Latest / Sales Leadership with Fexingo: Quota Carriers, Sales Managers, and Revenue Teams / The Comp Plan That Rewards Reps for Retaining Customers
Transcript
- Lucas: So there's a number that a lot of revenue teams have started putting on their board, and it's not the one you'd expect. It's not new logo count, it's not even total revenue. It's net revenue retention, sometimes written as n r r. Luna: Right, and for anyone who hasn't seen it, net revenue retention basically measures how much revenue you keep from existing customers over a period, including expansions, contractions, and churn. A hundred percent means you're flat. Above that, you're growing just from the base you already have. Lucas: Exactly. And it's become the metric that SaaS investors love, because it shows whether your product is sticky and whether your customers are expanding. But here's the thing: very few comp plans actually reward reps for it. Most plans still pay almost entirely on new business, and that mismatch is creating some real tension on sales floors. Luna: Yeah, I've seen that tension. A rep lands a big logo, gets a fat commission check, and then moves on to the next deal. The customer success team is left holding the bag when that account starts to churn a year later. Lucas: Right, and the rep has zero incentive to care, because they've already been paid. So today, I want to dig into a specific comp plan redesign I've been tracking. A mid-sized B2B software company, about two hundred employees, they decided to shift ten percent of their sales reps' variable comp to a net revenue retention metric, with a twelve-month lag. And the results, and the pushback, are pretty instructive. Luna: Ooh, ten percent and a twelve-month lag. That's not nothing. How did they get reps to buy into that? Lucas: Well, they didn't at first. But the way they rolled it out matters, and I want to walk through the mechanics. So the plan was simple: instead of a rep's variable comp being a hundred percent tied to new annual recurring revenue, ten percent would now be tied to the net revenue retention of the accounts they'd closed in the prior year. So if you closed a million dollars of new business in 2025, your comp in 2026 would include a bonus based on how much of that million you retained, plus any expansion. Luna: So it's a lagging incentive. You get paid on the business you closed last year, based on how it performed. That's a pretty big cultural shift. Lucas: Exactly. And the finance team loved it because it aligned the rep's payout with actual cash collected, not just a signed contract. But the sales floor, they had some veterans who were furious. One rep told their manager, 'I've been closing deals for fifteen years, and now you're telling me my paycheck depends on what some customer success person does?' Luna: I can imagine. And that's the pushback you get when you touch the comp plan. It's the third rail of sales management. Lucas: It is. But the way the leadership handled that pushback is actually the interesting part. They didn't just say 'tough luck.' They ran a pilot with one team first, a team that had a reputation for landing big deals but also had high churn. They told them, 'We're going to try this for two quarters, and we'll compare your team's total payout to the other teams that stay on the old plan.' Luna: A pilot, not a mandate. That's smart. And it gives them data to show the rest of the company. Lucas: Right. And the pilot team, they were skeptical, but they went along. And after two quarters, here's what happened: their total payout was actually slightly higher than the teams on the old plan, but not because they closed more deals. They closed about the same number. But their churn rate dropped by about a third, because they started paying attention to the accounts they'd already won. Luna: So the incentive changed behavior. Reps who were already at quota started making sure their existing customers were happy, maybe doing a QBR or two, or introducing them to a new feature. Lucas: Exactly. One rep on the pilot team started booking a quarterly business review with every account she'd closed in the last eighteen months. She told me she used to think of those as customer success's job, but now that it affected her comp, she wanted to make sure the value was landing. And her net revenue retention for her book was something like one hundred twelve percent, because she also found upsell opportunities in those conversations. Luna: That's the positive side. But I bet some reps tried to game it, like maybe focusing only on the accounts that were likely to expand anyway, and ignoring the ones that were struggling. Lucas: That's a real risk, and they actually saw a bit of that. One rep, who was up for promotion, started spending all his time with his two biggest accounts, which were already growing, and basically ignored the long tail of smaller customers. His net revenue retention looked great, but he wasn't actually adding much value. So the company added a guardrail: the net revenue retention bonus would only pay out if the rep also hit a minimum threshold on new business. Luna: Ah, so you can't just coast on your existing book. You still have to hunt. Lucas: Right. And that's the key design principle: you're not replacing the hunting incentive, you're just adding a retention component. And they set the threshold at eighty percent of the new business quota. So you could have a great retention year, but if you only closed sixty percent of your new business target, you wouldn't get the retention bonus. Luna: That makes sense. It's a balanced scorecard approach, but with a specific metric that ties back to revenue. Lucas: And the lagged payout was crucial, too. Because without the lag, a rep could close a deal in Q1 and then do nothing to retain it, and still get the retention bonus in Q2. The twelve-month lag means the rep actually has to live with the consequences of their actions. Luna: So it's a forcing function for long-term thinking. I love that. But what about the reps who closed a huge deal in the last month of the year? Their retention bonus would be based on a customer that's only been live for a few weeks. That seems unfair. Lucas: Good point. They actually