experience

Step 4: Prioritize the critical attributes

Step 3 likely led to a laundry list of attributes, so stack-rank them and identify the top 7-10 things that are most likely to lead to success on your team. Include in that exercise other functions like customer success, marketing, sales engineering, sales development, and product to ensure all voices are heard.

Step 5: Create a scorecard

You’ve articulated what makes for the ideal rep, but many skills are on a spectrum. Spell out what each attribute actually looks like on a scale from 1 to 5, including concrete examples from real scenarios your team has encountered. For example, for a 5 on product knowledge, it could be a quote from a real demo an SE ran with a prospect. For a 2 on social selling, it could be the minimum elements of a LinkedIn profile. This ensures everyone is on the same page when interviewing and selecting candidates, from the veteran sales manager in Enterprise West to your recently hired Mid-Market lead. It’s important to note that excellent reps don’t enter the company knowing it all. There is a ramp-up period. So consider breaking out (a) the minimum starting point needed before being hired and (b) what level they must be at once trained and fully ramped. For instance, perhaps a 1 out of 5 on industry expertise is acceptable — they can learn that on the job — but they need a 4 out of 5 in negotiation because that is too hard to train.

Step 6: Establish structured interviewing

Lastly, how do teams test for these skills and knowledge and evaluate candidates consistently? Work with your HR organization to devise structured interviews — interview questions, case studies, role plays, and more — that test each competency and allow you to calibrate a 1 vs. a 3 vs. a 5. More on hiring best practices here.

Conclusion

With this 6-step process, you and your entire company will know precisely what sort of rep you’re hiring for, with all the specific attributes prioritized and calibrated. As your teams speak with candidates across the globe, they will take a consistent approach, ferreting out the bad and selecting the good – whether those interviews are in Louisiana or Luxembourg. As a result, rep performance will improve, turnover will decline, and CAC will get more efficient. You’ll also create a winning sales culture that maintains high standards so that your team of 10 is as high-caliber as your team of 100.

Quantity vs. Quality: Should We Lower Our Lead Score Threshold in Order to Send More MQLs to AEs?

Lead scoring is a critical tool for scaling companies of all sizes to ensure efficient funnel performance. However, lead scoring should never be set it and forget it since it is a key component of funnel health. We encourage Insight Partners portfolio companies to establish a lead scoring council, co-owned by sales and marketing, with customer success and, for those with product-led growth (PLG) motions, Product. This lead scoring council should meet at a minimum quarterly to assess business performance and stress test the model to ensure that lead scoring is calibrated based on maximizing lifetime value. This is critical to ensure that sales and marketing are efficiently converting prospects that create sustainable lifetime value for the business.

The leadership at one of our portfolio companies recently asked, “Should we relax our inbound lead score threshold in order to send more MQLs to our AEs?” There are several situations in which this is most relevant:

The company wants more at-bats as it recently went on a hiring spree for both SDR/BDR and AEs
The company is actively launching new products, testing new markets and/or segments where they don’t have historical data and need to gain traction
The company is investing in more top of funnel, with lower MQL rates, but steady opportunity generation and win rates, so the company can test the waters to drive additional pipeline generation

To decide whether this is the right path for your company, there are relationships between variables to consider: lead quality to win rate, and capacity to sales effort. While we are proposing a quantitative approach to answering this question, you will want to make sure you collect qualitative feedback from the go-to-market (GTM) team to validate that this is the best path forward.

Lead quality to win rate

To begin, consider that the win rate improves with lead quality as illustrated in Figure 1. For very poor lead quality, the win rate is nearly zero. At some point, the win rate improves rapidly. Ultimately, the win rate slows and saturates due to diminishing marginal returns on lead quality; even CxOs who submit demo requests will not close at 100%.

Standard S curve, lead quality on x axis, win rate on y axis — Figure 1: Actual Win Rate vs. Lead Quality

If the company doesn’t have strong analytical talent, it can identify the optimal trade-off of lead quality to win rate by testing a “null hypothesis”. The “null hypothesis” method would be to leverage A/B testing and a best guess for volume increase: Increase the leads for a particular territory while keeping the other territory constant. Measure the win rate impact and compare. Other measurements to validate lead quality are: the conversion rate of leads to pipeline, average sales cycle, and ACV. For more precision on what point on the “S” curve is most optimal, we use math!

Since the math can get a bit tricky with the curve in Figure 1, we can use a piecewise linear estimate to approximate the relationship between win rate and lead quality. In Figure 2, the win rate increases in steps from w3 to w2 to w1. A good way to think of this is that each step represents a different combination of lead source (demo request vs. content download), persona (VP vs. Director), and overall engagement (repeat- vs. first-time visitor).

