Deep Dive: Sales Compensation for Usage-based Models with Todd Gardner

Speaker A: Welcome to the Data Room where we demystify go to market data for financially strategic execs. We deliver real world guidance for finance and go to market teams helping them collaborate to transform their data into a strategic asset. I'm Scott Stalfer, CEO and founder at Scale Matters. I've been a CEO for over 30 years at various tech and SaaS companies and I've seen firsthand the power of using data and data modeling to understand understand what drives value creation in a business. Hi everyone, uh, I'm Scott Stauffer, co founder and CEO of Scale Matters. And welcome uh, to another episode in our webinar series called Bridging the Gap between Finance and Go to Market. Basically uh, in this series we've been trying to provide some thoughtful ah, content to help create uh, alignment between finance leaders and revenue leaders to help accelerate growth. Uh, before we jump into today's topic and our guest, uh, just a short note on Scale Matters, um, revenue and finance leaders generally come to us when they're struggling to answer important questions like uh, what's the relative ROI of the different channels we're using to source prospects? Or what is the uh, root cause of our recently declining win rate? Or is my sales team properly sized in relation to the top of funnel investments we're making? In almost all cases these companies go to market data posture is not really set up to help them answer questions, these key business questions. And that's where we help uh, we define a data strategy, we help them properly instrument their environment, we implement processes to help maximize data hygiene and then we deliver these actionable insights uh, to help them inform their decision making. Our work often fundamentally changes the way our customers operate their businesses, taking guesswork out of the equation. So that's a little bit on Scale Matters. Um, our guest today, uh, I'm excited to have Todd Gardner. Uh, he's a leader in the space of financing SaaS businesses, also a leader uh, in the space of SaaS metrics. And more recently uh, Todd has spent considerable time uh, studying usage based pricing. And his experience and deep understanding of the go to market uh, of uh, go to market alignment make him really the perfect expert to guide us through the challenges that are faced by SaaS companies embracing usage based pricing. So today we're going to dive into best practices for sales compensation brands that align sales and customer success teams and usage based pricing. Uh Todd, welcome to the show. Glad to have you with us.

Speaker B: Yeah, hey, thanks Scott, thanks for having me. Glad to be here and jump into this uh, this actually I saw this topic in a survey when usage based pricing started to come onto the scene is like, why can't you? Or what scares you about usage based pricing? It was like one, we don't have the infrastructure to do it, so you're comment around data. And the other was like, oh my God, we don't have any idea how to pay our people right. With a usage based pricing model. So it's still top of mind today. Even like it was, you know, six or seven years ago and this was all brand new.

Speaker A: Yeah, that makes sense. And so uh, our format with these, Todd, as you know is we'll have you go through some, some thoughts, some point of view. I think you have a few slides that uh, will help uh, support your discussion. And then once uh, you're done, then you and I'll just chat a little bit, a little bit of Q and A around the topic and then we'll uh, open it up to see if the audience uh, has any questions. So I'm going to hand it over to you and let uh, you do your thing.

