How Do I Build a Usage-based Sales Compensation Plan?

Mark Regan and Joe Morrissey

As Ben Horowitz says, it’s “no prize, no fight” when it comes to getting the best salespeople on your team. But building a sales compensation plan that both aligns your sales team’s compensation with your customers’ objectives and recruits top salespeople can be incredibly difficult in usage-based pricing.

The problem comes down to incentives. In traditional B2B SaaS sales, companies want to sell large upfront annual commitments, so salespeople’s compensation is mostly designed to maximize deal size. Big swing, big deal, big check.

This incentive structure gets turned on its head in product-led growth and usage-based pricing, where more companies land low- or no-dollar deals and expand them over time. This can lead to a number of common issues in sales compensation: paying your salespeople for activities that don’t actually drive more usage; failing to motivate your reps to land new customers, especially in the enterprise; compensating reps for all incremental customer usage and, consequently, diluting their focus and demotivating them (if everything your salespeople do is important, nothing’s actually important!); and struggling to recruit and retain high-performing salespeople who aren’t used to having their compensation tied to a slow usage ramp-up period.

In order to build a usage-based sales compensation plan that motivates your reps to drive the best possible customer outcomes, then, it’s important to understand where your sales team actually makes your customers more successful, prioritize the most impactful behaviors for your business, and choose the right compensation levers to drive those behaviors

1. Determine where your sales team makes your customers more successful 

In usage-based pricing, value = usage. The more customers like and use your product, the more revenue you bring in. 

When you’re building out a usage-based sales compensation plan, you need to first understand how customers get value out of your product, then identify where your sales team can either accelerate or expand their usage. One of the best ways to do this is to analyze each step of your ideal customer journey—signup, onboarding, and expansion—and specifically identify how your sales team influences your customers’ actions and decisions. 

Signup 

How do your customers find and sign up for your product? 

Some key questions to ask yourself include: 

  • What channels lead potential customers to your solution?
  • How do they determine if your product meets their needs?
  • Are demos or trials available before purchase?
  • What are the steps to become a long-term customer?
  • Can customers self-purchase advanced options or commit to a usage-based plan?

Sales value-add: 

  • The sales team’s primary role is acquiring new customers and helping them get started with your product. If your product’s journey is mostly self-guided, chances are this isn’t where your sales team is having a big impact.

Onboarding 

How do your customers first find success with your product? 

Onboarding is your customers’ journey from initial purchase to active use, marked by key milestones like deploying their first solution. Consider how customers engage with your product during onboarding and whether they need support from your team.

Some key questions to ask yourself include:

  • Do customers independently activate the product for their use case(s)?
  • Is support from your team, including sales, generally required for activation?
  • Should your team proactively assist customers facing obstacles?

Sales value-add: 

  • The sales team’s role is guiding customers to their first major success milestone, which might include coordinating resources and project management. If customers self-onboard, this probably isn’t where your reps have the most impact.

Expansion  

How and why do your customers use more of your product? 

Figure out why customers use more of your product and the sales team’s impact throughout. This may involve increased processing capabilities, new features adoption, or enhanced data throughput.

Some key questions to ask yourself include: 

  • Are you, as the vendor, consistently engaging with customers to identify additional use cases, features, or user groups? 
  • Is the same salesperson who partnered during the signup and onboarding process also highly valuable for the customer during these activities (due to established relationships or specific business context)? 
  • Conversely, does the customer experience much of this additional incentive to expand through the product experience?

Sales value-add:

  • Salespeople may act as “farmer” account managers to drive broader adoption or “hunter” account executives to introduce new features. However, if the product itself drives more usage, this likely isn’t where your reps have a lot of impact.

2. Prioritize the most impactful sales activities

Once you know where your sales team adds value, the next step is to prioritize the top 1 or 2 activities that have the most impact, then devise a weighting system that incentivizes those behaviors. 

This is the most important step in this process.

Why? 

In usage-based pricing, a great sales compensation plan will compensate your sales team for making your customers as successful as possible, which creates the virtuous flywheel of consumption most businesses are looking for with usage-based pricing. Over-incentivizing can dilute your sales team’s focus and actually weaken the impact of your comp plan—if your sales team is reaping a lot of benefits for little work, why work harder?—while misaligned incentives may lead to outcomes that don’t make your customer or your business successful. Why would you bonus your sales team on new logos, for instance, if most of your growth will come from expanding usage in the customer base you already have?