S curve superimposed on ladder. x axis: lead quality Y axis: win rate. Ladders occur at w3 w2 and w1 (y axis) — Figure 2: Piecewise Approximation of Win Rate vs. Lead Quality

Imagine a company only serves AEs a quantity of leads (L1) of the highest quality (w1) with a fixed average annual recurring revenue (ARR) for closed won deals (A). Then, the total ARR booked is:

𝐴∗𝑤1∗𝐿1

Now, assume the company relaxes the inbound lead score threshold and allows some quantity (L2) of leads to flow to reps with the next tier of quality (w2). Though the win rate is lower, let’s assume the average ARR is still A.

We need to add two practical complications since salespeople have limits on sales effort and capacity.

Sales effort to capacity

Turning up the volume on lead gen is great as long as the company has the capacity to execute. If the pipeline exceeds its ability to execute, the company is then faced with aging leads and deals, over-whelmed sellers, wasted marketing funds, and potentially dissatisfied buyers.

When testing the influx of leads in the test territory (as mentioned in the “null hypothesis” above), capturing the # of leads and opportunities worked by a rep will help with calculating a rep’s workload. Does the lead and opportunity influx result in greater booking and personal attainment? Simple pattern analysis may work if the company is testing for smaller teams.

It is important to understand how sales effort or “energy” is factored in calculating capacity to execute. The first complication is that handling L2 additional opportunities may lower the win rate on the L1 leads from w1 to (w1 – e). We will refer to ‘e’ as the energy factor since doing more in the same amount of time typically results in lower performance.

The second complication is that reps may have an upper bound to the number of opportunities they can handle. By adding L2 leads, the number of leads the rep can handle may drop from L1 to (L1 – c * L2). Here, c is a capacity factor.

Putting everything together, the company should let through some amount of lower quality leads if doing so will result in increased overall bookings. This can be expressed as:

𝐴 (𝑤1∗𝐿1)≤𝐴[(𝑤1−𝑒)(𝐿1−𝑐∗𝐿2)+(𝑤2∗𝐿2)]

In our experience, AEs are more energy limited than capacity limited. Setting ‘c’ to zero and solving for the energy factor, we find:

𝑒 ≤ 𝑤2(𝐿2/𝐿1)

In words, we can feed reps lower scoring leads if the reduction in the win rate (e) of the original higher quality is less than the win rate of the lower quality leads (w2) times the ratio of the lower quality leads (L2) to the original higher quality leads (L1).

Example scenarios

By way of example, assume AEs normally get 50 leads per quarter (L1) with a win rate of 30% (w1). Now, we’d like to send reps 10 additional leads per quarter (L2) but these leads have an expected win rate of 20% (w2). We should do so if we can expect the win rate on the original leads to drop by no more than 4% (from 30% to 26%):

𝑒 ≤ 0.2(10/50)
𝑒 ≤4%

It is hard to know in advance exactly how large the adverse impact will be on the original win rate. However, we encourage companies to pilot (A/B test) this to determine the actual impact on rep productivity.

Notably, our example assumed that the quality was relatively high for the additional (L2) leads. If the L1 leads are VPs with inbound demo requests and the L2 leads are Directors from the same source, then this is a safe assumption. However, if the L2 leads are demo requests from Managers or even prospects who attended thought-leadership webinars or downloaded content, then w2 would be much lower. As w2 goes down, e goes down which means that we would not tolerate even a small negative impact on the win rate (w1) of the high-quality leads.

Beyond rep energy and capacity, we also need to consider the overall economics of the business under the assumption that reps should at least be able to achieve quota. To explore this, let’s assume we are thinking about hiring an incremental AE to exclusively handle the Tier 2 (w2) leads instead of sending these leads to the existing reps.

Continuing our prior example, AEs win 60 deals per year given 200 leads and a win rate of 30%. These are typical numbers for SMB so let’s further assume a deal size of $12.5K which yields bookings of $750K per year. Assuming a 5x quota:on-target-earnings (OTE) ratio, their compensation is $150K. Notably, the 5x quota:OTE ratio is the key link to the economics of the business since the percentage of bookings paid to AEs is usually the largest component of customer acquisition cost (CAC) which in turn directly impacts cash flow and profit.

Applying the same math with a 20% win rate, bookings would be $500K and OTE would be $100K. With current B2B OTEs for entry-level AEs starting at $120K, hiring reps to pursue the lower-quality leads in this example does not seem feasible.

Always test before “going live”

As we explored, the decision on whether to lower the lead score threshold in order to provide additional opportunities to reps depends on energy for a closed won, and capacity, as well as the practical economics of the business. Regardless of whether a company leverages math or simply tests in real-time, it boils down to relationships between win rate, lead quantity, and average ARR. Companies should always pilot (A/B test) rather than go full scale should they wish to explore the economic impact of (slightly) lower quality lead sources with the caveat that the lowest quality leads, content downloads, for example, are almost never worth pursuing and should instead be nurtured via marketing automation to ensure it passes the quality threshold. As long as leaders across the organizations accept that funnel performance may decline, and there is a clear process in place to measure the fluctuations, then companies should regularly look to always test the limits of their lead scoring model.

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