Speaker B: All right, great. Um, well let's start off. This is going to be a combination of best practices gleaned from lots of different companies and actual sales compensation practitioners as well as some survey data. Um, but let's start off here. Uh, this was a little matrix I put together, uh, just going through this topic and it helps provide a framework, if you will, to think about like where should we start in terms of sales comp. If you've got, you know, a variable pricing model and simply belong along the bottom is just, hey, uh, what, what kind of pricing model do we have? Right. Most folks who have usage based pricing are not pure usage based pricing company. There's usually some sort of minimum commitments or hybrid or you could, in this case it goes all the way to the subscription model. But then more interesting is the vertical access which is um, what are you trying to accomplish? So not all companies are just trying to like get the greatest amount of bookings. Um, you might be a startup where new logos is everything, right? You just really want to get some companies in the door and get them up on the website. Also there's been other times where very large companies, they might be entering a recession, right. And they can't book new customers or it's insanely expensive to do it, so they shift to, you know, driving expansion and retention. And so it's a combination of what are you trying to do, what can you influence? Right. That's, that's the vertical axis. What is your Pricing structure. And then really the unique thing about usage based pricing is it's not just salespeople, right? Because it's not just the new booking, it's the new booking plus expansion. So the hardest thing really about comp when it comes to usage based pricing is like figuring out is it a team game or is there a handoff or how do we structure the interaction between CS and sales. So anyway, that's a framework. We uh, won't go into it any more detail than that. But those, those are a couple of good dimensions to start with to think about. Hey, what are you trying to accomplish given where you are? So like I said, we'll do a bill of survey data here. So um, it is a combination of sales and customer success in terms of driving revenue through these comp programs. But yeah, most companies uh, have not combined these two organizations so they remain separate. And, and these are, this survey was just usage based pricing companies. So they remain separate in most organizations. But there are notable exceptions and I think you'll see this shift over time where you'll see some combination. But most folks are probably familiar with Atlassian who classically doesn't have any salespeople. It's more of a PLG model and everybody is in customer success and responsible for driving um, expansion revenue. And then Snowflake is the other side of that coin which is uh, they're well known to say hey, we don't have any CS people. Everybody is selling. Um, and so there's overlap in what all those different people are doing. And you can define the roles in different ways, but this is a little bit of the landscape of uh, separate organizations all in one, not all in one. And it kind of depends on what your product is and back to that matrix of how you're going to market. Um, so uh, just continuing on in terms of the customer success comp plans because that is what's different about usage. Uh, based pricing is CS plays a big role. Um, over half the organizations who have usage based pricing are doing some sort of combination between sales and cs. So it's a joint responsibility to drive expansion. A uh, third it's just cs and then you know, a relatively small percentage are using the salesforce itself to drive expansion. So that's the state of play in the market today. Um, really in, in interacting with folks who are um, designing these systems. There is now a lot of momentum though around handoffs. And the reason is it's basically look, your sales reps, your AES identify the opportunity, they close the business and then they quickly hand it off to customer success to drive expansion. Uh, and the reason the handoff works is because the roles are just so much easier to define. Like you know, you're an ae, you're focused on bringing in new business, your customer success, you're focused on retention and expansion. So it's easier to measure, it's easier to have more accountability, it's easier to design a comp plan when there's a handoff involved. Most of the time that handoff happens after six months and before 12 months. And I'll make some points later around comp doesn't need to necessarily follow that, but that's when the handoff should happen, at least that soon. Um, and the one exception here is if you're selling into very large companies, um, look your one customer could have you ah, know a lifetime's worth of new opportunities. So um, in those cases AES are not handing off to customer success, they're staying engaged over the life of that customer, you know, large named accounts, for example. So that's a little bit on the customer success, uh, comp plans. Um, what you'll see in the next two slides is this shift. Um, so this is a little bit about what's the background of your customer success team. You know, most are a combination of technologists who are solving, you know, problems and business folks, um, as customer success teams get tagged with being responsible for expansion, uh, the best companies out there are basically um, reconfiguring their customer success teams so they are more technical in nature. If you're giving them the added responsibility of expansion, they're more consultative, uh, and they're better at critical thinking. So the criteria for hire in CS in usage based pricing, when they're given this job of expanding revenue, it's an elevated position. Like you can see those are higher level uh, criteria than you might have in a subscription based business for customer success is really much more passive, not engaging to drive expansion. Uh, and so you, you do have to think about retooling CS if you're going to give them the handoff, you know, to drive expansion dollars. Um, comp plans are generally driven by expansion dollars and we'll spend a few slides, you know, helping to define that. Uh, that's usually done in combination with a GRR target. So gross revenue retention. The reason it's not net revenue retention is you're capturing expansion dollars on their own as a commissionable item. So GRR is really the best complement to that. So you're not double counting expansion dollars and then many of them also include Net promoter score, um, and if you include value added activities like quarterly business reviews, like, you know, the company knows QBRs are good and they lead to better outcomes. So uh, they will actually reward reps for doing that. One thing here on expansion dollars, before we get into the measurement of them, some companies try to isolate the expansion dollars that are driven by CS different than those that happen organically. A couple of companies have been successful at that. Most have, have not. It's just way too hard to unscramble that egg. So most, uh, most commission plans for customer success folks treat all expansion dollars the same. Whether it was an initiative by CS to drive it or it just happened organically. All right, so this is, this is actually an issue that was brought up by um, the head of comp at Snowflake. So they started to um. Well, Snowflake classically doesn't have any CS people, but they were, they were comping their reps on expansion dollars. They were measuring expansion by, you know, this year's revenue versus last year's revenue. And what they found is, you know, if, if sales identified initiative that increased monthly recurring revenue and it happened earlier in the year, it would drive three, four times the compensation that that same increase in ARR would drive late in the year because it just didn't get captured because it was only a, it was only a few months. So worst case in their scenario, um, for those folks who did it had a late in the year expansion that got rolled into next year's base so they never got paid on it. Um, best case expansion is, you know, this, this would work its way through the system, but the reps were getting paid a year late essentially, or at least nine months late. And if you know anything about compensation, you might as well not pay anything at all if you're going to pay it a year late. So the definition of while year over year is very simple. Um, you get into this weird, arbitrary, uh, you know, when did it close? Even though it had the same impact on ARR and the same impact on the business. So um, uh, Snowflake moved to a run rate calculation. So they compared last quarter's run rate to this quarter's run rate. Uh, that's shown in the graph on the left. Uh, that works, can, uh, be, can be great. You usually do it, measure it every quarter, um, maybe do some smoothing. Um, the next issue they ran into though was they have some seasonal customers. So if you're doing quarter over quarter sequentially, that doesn't make any sense. Uh, so where they ultimately landed and lots of folks have. And this is a very robust way to measure expansion is to do you know, Q2 of uh, last Q2 for example of last year to Q2 of, of this year. So you're doing like um, quarters one year separated. Ah and that tends to get rid of the arbitrary nature of did happen early in the year, that happened late in the year. And it also gets rid of weird anomalies that can happen in seasonal businesses that, that spike quarter over quarter even though they might not be growing. Scott, you jump in with the questions. I'm going as fast as I can through these slides. So um, uh, all right. Sales comp plan. So um, yeah this is, this is basically you know, survey data. Ah, most are 50.

