Dear SaaStr: In Consumption-Based Models, Should We Pay Out on Deals Closed or Usage?
Almost everyone in a consumption based model today pays some on close, but most on usage.
I’ll dig in, but a really great deep dive with MongoDB’s head of sales ops here:
MongoDB us a blended commission model for their consumption-based GTM. Typically, they pay 40%-50% of the annualized commission upfront at contract execution, and the rest is paid out based on actual usage throughout the year. This approach aligns incentives with customer adoption while still giving reps a meaningful upfront payout to stay motivated
In a consumption-based SaaS model, you absolutely need to incentivize sales team leads on client go-lives and actual usage, not just closed-won deals. Here’s why:
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Revenue in Consumption Models Comes from Usage, Not Signatures: Unlike traditional subscription SaaS, where you lock in revenue with a signed contract, in a consumption-based model, revenue only materializes when the customer starts using the product. If you incentivize purely on closed-won deals, you risk reps pushing deals that never activate or generate meaningful revenue. That’s a disaster for your business.
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Align Incentives with Long-Term Success: By tying incentives to go-lives or early usage milestones, you ensure that sales leads focus on onboarding customers properly and setting them up for success. For example, HubSpot famously split commissions—half on deal closure and the other half when the customer hit a specific usage metric (e.g., using 20 out of 25 features). This approach ensures reps don’t just chase signatures but also care about customer success.
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Avoid the “Silent Churn” Problem: Many SaaS companies are shocked to discover how low their activation rates are when they start tracking them. If customers don’t go live, they churn silently, and you lose revenue before it even starts. Incentivizing go-lives ensures sales leads work closely with customer success teams to drive activation and avoid this issue.
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Incentivize Usage Growth Post-Go-Live: Beyond go-lives, you should also reward sales leads for driving usage growth. For example:
- A bonus when a customer exceeds a certain consumption threshold (e.g., $10k/month in usage).
- Accelerators for accounts that grow usage by 50% or more within a specific timeframe. This encourages sales leads to stay engaged with accounts post-sale and drive expansion.
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Clawbacks for Non-Activation: To reinforce the importance of go-lives, implement clawbacks for deals that don’t activate within a set period (e.g., 90 days). This ensures sales leads don’t overpromise or close deals with customers who aren’t ready to use the product.
Recommendation:
- Split Incentives: Reward sales leads partially on closed-won deals (e.g., 30%) and the rest on go-lives or hitting early usage milestones. This balances the need to close deals quickly with ensuring customers actually use the product.
- Tie Bonuses to Usage Growth: Introduce accelerators or bonuses for accounts that scale their consumption significantly post-go-live.
- Collaborate with Onboarding and Customer Success: Encourage collaboration between sales and customer success teams by offering team-based bonuses tied to activation and usage metrics.
In a consumption-based SaaS model, success isn’t just about closing deals—it’s about ensuring customers adopt and grow. Aligning incentives with these outcomes is critical for driving sustainable growth.
And here’s a sample policy to tweak:
Sales Team Lead Bonus Policy (Consumption-Based SaaS Model)
1. Bonus Structure Overview
The bonus structure is designed to reward sales team leads for:
- Closing new deals.
- Driving customer activation (go-live).
- Increasing customer consumption and retention.
2. Bonus Components
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New Deal Closure (30% of Bonus)
- Sales team leads earn a bonus for every deal their team closes.
- Bonus is calculated as a percentage of the first 3 months’ projected consumption or a flat rate per deal tier (e.g., based on deal size).
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Customer Activation (40% of Bonus)
- A significant portion of the bonus is tied to customers going live and starting to consume the product.
- Criteria for activation:
- Customer completes onboarding within 30 days.
- Customer achieves a minimum usage threshold (e.g., 10% of projected monthly consumption).
- If activation doesn’t occur within 90 days, this portion of the bonus is forfeited.
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Consumption Growth and Retention (30% of Bonus)
- Bonuses are awarded for driving increased usage within existing accounts.
- Examples:
- 10% bonus for accounts that grow consumption by 20% quarter-over-quarter.
- Additional accelerators for accounts that exceed 50% growth in a quarter.
- Retention bonuses for accounts maintaining consistent consumption for 6+ months.
3. Accelerators
- High-Performance Accelerators: If the team exceeds 120% of their quarterly revenue target, the lead’s total bonus increases by 20%.
- Strategic Account Bonuses: Additional bonuses for closing or expanding high-value accounts (e.g., Fortune 500 companies).
4. Clawbacks
- Bonuses tied to new deal closures are subject to clawbacks if:
- The customer fails to activate within 90 days.
- The customer churns within the first 6 months.
5. Team Collaboration Incentives
- Team leads earn additional bonuses for collaborating with customer success teams to drive activation and retention.
- Example: A $500 bonus for every account that achieves 90% activation within 30 days.
6. Payout Frequency
- Bonuses are paid quarterly to align with consumption and retention metrics.
- Accelerators and strategic bonuses are paid at the end of the quarter.
7. Example Calculation
- New Deal Closure: $10,000 bonus for closing $100,000 in projected annual consumption.
- Customer Activation: $5,000 bonus for achieving 90% activation within 30 days.
- Consumption Growth: $3,000 bonus for accounts growing by 20% in a quarter.
- Accelerator: $2,000 bonus for exceeding 120% of the quarterly target.
- Total Quarterly Bonus: $20,000.
