XaaS Evolution: Impact on Customer-Facing Roles and Sales Compensation

The XaaS market has been transitioning for years. Organizations are finding themselves shifting from perpetual on-premise solutions to cloud-based solutions delivered via subscriptions or consumption models.

This evolution is driven by customer preferences. Nowadays, customers want to experience the solutions as well as the financial flexibility that a subscription provides versus an up-front purchase. This shift is critical for organizations to realize because it places a premium on increasing the Customer Lifetime Value (CLV).

The name of the game today is “Land and Expand.” Identifying and Landing a new customer is just the beginning of the customer journey. Today, companies have to include Adoption, Expansion and Renewal as part of the process to fully monetize their customers’ value.

It is important to think about the customer experience holistically. This means defining all the jobs across pre- and post-sales motions, how the jobs interact with each other and how sales compensation plans can influence behaviors that ultimately drive revenue growth.

Our recent XaaS research identified the following six sales compensation trends:

1. Leverage the ILAER model
   Companies use the ILEAR sales motion model (Identify, Land, Adopt, Expand, Renew) to define their roles and appropriate compensation metrics.
2. ACV/ARR is the predominant metric
   Annual Contract Value (ACV)/Annual Recurring Revenue (ARR) is the most common measure; however, some firms with three-year minimum contract lengths use Total Contract Value (TCV).
3. Heavy use of add-on measures
   There is a high use of add-on measures to pay for additional focus areas (e.g., product, multi-year, quarterly, services, renewals), causing cost of sales concerns.
4. Customer success jobs migrating onto a sales comp plan
   Companies are migrating customer success jobs onto a sales compensation plan with usage/adoption metrics; some companies include renewal and potentially expansion.
5. Enterprise pure-play consumption companies use ACV measure
   Hybrids and SMB pure-play companies mainly use billings/revenue; however, most enterprise pure-play consumption companies have migrated to ACV to drive committed credit contracts.
6. Increasing number of credits per deal
   Concerns are increasing regarding multiple credits on single deal as coverage models proliferate.

Most sales leaders focus their design efforts on their key sales job—the account executive or account manager. However, there are two other customer-facing positions that are important to focus on—the customer success manager and the XaaS renewal rep.

Organizations are either launching a customer success manager (CSM) job or they are in the midst of fine-tuning this job. The CSM is always focused on Adoption. However, companies are wrestling with what the CSM’s role is during the Renew and Expand sales motions.

The XaaS renewal rep is more complicated than the standard software maintenance/hardware support renewal rep. The key question used to determine the right job design and sales compensation plan is, Are your XaaS renewals a transactional re-order or a high-touch resell?

Essentially, how an organization structures its jobs/talent profiles and consequently its compensation plans is critical to ensuring that the organization is extracting full CLV from their customers–a critical aspect to success in a XaaS environment.

To learn more about AGI’s proprietary XaaS trends, customer success manager and/or XaaS renewal rep job design and compensation, watch our webinar or schedule a complimentary XaaS Sales Strategy Research briefing.

_______________
RELATED RESOURCES

1. 2019 Technology Industry Predictions
   Important trends and imperatives that will define how companies drive results in 2019 and beyond.
2. Aligning Commercial Talent To Drive XaaS Growth
   Strategies that market leaders use to cultivate the right commercial talent; a later article will more fully address the required adjustments to compensation programs.
3. Using the ILAER Model to Inform Your Sales Compensation Plans
   Variables companies are considering in terms of adoption and handling renewals and the impact on sales compensation plans.
4. XaaS Buyer Journey Through ILAER Sales Process
   A Fortune 500 high tech company is in the process of transforming their offerings from a hardware/capital equipment provider to an as-a-Service (aaS) solution provider including hardware, software and services.