Speaker A: 50.

Speaker B: That's very similar to the subscription world. I found it interesting that a couple of the larger public companies are allowing reps to opt into higher leverage plans. Um, Scott, I don't know if you'd seen that before but like reps can literally if they're very confident about what they'll close in the year now they can't go back and forth but they can opt into a 70 Ah, 30 plan um, where they're getting higher leverage and getting, and getting paid more. M Some, some companies are starting lower than 50, 50 just because usage based pricing is wild, wild west and you know, they're not sure what's going to happen and so they're sort of you know allowing their reps to uh, basically ease into it. Um, UBP companies are more inside sales uh weighted than, than traditional subscription companies. Um, it's about 55%, 45% um, probably because there's more PLG overlap or product led growth overlap with usage based pricing than there is subscription. Um, and then these are the commission rates. Um, these are two years old. Um, I'm sure anybody designing a comp plan is going to do lots of benchmarking on that. But that's basically the histogram of where different companies are paying, you know, anywhere from 5 to 9% on new sales. Which brings up uh, the question is what is a new sale? Uh, and that's another complication with usage based pricing. It's like look, if you're not doing minimum commitments, um, and it's at least part of the sale is really a usage based model. What, what are you paying on? Right, because there is no booking. Um, so most, they're folks are paying on lots of different things. Um, most are paying on actual metered usage. Obviously the company's metering that usage because they need to bill it anyway or they're paying on actual invoices. So, and, and I love the second one, right, because it, it very much aligns the value that the company is, that the customer is bringing the company with what you're paying the rep. Um, also if there's some heavy discounting or something that might not get picked up in metered usage, it will get picked up in invoices. Uh, most of the folks who are paying on usage are paying monthly. Um, and if you are paying on, they're paying the commission when the customer pays their invoice. Um, that's, you can do that. It aligns cash flow. But, um, in my opinion it creates two problems. You've got a customer who's not paying you, that's a problem. And now you've got a rep who's angry because they're not getting the commission check. Uh, and those two usually aren't connected in any way anyway. So anyway, my recommendation on what you pay on is um, invoiced usage or invoicing. So you can tag it sort of dollar to dollar and then I, I'll end here. Um, this is, this, this was fascinating to me. So you know, even in the usage based world, right, a lot of companies are pushing for minimum commitments, um, volume and duration. Uh, but a couple of very innovative and successful SaaS companies stopped paying on commitments and just paid the reps on usage, even though commitments were still part of the structure. Um, and what they found is customers were asking for the commitments, right, because they get price breaks for those commitments. And they found that actually by not commissioning it and having the customer asking for it instead of the rep pushing it, they got longer and higher commitments from their installed base than when they actually commissioned that behavior. Um, so I think it's pretty interesting and it speaks to the strength, in my opinion of the usage based pricing model, which is, hey, you know, pay for what you use. If you want to lock in more, great, you know, but, but we're not pushing you to do that. And I think those companies were really leading from strength. Um, anyway, that's not for everybody but, but a really interesting dynamic. I thought around, um, you know, little tweaks to the comp plan that can drive, uh, you know, lots of, lots of different behavior.

