Research Report

XaaS Compensation Models

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Today, we see a unique scenario rising related to compensation. Legacy technology companies are rapidly standing up new as-a-service (or XaaS) offers. These offers are subscription based. This means the customer is signing a contract but paying over time for access to the technology. As this migration occurs, TSIA member companies are navigating how to adjust their compensation models. Specifically, here are the compensation challenges we see companies face:     

  • We do not want to unnecessarily accelerate the decline in revenues from high margin, legacy offers.
  • We want to maintain high margin support contracts as long as possible.
  • When a customer transitions from on-premise to XaaS, we need the revenue from the new XaaS deal to be greater than the deferred legacy revenue.
  • We are concerned sales representatives will not sell new, unproven XaaS offers.
  • We are afraid of overpaying sales representatives on the front end for long-term XaaS services that could potentially cancel mid contract.
  • It is unclear who should be compensated for renewing XaaS subscriptions.
  • We are realizing no one is compensated to make sure the customer is actually adopting the capabilities of the XaaS offer. This could be a problem come renewal time!
  • We want to create incentive structures that maximize new and recurring revenue, but allow for the most efficient cost of sale.
  • We want to minimize compensating more than one person for the renewal of subscriptions.
This paper attacks these challenges with the following frameworks:
  • Four Strategic Postures for XaaS Compensation
  • LAER Compensation Grid
  • Financial risk of compensating for ACV and TCV
  • XaaS Compensation Policies Table

 
 

Authored By:

Thomas Lah

Executive Director, TSIA

George Humphrey

VP Research, Managed Services, TSIA

Julia Stegman

Publish Date: September 8, 2017

 

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