11 CHAMPION GUIDES 2. Address primary measures in the compensation plan . You must align company strategic objectives, value delivered to customers, and compensation plans. That starts with clarifying how sales reps will be paid on consumption relative to your overall business. Sales reps must understand their goals for driving customer consumption and how these objectives tie to the primary measure of the compensation plan. 3. Define excellence. Sales reps must understand exactly what excellence looks like and how it will be rewarded in a consumption-based model. For leadership, this means agreeing upon what multiple of the target incentive you want to pay when sales reps meet that excellence point. Excellence should also drive decisions when setting compensation rate tables. Unfortunately, industry-standard breakpoints and excellence points don’t exist yet for consumption-based models. It’s simply too new, which is why this undertaking should be viewed as an iterative process that involves trial and error. 4. Determine plan mechanics and rate tables. Consumption behaves differently than other pricing models. As a result, bookings rate tables do not translate directly. Once again, you must determine what makes sense for your business within the parameters of consumption. That means understanding account performance and which situations will equate to an accelerated payout. These calculations require data and take time. After all, it’s challenging to set an effective acceleration table if you don’t know what your bell curve (distribution of actual performance) looks like. Rate tables represent another area for continuous refinement. 5. Use revenue forecasting to facilitate quota setting. The revenue plan at the company level must flow down through all of sales. Consequently, effective incentive compensation must align with revenue and bookings, and the quota held by the field sales team must align with the forecast and bookings plan. The foundation for setting quota starts with understanding the outlook for every existing customer and determining how new customers will layer on top of it. Make sure to incorporate knowledge of the accounts into quota setting and empower sales managers to produce the final quota by using the company forecast and regional targets alongside account-level forecasts. 6. Set achievable expectations and enable the field. Sales reps have a natural inclination toward exceeding goals and surpassing targets. However, it can be challenging for sales reps to overachieve with consumption-based planning, which should factor in the time required to get new customers up and running, as well as an element of inertia. Sales reps need to feel like they can influence consumption, which requires building that capability into sales methodology, account plans, and customer quarterly business reviews (QBRs). There’s also a risk that consumption-based commission plans may be viewed as an annuity, which means sales leaders need to keep reps motivated and to bring in the planned revenue. In the end, growth in consumption leads to new bookings, not vice versa. 7. Invest in instrumentation and provide data visibility. To implement a consumption-based pricing model, you must have infrastructure and tooling to monitor consumption by customer. Usage data, coupled with territory data across all teams, enables everyone to be paid accurately, which is really important for encouraging sales reps to get on board with consumption. 11 MODERNIZING YOUR SALES PROCESS: FIVE TAKEAWAYS 1. Consumption requires customer-first thinking. Align your sales team to the way the customer derives value from your product. 2. Sales reps are customer advocates and must be active in the entire customer lifecycle. Customer success is everyone’s responsibility. 3. Data and reporting are critical for sales reps to do their jobs and for leadership to design a compensation structure that matches the nature of consumption. 4. Continuous refinement is a must-have for compensation plans, quota setting, forecasting, and defining excellence. Set expectations appropriately and iterate as needed. 5. Empower sales reps and sales managers to inject on-the-ground knowledge into customer forecasts and quotas. Don’t rely purely on data.