Speaker A: First of all, fascinating stuff. Um, so with usage based pricing, most people would say that that substantially reduces the upfront friction of getting a sale done, right? And if you think about that, for one, then you say, but traditionally salespeople are Paid substantially higher than CS people.

Speaker B: Right.

Speaker A: So uh, you showed some of the, you know, the splits, 50, 50 and all that kind of stuff. But does, does usage based pricing change that dynamic? Are the CS people now the ones getting the big checks and salespeople whose job in theory is a lot easier or not or do you have any views about that?

Speaker B: Yeah. So um, it, it's certainly possible right there, there are scenarios going back to that matrix, right, where, where the hardest thing to do but the most, uh, the thing you can influence the most might be expansion. Right. So absolutely the CS folks, I mean most of your commission dollars should be going there so you could think of product led growth businesses where new customers sort of come in the door every day. You're right. The usage based model is perfect for that. Right. Because there is no barrier around I got to sign a contract or whatever, whatever. And then you know, they're sort of going through the bow tie motion. Um so absolutely, the, the dollars can be most levered effectively against expansion. You might even call that a sales role though. Right. So the, the, the you know, the role starts to get confusing. But, but the dollars go behind expansion and retention as opposed to new customer acquisition. And you can see the CS groups getting paid more than the sales groups.

Speaker A: Interesting. And you didn't. And I know when you've been studying this stuff you've mostly been focused on the sales and CS stuff. But um, you didn't talk at all about marketing. And I bring that up only because um, with a PLG motion I would say generally the burden is on marketing to get the new logo in the door. Right. Um, and have you seen any uh, um anything about how marketing folks are paid on usage or anything like that or just has it been the aperture?

Speaker B: It hasn't been the focus. Um, and I haven't seen commissions but I've certainly seen you know, bonus plans and programs and, and sort of performance metrics obviously driven behind you know, the quality of the pipeline and, and m. New new acquisition act and marketing. Have you, have you seen it?

Speaker A: No. And, and it's something I wish.

Speaker B: Yeah, I agree.

Speaker A: Too many companies still just do the same old thing and they're not uh, as thoughtful as like uh. I like loved your matrix, what are you trying to accomplish etc. And I think companies aren't as thoughtful as they should be. Uh, I mean they spend a lot of time on sales comp, but they don't necessarily spend a lot of time on comp as an alignment tool.

Speaker B: Right. Yeah. Zooming out a little Bit like.

Speaker A: Yeah. And uh, uh, you know I'm just wondering whether you've seen with some of the companies you studied if you've seen any like awesome examples of setting up the compensation structures for UBP that really enabled alignment or whether that would have not necessarily shown up in the work you were doing.

Speaker B: Um, I mean when, when they're um, selling as a team for sure. Right. Because the comp is really team based.

Speaker A: Yeah.

Speaker B: Um, and even though that's not the recommendation at the end of the day that is the easiest and best way to get alignment in this case between sales and cs. Um, you know you're compensating them as a group. Um, even though you might be sub optimizing the enterprise by not having them focused specifically, specifically on the area that they can have the biggest impact.

Speaker A: Yeah.

Speaker B: Ah, which is my point around the handoffs.

Speaker A: Yeah. I mean usage to the extent that sales is comped on usage, I mean that sort of builds some alignment in. Right. If you uh, consider the traditional non usage based, you know you have all these CS people complaining because sales is bringing in customers that really aren't good fit and so they end up churning and stuff like that. Meanwhile sales got paid to bring in these people that don't, don't last. I think the usage based pricing uh, sort of intrinsically has some of that alignment because you're not going to make the money if they don't use the front.

Speaker B: Right. If the tail is long enough sometimes they're not going to churn in the first six months and, and there's plenty of usage and they, they get their, their full allotment. Um so we, I, I've done this with actual portfolio companies at SaaS Capital um, who are striving with the retention. We did a cohort analysis by sales rep so I would, I would throw that out there as a best practice. Sometimes it doesn't show anything. Sometimes it shows a lot.

