Trends in Pricing and Sales Compensation

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The end of summer is here, the leaves are all changing colors, and the Stage 2 Catalyst program is in full swing.

Recently, the group of emerging companies discussed pricing and sales compensation best practices.

Here’s my short and sweet re-cap.

#1 Usage Based Billing was extremely popular, now it’s just a good consideration.

If you’d like to go deep into the findings from OpenView partners, feel free here. They share that 3 out of 5 companies are using a usage based billing component into their pricing. As the SaaS world was hit in the face in 2022, many realized that there is/was value in having recurring contracts and annual contracts to safeguard that revenue.
There’s an example of Flexport, who had usage based billing tied to shipping containers and when the world stopped, they faced a 70% decline in revenue.
Source: tradingdesk

#2 NRR matters. It should be going up. (Yes, this one is obvious)
Maybe less obvious is try and look at your pricing page and your pricing options and give clarity between a Solo User and a Team of Users. Consider pricing where you imagine adding in new features or enhanced features at a later date, which would enable you to then Upsell or Expand the relationship at the renewal or end of term.

It’s a slight shift, but 5 years ago, 7 years ago, 10 years ago, there was a focus on Multi Year Agreements, Upfront contracts, and ELAs, and it seems sales teams were focused positioning and selling the “full” solution or platform.
Even Salesforce CRM may have been focused on the full platform.
Now, they focus in on Sales cloud, Service cloud, Marketing cloud, and likely take an approach to land & expand, and see the NRR and overall Account grow and mature through various factors: time, value, growth, product lines, and alignment between the company vision and goal and the product (Salesforce).

#3 Gross Margin - keep it mind
What comes up in discussions with VCs, Scouts, and PE firms, is to consider your Gross Margin and aim for 70%-80%.

If you are at 50%-60%, if you can model out one year and show how you see your efforts ultimately paying off and then the new projected Gross Margin band, that cna be a story to tell. You just can’t tell that story for too long.

Source: Chargebee guide

#4 Compensation and motivating your first sales team.

For many early companies, the content out in the world about your first sales comp plan is stressful and error prone. Maybe it’s better for next year.

When you have a small team think about two key elements:

A. Pipeline Creation

B. Pipeline Conversion

Try your best as a Founder, to own and drive both pillars, but when the time is right, consider getting more firepower to help you on each. Options you can consider

A. Full time SDR/BDR hire, Outbound agency, Fractional Advisor/Contractor, Hire 2 AEs and have them own this pillar, try and incentivize: Referral/Partnership/Ecosystem driven pipeline

B. Full time AE, Outbound agency (I do not recommend for this role), Fractional Advisor/Contractor

For compensation, perhaps in Year 1, you won’t be certain that the SDR or the AE will be able to hit monthly targets, so you can consider paying a higher base and a lower commission, or even Zero commission, but use and track key items like Pilots started, or POCs completed, or Paid Trials, and then slowly shift to a more standard feeling compensation plan.
Get creative on your first hire. Find someone who will delight your prospects.

If you found this interesting, go deeper on the Pricing and Packaging levers you can try pulling this year. Full read (tap below).

One more deep thought on pricing, I found this take on Monthly and B2C pricing interesting, but have yet to unpack how this may hurt your long term pricing and NRR.

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