Account executives (AE) owning the renewal process is common practice in SaaS.
But not all SaaS companies follow suit.
In this sector, particularly among mid-sized to large companies, account executives often take responsibility for managing and renewing customer subscriptions. This approach allows account executives to maintain a direct relationship with customers, understand their evolving needs, and ensure a seamless renewal process.
Conversely, early-stage companies typically leave renewals to account managers (AM) or customer success managers (CSM). This allows the AEs to focus exclusively on growing the customer base by adding new logos versus retaining existing ones, which can muddy priorities.
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Our Compensation Plans Templates library contains 10 example AE compensation plans for the latter.
So, what about the mid-size to large companies who need comp plans with a renewal component?
Enter this blog.
AE comp plan renewals
For your AE comp plan with a renewal focus, generally, you’ll create two quotas for the AE.
1st Quota: New Biz
2nd Quota: Net Revenue Retention (NRR)
or Gross Revenue Retention (GRR) with an upsell component
Then, you will dedicate a specific amount of the AE’s variable to each quota. You’ll base this on how much time you want the AE to spend on each while also considering how much you want to compensate them for doing so.
For example, if their variable is split 50/50 (50% New Biz and 50% NRR), and it’s easier for the AE to secure renewals and upsells, your rep will most likely spend more time there. However, if you dedicate 10% of their variable toward renewals, that’s likely not enough to motivate your reps to focus on renewals.
TIP: Carefully lay out the splits and recognize that the splits will vary by company. If your AEs are the only ones responsible for retention and upsells, a 50/50 play may work. Remember that if renewals are easier than new logos, your reps may slip on the new biz under this comp structure.
Other comp structure considerations:
- Some companies will pay the AE on renewals but offer it in addition to their on-target earnings (OTE), offering a nice bump in compensation to the rep.
- Usually, the commission rate on renewals will be less than that of new biz (think: 4% versus 8%)
- You could also offer single-rate or fixed bonuses for high-risk churns that end up renewing
- We’ve also seen AEs not earning on renewals but still having a renewal quota. Reps earn nothing compensation-wise for renewals but are penalized if they don’t hit a renewal target.
- We do not recommend this for obvious reasons.
- You could pay AEs only on upsell, as well, versus renewals and upsells. For instance, if the contract value increases from $100K to $150K, the rep earns commission from just the $50K.
- Note that this structure sends the message that your org. weighs renewals and churns the same. For that reason, we do not recommend this comp model.
- Lastly, we highly recommend including multi-year accelerators or incentives at the new-biz and renewal levels. This secures predictable retention and lengthens the contract term, which gives your team a longer runway to build and establish value and adoption for your customer.
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AE Comp Plan Renewal Focus Best Practices
When designing an AE compensation plan with a renewal component, several key considerations are crucial to ensure alignment with business goals and motivation for the sales team:
- Clear Objectives and Metrics: Clearly define the objectives tied to renewals and establish measurable metrics. Whether it’s renewal rates, customer satisfaction scores, or upsell opportunities within renewals, having specific metrics will guide performance expectations.
- Balance with New Sales: Strike the right balance between rewarding new customer acquisition and successful renewals. Motivating AEs to focus on both aspects is essential, fostering a holistic approach to customer lifecycle management.
- Renewal Complexity: Consider the complexity of your product or service renewals. If renewals involve substantial account management efforts, a tiered commission structure can be effective based on the required level of effort.
- Customer Success Collaboration: Encourage collaboration between AEs and Customer Success teams. Incentivize AEs to work closely with Customer Success to ensure a smooth renewal process and promptly address customer concerns.
- Long-Term Value (LTV): Align the renewal component with the customer’s long-term value. Consider factors like upsell potential, cross-selling opportunities, and overall customer lifetime value when determining renewal incentives.
- Retention and Churn Mitigation: If churn mitigation is a significant concern, structure the renewal component to reward AEs for retaining customers. Implement measures to address potential churn factors and provide bonuses for successful retention efforts.
- Timing of Payouts: Define when renewal commissions are paid out. It could be upon contract renewal, staggered throughout the renewal period, or tied to achieving specific milestones during the renewal process.
- Performance Thresholds: Set performance thresholds that AEs must meet to qualify for renewal incentives. This ensures that rewards are earned through sustained effort and success rather than automatic entitlement.
- Communication and Training: Communicate the renewal component of the comp plan to AEs and provide training on effective renewal strategies. Ensure that AEs understand how their efforts contribute to short-term and long-term business objectives.
- Data Accuracy and Reporting: Implement robust systems for accurately tracking and reporting renewal metrics. AEs should have access to real-time data to monitor their progress and understand the impact of their efforts on renewals.
By carefully considering these factors, companies can design AE comp plans with renewal components that motivate sales teams, drive customer retention, and contribute to overall business growth.
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For additional support designing compensation structures, check out some of our other resources:
- 3 commission pay examples for Account Management & Customer Success
- What to include in your VP of Sales compensation package
- For you to download: AE compensation policy template
- Download an SDR compensation policy template
- Compensation Plan Templates
- Sales Compensation Calculators and Tools
Interested in automating your sales compensation process? Schedule time with our team today to see how QuotaPath can help you run commissions more efficiently and accurately. Or, explore our platform by signing up for a free trial.