Speaker A: Yeah.

Speaker B: It sometimes shows some folks who were good at getting people over the goal line and promising whatever. Right. But then you know the product didn't actually deliver or wasn't a very good fit to begin with and you get a much different churn level from one sales rep than you do from the others. Um and HubSpot was the first group that I ever taught, heard of that started to address retention through the Salesforce and the sales comp program um, back 15, 20 years ago. But to your point that's an analysis mo more companies should do um, that that might enlighten, might enlighten them a little bit.

Speaker A: Um, we have a question from Evan saying where do sales engineers fit into the equation? Um, I'm presuming they, their role is typically a pre sales role. So uh, my assumption would be that they have some comp. Similar structure to what the salespeople have.

Speaker B: Exactly. Yeah. Usually mirrors that. Um, uh, but it depends on the role. But yeah, most of that role is during the sales process supporting the account executives. Uh, so their comp flows in the exact same manner. Yeah.

Speaker A: Um, let's talk about instrumentation a little bit. Uh because obviously when you start talking about metering usage and stuff, it's adding an element of instrumentation that doesn't typically exist in a traditional SaaS business. So not only do you have to have built that instrumentation into the platform itself M but then you have to get that data out of the platform into a billing system, etc. Um, for an early stage company. Right. Haven't yet proven product market fit. Do you have any views on whether they should put a lot of energy into the instrumentation versus kind of do a, do a trust relationship and try to deal with it with licensing?

Speaker B: I think you hit on uh, pricing shouldn't be driving the bus in terms of product development. And like if you're that early and you um. Of course now there's some debate on when product market fit is actually uh, happens. But what's more common is folks are releasing an AI module that's got usage based components. Uh, or they want to get to usage based component. But, but early on it's all you can eat. Right. And I think that's fine. Um, I don't like the anytime you have some sort of subjective metric where you and the customer have to agree on something. I'd rather see a simple subscription. Um, I don't like the tension that that can create. Um, but you shouldn't over engineer it early on. Um, all that said, um, to get to the right metric and there's been a lot written on like what metric should we tie our pricing to? How do you select that metric? Um, the best way to do that is measure lots and lots of metrics and see how they behave and see which ones correlate best with customer value and they have to be granular and a bunch of other things. But so there is this idea of maybe you're not accumulating but the ability to see into the application and measure some of that stuff for down the road can um, be important. But you certainly have to balance that with your product development needs of actually getting key functionality in the hands of the customers. Um, but instrumentation is a big deal. So my clients are Meter and Maxio, um, and they both are in business because usage based pricing is complicated and it involves a lot of data and you collect the data and then you rate the data and you might have different plans for different customers. And it's so much more data intensive than uh, an old subscription business that you do need additional tools. The spreadsheet will kill you, you know, um, at any sort of scale. So um, I think back to the earlier conversation, people were scared about how to compensate my reps and getting the infrastructure in place to do usage. Those were the two impediments to usage based praise.

Speaker A: Yeah, interesting. So uh, when I uh, saw you in New York, uh, what, a month or two ago, uh, at uh, Ray's, uh, SAS Metrics Executive Summit, uh, one of the other speakers there was uh, Jocko Vanderjoy, uh, winning by design. And I uh, remember him making the comment that all usage based pricing eventually becomes subscription.

Speaker B: I remember him saying that too.

Speaker A: And uh, you know, to use the ah, phone, the phone services as an example, you know, um, what's your, there's

Speaker B: still water and electricity. Right? That's feather examples.

Speaker A: But so what is your reaction to that? And, and if you believe that that is sort of the asymptote that everything ends up getting towards. Is usage based pricing more of a sales strategy than anything else?

Speaker B: Um, look, I think this whole pricing thing is very product dependent. So all of these blanket statements, um, you take them with a grain of salt. I do think AI has introduced something new to this equation that supports usage based pricing that wasn't there before. And it's called cost of goods sold. Right. So if you are offering a wrapper around one of the AI engines and you're offering it to your customers and they're paying 50 bucks a month, their usage could be through the roof and costing you $500 a month. And so in the world of AI, um, where there, there is incremental marginal cost, I think usage based pricing is absolutely going to be um, critical and, and, and, and, and there's going to be a long duration around it. Do I think usage based pricing is the end all be all? No. Um, do I think it's effective sales deal in some cases? Absolutely. Would all usage based pricing companies be okay with all of their customers growing up and it's like, hey look, looks like your usage is like between here and here. Like let's just skip all this stuff.