Of those high-value sales activities you identified in the previous step, then, what is the relative impact of those when compared with one another? There are different ways to score that impact (split of 100%, point system, etc). What matters most is that you work with the key stakeholders in your business—CFO, CRO, etc.—to find the distributed weights that work for you and your overall business goals.

For instance, let’s say you’re a database company selling into complex enterprises and you’re trying to capture market share. Your sales team needs to land net-new logos in your ideal customer profile (ICP) and get them up and running on your platform.

  • Sample sales compensation plan weights:
    • Acquisition: 75%
    • Onboarding: 25%
    • Expansion: 0% 

Or let’s say you’re a developer tools company selling to companies of all sizes. Your product and marketing are designed to attract users and paying customers. Your sales team is responsible for helping customers build their first application (onboarding) and—more importantly for your overall growth—for driving continued use of the tools for more projects, across more teams (expansion).

  • Sample sales compensation plan weights:
    • Acquisition: 0%
    • Onboarding: 30%
    • Expansion: 70%

These examples are obviously simplified versions of a given customer journey, and you’ll most likely decide to make your compensation plans more granular and tailored to your own business model. Maybe your compensation plans aren’t divided neatly into 3 buckets, for example, but starting with these 3 buckets of the journey can help you figure out where to tweak so you can better model your own process.

3. Choose the right compensation levers

Now that you’ve determined which stages of the customer journey your sales team impacts the most, you need to select the appropriate levers to incentivize your sales team’s behavior. While there’s rarely a straightforward “if X, then Y” formula for choosing these levers, the following considerations can help you determine the best ways to measure and calculate those incentives.

Signup

The best signup incentives motivate your reps to carry out challenging campaigns associated with prospecting, managing a sales process, and securing commercial agreements with newly acquired customers. 

Considerations:

  • New customer signups. In usage-based models, customers’ signup spend usually isn’t big enough to give your reps a significant bonus or commission. If that’s the case, consider compensating them on the number of newly acquired customers they bring in instead of the actual initial revenue.
  • Minimum committed spend. If you and your customers still value minimum upfront commits in usage-based pricing, consider compensating reps on the dollar value of that committed revenue. Typically, we see companies credit the salesperson the full annual value of this during signup, even if the customer staggers the committed revenue throughout the contract period.
  • Hybrid. A combination of both of the above can be useful if you need to incentivize each of these outcomes.

Onboarding

Here, the goal is to incentivize your sales team to get your customers to that first indicator of sustainable success with your product—whether that’s over an initial period of time or on the completion of a given milestone. 

Considerations:

  • Year 1 revenue. You can incentivize based on the revenue you expect from each customer’s first full year using your product. We see companies pay based on actual attained revenue, rather than a projection or forecast. If you also paid your reps on minimum committed spend during signup, then incentivize for revenue above that minimum committed spend during onboarding.
  • Key milestones. If your customer can hit distinct milestones during their initial use of your product—like deploying their first solution to production—consider incentivizing reps when customers hit one or more of those milestones. This can be used as an alternative to a time-based incentive.

Expansion

Incentivize your reps for ongoing incremental usage and additional product purchases.

Considerations:

  • Overall incremental revenue. This is the calculation of sales team incentives based on the ongoing net incremental revenue from customer usage. This is generally one of the most straightforward and commonly applied incentives, given its direct link with the actual timing and value of incremental revenue.
  • Incremental revenue above minimum commit. For companies that incentivize on commit during signup, expansion incentives are instead associated with the value above the minimum commit.
  • Additional products. Consider incentivizing separately for this, if necessary, to create additional incentives above and beyond those represented as incremental revenue.

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Reconciling the conflicting sales, company, and customer priorities in usage-based pricing can be incredibly difficult. Though this framework is far from exhaustive and the specifics of your business will heavily influence the particulars of your sales compensation plan, we hope this framework helps you think more concretely about building a compensation plan that makes your customers successful and helps your reps learn, earn, and have fun.

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