Sales commission for SAAS startups

A sales professional will want to be paid for what they are responsible for -- converting the lead to a customer. Basing their commission to ongoing revenue from the customer means that the sales person's compensation is tied to the behavior of other people which they have no control over. It also means that they will (should) want to stay engage with that customer in some manner.

No one will ever know your product as well as you. If you are going to engage inside sales people as well as outside folks a model you might want to consider would be having an internal sales professional who receives qualified leads from external contacts. Rather than pay the external contacts an ongoing commission pay them a healthy referral rate for leads which close. The amount has to be worth it -- more than the polite thank you.

You would then maintain control over the sale and ongoing customer service -- while engaging a network of people to connect your product/service with the people who want it.

If you are a SaaS vendor, you are probably selling your product by a monthly subscription fee.

If so, then you should offer something like 10% of all monthly subscription fees of the customer to the outside sales person who acquired the customer.

It has the pleasant effect of aligning their interests (making money by making the sale) with your interests (making recurring subscription fees). With a low up-front commission, sales people are more likely to pursue people who want a long term relationship with your company. Another pleasant effect is that customer acquisition and retention costs become very predictable.

The recurring commission also gives them an incentive to make sure that there is no attrition. For example, they can monitor usage and data growth of their sales, and if the numbers look bad, they can make a follow-up call to inquire why.

A flat commission for a SaaS product motivates sales people to make sales, and not necessarily to acquire customers. This could end up being expensive for you. Also flat commissions encourage sandbagging of sales to help sales people remain on the "safe" part of the sales leader board, and encourages sales people to go beyond quotas. It also becomes harder to predict customer acquisition and retention costs because you never know if the big commission you paid is for a short-term or a long-term customer.

Pay for what you want and don't pay for what you don't want

A sales commission model must reward the behavior you most want with the highest possible commission. More importantly, it must not reward behavior you don't want. Any salesman worth his salt will go straight to what makes him the most money.

The first person you have to sell is the salesman

First, the salesman has to find your product salable. Second, he has to see how much he can make. Third, he will care about how soon he gets paid. I will assume that you have #1 handled. Depending on how many units your salesman believes he can sell in a month, you may have #2 handled. #3 is the one that worries me about your plan. Even if the sales cycles are short, you have an automatic 30 day delay built in. You might be able to get over this if you are paying 20-30% of the LTV as soon as the customer makes the first payment. But if you intention is to pay commission as the revenue comes in, you will likely have to provide some kind of base to attract a qualified salesman.