Speaker A: Yeah.

Speaker B: And we're going to charge you 150k a year and everybody be fine with that. But I do think AI introduces a new bit to that equation which may give enduring legs to usage based pricing.

Speaker A: Yeah. As a company that actually has built software, my head of engineering and I just today, because we're training some models right now around um, um, generating um, go to market plans, 12, 12 month go to market plans based on historical data and all this stuff. And you know, I was asking him today, hey, I'm reading a lot of stuff about the gross margin impact to software companies, uh, based on AI. Do you have a handle on sort of how consumptive this is, is of aws, bandwidth, et cetera. And he's certainly sensitive to it, but I don't think he has a good handle on it quite yet. But it's very real. In fact, aws, which is our software is built on, you know we, we went and trained all these models and then we had to request permission to get a uh, I think they call it a performance boost or anything to, so that we could actually run the models. M. Um, okay.

Speaker B: Um, that's how much more bandwidth. I mean intensity.

Speaker A: Yeah. It's how much. So I don't, I guess potentially it's a way of them protecting us from ourselves. But it's real, right? It's very real that there's cost association

Speaker B: and it'll get way more efficient. Right. People are working on that every single day. But the questions and the complexity is going to grow at the same time. So um, it's a very different cost structure than any SaaS company, uh, had seen before.

Speaker A: Yeah, yeah, for sure. So this was awesome. Uh, why don't we. We've got a few minutes left. We've had one question. So uh, let's see if the audience has uh, any other questions that uh, Todd can be helpful uh, with. Here's one. In a lot of uh, traditional SaaS businesses, it looks like most of the revenue comes after the initial sale land and expand. You find this is still the case for UBP companies. How should that impact sales comp? I'd, I'd say that's only the case for UBP companies. I mean it's, they're. Yeah, yeah. So I think that that issue Liam that you bring up is magnified uh, with usage based pricing in my view. Todd, do you.

Speaker B: Definitely. Yeah. I mean there, there obviously were subscription businesses that might have 20 modules. I think an HR tech is the perfect example of that. There, you know, there's a recruitment model and a retention Blah blah blah. Um, and so they were land and expand and would start with one and grow from there. Um, but, but yeah, PLG linked with usage based pricing speaks um, to yeah, most of the revenue coming after the initial sale. But also sometimes not. Like sometimes the, the product is linked to the revenue of the customer which just really isn't going to change that much. It might grow a little bit over time but it's grown at 10% a year. So sometimes these, these companies have very big initial contracts with you know, dealing inside uh, what I call a fat tier. Right. Which is not the optimal way to price. But yeah, sometimes there's a fair amount of stability inside usage based pricing as well.

Speaker A: Uh, when you say link to revenue it'd be like a billing system or something, something that has visibility into the revenue.

Speaker B: E Commerce. Right. You're charging a percent of revenue. You know they're, they're getting plenty of revenue right out of the gate and they know what it's going to be be. Um, one of the ways you can pay reps when you don't have a minimum commitment is estimate the revenue for the following year. I didn't actually talk about it because it's such a bad idea. Um, I, I, I thought it was going to be a great idea and there's some companies that do it but most people are like oh my God, don't do that. Um, because your estimates are going to be wrong. You have to claw back commissions or like, like the worst possible thing ever. Um so yeah, so most folks move to that pay, pay per month, um model and not try to estimate ARR of a new company. A new company.

Speaker A: I, I, I've seen a couple of companies uh, doing that uh, estimated ARR and it's typically driven by um, you know, know some, some metric of the client.

Speaker B: Sure, right.

Speaker A: Yep. And where it's been somewhat effective at least in terms of not being gamed is when the customer, let's say they enter via website form, the customer identifies, self identifies like those metrics. Right, those metrics. So it's, it's, it's not the salesperson uh, uh, putting that in subjectively.

Speaker B: And the other thing I've seen on that is if they do that they will pay like 75% of the commission at closing and then there'll be a true up uh later on usually after a year. Like oh ah, was it, was it actually that maybe it was more and we'll pay you more but if it was less you're, you avoid that clawback. Yeah, yeah. Because you didn't pay it all out.

