In Deliberately Underselling as Sales Strategy, I wrote about the importance of sizing contracts below customer needs to ensure customer success.
“A key part of the formula: crafting the right account executive compensation structure to reward this strategy.” I received a pile of questions asking for more detail.
Since then, I’ve spoken to many sales leaders & Lee Kirkpatrick who originally surfaced the concept during Office Hours on how to do this well.
The trick: compensate AEs on expansion at the same rate as initial land.
Typically, companies discount expansion quota retirement or commissions to around 25-75% of a new customer dollar. When deliberately underselling, the company should value the expansion dollar equally to a new customer dollar.
Most management teams pay AEs for the first 12-18 months of expansion. For example, Cleo books a $10k land deal on Jan 1 and receives 20% commission this pay period. The account expands $10k again in Q3 and then again to $30k total in Q1. Cleo receives two additional commission checks.
Customers’ account expansion patterns should inform the length of the commission period. If most customers expand in month 13, then the commission plan should pay for expansion at least through the first five quarters.
There’s a trade-off to this commission plan: the company may pay both the customer success managers & the AEs for expansion. Also, if customers expand by themselves, salespeople may receive commissions without expending more sales effort.
For some companies, faster sales cycles, superior net-dollar retention, & better customer satisfaction outweigh the increased sales spend, particularly product-led companies or those with land & expand models.
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