addressed that by using a weighted average of the trailing twelve months, rather than a single cohort. So a rep's retention bonus in any given quarter is based on the net revenue retention of the accounts they closed over the prior four quarters, with more weight on the older ones. That smooths out the noise. Luna: Okay, that's thoughtful. So what were the results after a full year? You mentioned the pilot team did well, but did they roll it out company-wide? Lucas: They did, after three quarters of the pilot. And the company-wide rollout, they kept the ten percent weight, but they also, and this is important, they changed the way they communicated it. Instead of calling it a retention bonus, they called it a 'customer health bonus.' And they made it a team-based metric, not individual. So the whole sales team gets the bonus if the company's net revenue retention is above a certain threshold, say one hundred five percent. Luna: Oh, that's a big shift. So now it's not about individual reps hoarding their own accounts, it's about the whole team working together to keep customers happy. Lucas: Exactly. And that encourages collaboration, because a rep who's great at landing new business can still earn the bonus even if their own accounts churn, as long as the team overall is doing well. But it also means that a rep who's not pulling their weight on retention can't hide. The team will hold them accountable. Luna: That's a clever way to avoid the individual gaming problem while still keeping everyone focused on retention. And I bet it also improves the relationship between sales and customer success, because now they're literally on the same bonus plan. Lucas: That's exactly what happened. The head of customer success told me that for the first time, reps were proactively tagging her team on renewal risks, instead of hiding them. And they started doing joint account planning. It broke down a silo that had been there for years. Luna: That's a great outcome. But what about the reps who were used to making a lot of money on pure new business? Did any of them quit? Lucas: A couple did, actually. Two top producers left in the first year, both said they didn't want their comp tied to something they couldn't fully control. And that's a real cost. But the company's overall churn dropped enough that the revenue impact more than made up for it. And they found that the reps who stayed were actually more aligned with the company's long-term strategy. Luna: So there's a selection effect. The comp plan is not just an incentive, it's also a filter for the kind of reps you want on your team. Lucas: Exactly. And that's something I think a lot of sales leaders don't consider. They think of the comp plan as just a way to motivate, but it's also a way to attract and retain the right people. If you want reps who are consultative and think about the customer journey, you need to pay them for that, not just for the logo. Luna: That's a profound insight. So for a sales leader listening right now, what are the three questions they should ask before they even consider something like this? Lucas: First, do you have reliable net revenue retention data? You can't pay on a metric you can't measure cleanly. If your data is messy, you'll have disputes and distrust. Second, what's your current churn rate? If it's already low, like below five percent, you might not need this. But if it's creeping up, it's worth addressing. And third, are you willing to run a pilot and let the data convince people, rather than mandating a change? Luna: Those are really practical. And I think that last one is key, because change management is often the hardest part of any comp plan redesign. Lucas: Yeah, and the company I followed, they spent a lot of time communicating the why, not just the what. They held town halls, they had one-on-ones, they even had a rep from the pilot team share their experience. That made a huge difference in adoption. Luna: It's funny, it's almost like selling an internal change to your own team. And the reps who were skeptical, they eventually came around when they saw the payouts. Lucas: Right, because at the end of the day, money talks. But it has to be structured in a way that rewards the behavior you actually want. And that's the core lesson here: your comp plan is a statement of your values. If you say you care about retention but you pay only for new logos, your team will believe the comp plan, not the words. Luna: That's a perfect way to put it. So if today's conversation gave you a new lens on your own comp plan, or even a specific idea to take to your sales leader, that's exactly the kind of thing that keeps us going. And the way to keep this show ad-free is listener support, so if you found value here, buy me a coffee dot com slash fexingo. It genuinely helps us keep doing this. Lucas: Yeah, we appreciate that a lot. And it's a small gesture that goes a long way for a podcast like this. So back to the topic. One more angle I want to touch on: how this affects the relationship between sales and finance. Luna: Oh, good, because I was wondering about that. Finance often sees comp plans as a cost to be minimized, not a strategic lever. Lucas: Exactly. And in this company, the CFO was actually the one who pushed for the retention component, because she was tired of seeing revenue recognized on the books and then disappearing twelve months later. She said, 'We're not actually making money if we can't keep it.' So she championed the change. And that's a powerful ally to have. Luna: So it's not just a sales problem, it's a finance problem too. And when the CFO gets involved, it's more likely to stick. Lucas: Right. And I think that's the final takeaway. The best comp plans are designed jointly by sales, finance, and customer success. It's not just a sales thing. It's a revenue team thing. And that's the whole point of this show. Luna: Well said. And if you're a sales leader listening, I'd love to hear if you've tried something like this. We're on social, and we read everything. Lucas: And if you haven't, maybe it's time to start the conversation. A small change in the comp plan can lead to a big change in behavior. Thanks for listening, and we'll catch you next time.