Speaker A: Interesting. Uh, Ravi asks, uh, in ubp, what type of base salary are you seeing for sales reps?

Speaker B: I'm, I am not qualified to answer that one. It's just all over the board with all these different customers. But I, I'd go to, I'd go to comp surveys for that.

Speaker A: Yeah. Uh, probably the same answer and there's

Speaker B: plenty of surveys out there. So you know, chat GPT would be way better at that than, than I would.

Speaker A: And Lizzie asks whether um, company stage has any bearing. So on your second slide, maybe where you sort of had that matrix.

Speaker B: Matrix, yeah, yeah.

Speaker A: Stage wasn't part of that. Is there, is there some relationship to stage or. Not necessarily.

Speaker B: A three dimensional model would have been hard to put on that. Uh, um, but no, it absolutely relates to what you're trying to accomplish. Right. Well, I think I gave an example of that really early stage company who's literally going to pay a flat commission per customer. You know, they don't care how big it is. Right. They're just looking for logos. That's an extreme case.

Speaker A: Yeah.

Speaker B: But um, uh, but, but it, some, some companies are there, um, and, and it tends to be simpler. Right. Everything's new. You might have less leverage in the comp plan, you know, because it's not like people have been selling this stuff for 20 years and we know how to do it and we know there's a product market fit. So um, I think. And you. Simpler um, is, is better on those early stage businesses. You get a lot more nuances later on when the product's more complicated and, and the Salesforce is bigger, etc.

Speaker A: Yeah. And the other reason simpler is better is that there's less administration overhead, um, which is important. I uh, had a question from Will. Uh, do you have any recommendations for managing the transition from a traditional subscription model to a UBP model?

Speaker B: Well, I've got a couple of others. And then sales comp. So one of the thing on, so specific to sales comp is like uh, decide early on who's going to be in charge of expansion. Is it going to be your reps, a team game or your customer success? And if customer success, do they have the desire and the skills to be upselling and cross selling. So you, you don't want to dump that responsibility into CS and they're like hey man, that's not what I signed up for. Right. I'm, I'm here to, you know, just help people be successful. I don't want to have to cross sell and upsell. So have you, have you aligned? Have you built your team properly? Um, the other thing, one, there can be huge cash flow ramifications. So a lot of subscription businesses get paid a year in advance or more. You're more than likely, um, then if you went from there to pure pay as you go, uh, you're going to create a massive cash hole and your balance sheet because you used to get paid a year in advance, now you're getting paid every month. Um, that, that can be super problematic. So you might think about, you know, minimum commitments and still doing some paying advance, pay in advance kind of things. Um, but at the end of the day I would also say you're going to be a, you need to be a much nimbler organization, um, because you're earning the business every day, you know, not every two or three years upon renewal. Um, I would also go back to the tooling side of the equation which is if you have um, field or if you have salespeople plus usage based pricing, that generally leads to complexity, right? Because you're negotiating different deals with different people and so you're rating things different. And so that's when you need to think about billing maybe somebody like Maxio or Meter or other third parties that help provide that infrastructure. Because your customers, what you don't want is like your customer going, holy shit, my bill is three times more than I thought it would be. Right. That might have been your uh, AWS facts, you know, like, hey, make sure you know what you're signing up for.

Speaker A: Right?

Speaker B: The supplies bill is like the nightmare in usage based pricing. So you've got to have visibility allowed into for your customers to see where they are in the month. Um, and, and you have to know you have to address those issues before the bill comes out.

Speaker A: Yep.

Speaker B: Hey, hey, Scott. Hey, let's, let's have a chat. Let's get you in a different plan. You know, you burn through everything. So anyway, those, those are a few things that you need to think about ahead of time.

Speaker A: Cool. That's all the time we have. Uh, Todd, thanks a lot. I think this is uh, I mean it's timely. Uh, it's very relevant, particularly with the um, um, you know, preponderance of AI growing. Uh, so appreciate you being with us and I'm sure the uh, audience found this helpful on site.

Speaker B: Yeah, thanks for having me. I really enjoyed it.

Speaker A: Make no mistake, good data matters for driving efficient growth and valuations. Follow me on LinkedIn where I'm sharing insights from CFOs investors and strategic go to market execs. Thanks for listening to the data room.