Incentivizing Sales Success in a Consumption Pricing Model

Incentivizing Sales Success in a Consumption Pricing Model

Consumption-based pricing plans have been rapidly gaining ground, particularly in the SaaS industry, for their flexibility and customer-centric approach. This model, where customers pay based on usage, has become especially popular in SaaS organizations, with over 60% of these companies adopting usage-based pricing in some form. Of course, this means SaaS companies utilizing a consumption strategy rely on more than just up-front sales for their revenue streams; they need customers to actually use their software solutions.

So how do these companies incentivize their sales reps to drive continuous usage and growth?

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A Basic Framework for Consumption-Based Sales Incentive Plans

Consumption-based pricing in a sales compensation plan works by aligning seller rewards with the actual usage or consumption of a product or service by the customer. While these incentive structures are not right for every company, they can motivate reps to help their customers succeed, creating a win-win scenario that drives revenue and customer loyalty.

Here are four common frameworks for consumption-based compensation:

1. Estimate and Pay Up-Front then True-Up

In this scenario, a baseline level of ongoing consumption is estimated at the start of the term. This balanced approach estimates up-front compensation based on projected consumption and adjusts payments according to actual usage. Industries with predictable consumption patterns, like SaaS find this method particularly effective.

By estimating up-front and reconciling pay, companies can align seller incentives with both immediate sales goals and ongoing customer engagement. This dual focus helps prevent overpayment for deals that do not lead to sustained consumption and rewards sellers for driving genuine customer value.

2. Pay Up-Front for Contract and later for Units Consumed

A dual payment structure combining initial payments at contract signing with ongoing payments for units consumed aligns sales incentives with both securing new contracts and driving continuous usage. For example, a SaaS company might offer an initial bonus for signing a new client, followed by recurring payments based on monthly usage.

This framework benefits industries with high potential for recurring usage, such as cloud services and software subscriptions, where sellers are encouraged to maintain long-term relationships with clients. It’s also ideal for supporting specialized sales roles that focus not only on acquisition but also on ensuring customers derive ongoing value from the product.

3. Pay Only for Consumption

Compensating sales reps solely based on actual consumption ensures that incentives are directly tied to customer usage and value realization. This model is particularly advantageous in fully consumption-based businesses where revenue is realized over time rather than at the point of sale.

However, for this model to be effective, accurate consumption tracking and data visibility are crucial. Companies need robust systems to monitor and report usage accurately, ensuring fair compensation.

A pay-only-for-consumption model may also require modifying sales roles or even the organizational structure. Whereas traditional SaaS sales role specialization typically involves a handoff to a post-sale role (e.g., Account Management, Customer Success) after the initial deal is signed, in a consumption-based model, the seller needs to stay involved throughout the customer lifecycle to drive ongoing usage and growth.

4. Consumption Growth Targets

Setting growth targets for monthly or annual consumption increases and compensating based on achieving these targets drives long-term revenue growth. By incentivizing reps to focus on expanding usage within existing accounts, companies can sustain engagement and increase customer lifetime value.

This approach ensures that sales efforts are directed toward sustainable growth, and, therefore, it tends to work best when there are account managers and/or long-term clients. Aligning these goals with broader business objectives not only drives immediate revenue growth but also builds a foundation for long-term success by fostering strong, ongoing customer relationships.

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Designing a Consumption-Based Compensation Plan

Want to know how to design a consumption-based compensation plan that aligns with your broader business and customer usage goals?

Here are five steps you can take:

1. Define Excellence:

Booking and subscription pricing plans often have industry-standard breakpoints and excellence points, but these don’t exist yet for consumption-based incentive models. Instead, focus on creating clear, measurable performance metrics that encourage reps to boost revenue, enhance customer retention and expand product usage. By clearly articulating what success looks like, sales reps can focus their efforts on achieving these defined goals, ensuring their actions directly contribute to the overall growth and sustainability of the business.

2. Match Sales Talent to Customer Needs:

Consumption-based models require two different kinds of sales expertise: first to close a deal, then to help the customer use the solution and realize its full value. This means identifying sellers with the right skills and knowledge to understand and meet customer requirements — oftentimes, this includes several key salespeople with expertise spread across different roles. Providing ongoing training and development ensures your team stays equipped to deliver exceptional value. This alignment not only drives customer satisfaction but also enhances overall sales effectiveness and business growth.

3. Align the Compensation Plan With Product and Sales Strategy:

Designing a compensation plan that supports your product and sales strategy is vital for achieving business goals. Tailor the compensation structure to reflect different product lines, customer segments and sales cycles. Ensure that incentives are aligned with strategic objectives, promoting behaviors that drive desired outcomes. A flexible compensation plan can adapt to market changes and evolving business needs, ensuring sustained alignment between sales efforts and company goals.

4. Set Appropriate Expectations and Enable the Field:

Sales reps should feel empowered to help their customers and grow consumption. That means ensuring everyone understands their goals and the steps they need to take to achieve them. You must also provide them with the necessary tools, training and support to help them succeed. By setting appropriate expectations and enabling your sales team, you foster a culture of accountability and continuous improvement.

5. Focus on post-close activity:

While sales and customer success are often kept separate, consumption-based models require us to re-imagine the customer lifecycle. This often involves encouraging sales reps to build long-term relationships by rewarding metrics like customer retention and usage growth. This approach not only drives immediate sales but also fosters a customer-centric culture that prioritizes sustained value delivery, ensuring customers remain engaged and satisfied over time.

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Adapting the sales compensation program to better reflect a consumption-based pricing strategy will align incentives with customer value and long-term success. However, effective planning requires a thoughtful design that aligns with business goals.

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Looking for an expert team of sales professionals to help elevate your consumption-based strategy? Connect with our team at RevenueShift to learn how we work together to meet your goals.

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