Shifting from a conventional SaaS to a pure consumption mannequin was a difficult however enjoyable transition for MongoDB.
At a current Workshop Wednesday, held each Wednesday at 10 a.m, Meghan Gill, SVP of Gross sales Ops and Gross sales Dev at MongoDB, shares totally different consumption-based compensation fashions that drive the precise behaviors.
A Story About A Cobra
Earlier than speaking about what consumption means right this moment, Meghan shared a fable.
As soon as upon a time, there was a village with a cobra downside. There have been too many cobras, and so they have been a menace. So, the mayor informed the village he would pay them a greenback for each cobra killed to get issues underneath management. It didn’t work. As an alternative, folks began breeding cobras and killing them to be able to acquire their bounty.
The ethical of the story?
You need to take into consideration what habits you’re making an attempt to drive. Compensation will drive it and have sudden outcomes. If you wish to eliminate the cobras, paying for each cobra killed clearly wasn’t the precise habits to compensate.
What Is A “Consumption” Enterprise
Within the previous days of software program, you had an organization like Oracle that popularized the perpetual license the place prospects personal the software program and distributors personal the market. Then, we moved to a extra customer-friendly mannequin with SaaS and subscription-based pricing. There are nonetheless some complexities round SaaS-based approaches. So, it’s extra customer-friendly, however it additionally has its execs and cons.
What’s advanced through the years and is pushed by hyper-scalers like Google Azure, AWS, Twilio, and Stripe is the consumption-based mannequin. It’s a really customer-oriented method — you pay for what you employ, and shutting a deal is the beginning of a journey. That is MongoDB’s method. They reoriented their gross sales workforce and de-incentivized reps from making offers upfront.
It was creating friction within the gross sales cycle. MongoDB needed prospects up and working shortly and to see the time to worth so they might upsell future workloads. That is the concept behind a consumption-based enterprise.
A Utilization-Primarily based Strategy Is Extra Than Simply Altering Compensation
A usage-based method places extra of the onus on firms to consistently ship worth as a vendor. It’s in contrast to the previous world, the place you’ll be able to promote a deal and stroll away. You all the time have to remain engaged.
A usage-based method is extra than simply altering compensation. It turns your GTM on its head. The VP of Technique at Snowflake doesn’t have a Buyer Success org. Their gross sales are taking part in that position, and so they change what that position is inside a consumption-oriented firm. At MongoDB, they took a unique method and do have a buyer success org.
Again to that authentic story that compensation drives habits. As an alternative of the primary thought being incentivize the gross sales workforce… You need to take into consideration who’s doing what inside an org with a consumption-based method. Who’s taking part in the position of Buyer Success?
Measure Gross sales Influence Earlier than Incentivizing It
Earlier than entering into all of the methods to incentivize, it is advisable take into consideration having the ability to measure gross sales influence. That is one thing MongoDB places a variety of work into internally and constructed into the product. They needed to distinguish natural consumption from progress being pushed by gross sales. Prospects could also be rising as a result of their utility is rising, however they don’t wish to focus a rep on sustaining current prospects. As an alternative, the aim is to exit and discover new workloads.
At MongoDB, they’ve a self-serve channel the place they run a management group — a subset of accounts that they by no means contact, simply to see what occurs naturally. That approach, they know what progress to count on and what incremental uplift they’re getting from having gross sales concerned to allow them to proceed to make higher investments.
Compensate On What Reps Can Management
Compensation drives habits, and you actually wish to compensate reps on what they’ll management. It’s irritating as a gross sales rep to be compensated on one thing the place you don’t suppose you’ll be able to transfer the needle. In a consumption-oriented product, prospects can fluctuate. Generally, that’s due to a gross sales rep’s involvement. Different instances, it’s simply macroeconomic circumstances.
Think about the made-up utilization curve instance above.
There’s a crypto firm utilizing the platform, and the previous a number of years noticed a big uptick as a result of the market was booming. Then what occurs? The crypto market stopped doing as effectively, so utilization was down. It’s fairly difficult to suppose by way of this in a consumption-based mannequin. However we do know that incentives drive habits. So, begin with the habits you wish to drive.
