In a rapidly evolving industry like cloud computing, the metrics and models of sales compensation may not be settled for some time. In fact, the results of this survey show sales compensation in cloud computing is all over the board. The same study points out that one-fifth or reps have base salaries above $70K with the mid-point between $50-70K.
Can cloud computing and sales compensation coexist?
To find out, I recently interviewed Larry Walsh, President of The 2112 Group, which facilitates the Cloud Convergence Council.
Ryan Tognazzini: Larry, this issue seems to be causing more confusion than clarity. What types of compensation models are you seeing that are working right now?
Larry Walsh: Cloud is not the end product or even the full business model for most technology companies. The research we conducted through the Cloud Convergence Council shows that most technology resellers are selling cloud as part of a portfolio of conventional hardware and software products, managed services and professional services. While there are no real best practices as yet for cloud compensation, it’s safe to say that building a compensation plan that treats the cloud as a part of a total sale and compensating accordingly is probably the best bet.
RT: For the sales leaders who aren’t leveraging the channels and using a direct sales force to sell cloud direct to the end market, how should they approach cloud computing compensation?
LW: The lesson is clear that even in the cloud era, the channel remains as relevant as ever. Even the most staunch cloud companies that once believed they could automate sales have found that they cannot reach the total addressable market without channel partners. The issue of compensation, though, remains thorny because the economics of the model. Cloud vendors need to do more to aid their reseller partners in bundling cloud services and conventional IT products to aggregate sales and profits.
RT: If I’m a VP of Sales and I can’t bundle cloud computing as part of an enterprise package, or I want my reps to sell cloud as a standalone product, what should I keep in mind when building my sales compensation plans for my reps?
LW: This is the million-dollar question. Compensation influences behavior, so cloud providers must be prepared to surrender higher commissions or create a combination of one-time balloon payments and commission to incent cloud-only sales people. The reason some cloud providers are not paying base salaries is to force sales teams to live off the land and drive sales volume. The higher commissions paid in this model incent the salespeople while accelerating the creation of an annuity revenue stream for the company.
RT: What correlations can a sales leader expect with regard to turnover and cloud computing compensation packages?
LW: If history is any measure, companies that fail to properly reward salespeople for their efforts will suffer high turnover. Sales talent follows compensation and opportunity. Anyone who can provide both those things has the potential of stealing talent.
Key takeaways regarding the cloud-comp conundrum:
- Bundle your cloud offering with more established products to offset sales compensation risks
- Leverage your channel partnerships
- Invest in your ‘A’ players with world class sales compensation plans
Larry Walsh is President of The 2112 Group, Editor-in-Chief of the Channelnomics and author of the article Cloud Salaries Rich for Those Who Get Paid.