Driving Market Acquisition
When designing a compensation plan, you must resolve what behaviors you wish to drive. The primary may be market acquisition. You wish to land as many logos as potential. MongoDB initially took this method — the emblem workforce handed it to the growth workforce. Reasonably than compensating based mostly on ARR, it’s based mostly on a quantity and quality-based metric.
How do you incentivize this?
On a progress workforce, it’s general ARR and on a unit foundation (the variety of new workloads of a sure high quality). That implies that part of the ARR goal is from natural progress coming anyway, after which you must land a specific amount of recent workloads. What are the professionals and cons of measuring on a unit foundation?
- Lifeless easy comp plan
- Reps are laser-focused
- Drives excessive velocity and exercise
- It’s tougher for reps to overachieve on a unit-based plan
- Must have standards to make sure high quality
You’ll want to mix ARR and unit-based, otherwise you’ll danger driving low-quality outcomes.
Driving Nurture & Development
What if you wish to concentrate on nurturing and rising your prospects, driving product adoption, and cross-selling? In that world, you may wish to measure the reps on gross billing with the client and perhaps even SPIFF on commitments and product-based SPIFFs. Crediting is straightforward as a result of they’re credited for each greenback billed.
What are the professionals and cons of measuring gross utilization?
- The rep, the corporate, and the client are very aligned.
- Gives a constant payout for the rep because the buyer consumes
- Crediting is straightforward to grasp
- Getting quotas proper is a problem
- Reps are paid on retention
Development expectations is usually a little bit of a “black field” to the reps. Corporations have a progress expectation for each buyer and may really feel punitive to the rep (i.e., in case you develop an account, your quota goes up.) One other tough factor is the way you align the gross sales workforce. On this method, you’re paying rather a lot to reps for retention.
Within the instance above, their quota is to get to $725k billed. So, you’re basically paying them for a $500k billing that already exists. One other approach to nurture and develop is to measure on incremental ARR. At MongoDB, they needed to neutralize whether or not a buyer needed to pay-as-you-go or make a dedication. They needed reps to place pay-as-you-go and didn’t need them to decelerate the gross sales cycle by forcing dedication unnecessarily. So, this concept of web ARR or incremental ARR was launched, the place the rep will get paid on the finish of 1 / 4 for the incremental utilization above a baseline.
What are the professionals and cons of measuring incremental ARR?
- You’re solely paying based mostly on progress, which focuses the reps on driving new enterprise
- Reps take extra danger however get extra upside
- The problem is it’s difficult to clarify and operationalize
- Crediting will be detrimental, and reps hate that
This macroenvironment is difficult. Prospects are centered on price and value optimization. So, in case you’re measuring on incremental ARR, you create a big disincentive for a rep to speak to a buyer about optimizing their setting… As a result of meaning churn for them.
Driving Protecting Behaviors
The final habits may be defending or taking a longer-term view. One compensation instance is paying reps on dedication ACV. MongoDB de-incentivized this as a result of the product is sweet, and so they needed reps to concentrate on getting as many workloads as potential and getting them consuming. It may be extra aggressive and safe income longer-term to place the dedication aspect on high of a compensation plan.
What are the professionals and cons of a dedication method?
- Locks prospects in
- Income is predictable
- Reps have management
- Threat that reps oversell prospects
- Can create friction within the gross sales cycle
Once you over-incentivize dedication, you oversell the client. It’s not customer-friendly, and it’s difficult for purchasers to foretell what they’ll use.
Consumption-based pricing requires rethinking your group.
- What are the roles and tasks of gross sales, pre-sales, and post-sales? The traces will blur.
- Product: Must put money into tooling to help GTM groups.
The important thing ideas for designing compensation plans are to:
- All the time begin with the behaviors you wish to drive
- Measure reps on what they’ll management
The approaches for consumption-based compensation embrace:
- Unit-based — variety of workloads or new logos
- Gross utilization
- Incremental ARR