Dear SaaStr: As a salesperson, if you sell a multi-year SaaS deal, does the whole amount count towards your current year quota? Or just the part attributed to your current year?
Approaches vary here.
First, what you pay on vs. quota retirement can vary.
On commissions / pay-out:
- For start-ups where cash matters, I strongly suggest compensating the reps mainly on cash brought in. E.g., a multiyear contract where only the first year of cash is paid up front is of limited value.
- Later, or for start-ups where upfront cash doesn’t matter so much, you still want to incent multiyear deals even where all the cash isn’t paid up front, but you want to be careful about the trade-off on the discount. If it’s too high, it’s not worth it in many cases, unless your churn is high. But if your churn is high, incent these deals even without all the cash up front.
The second question is quota. There, you have to be much more careful what quota you retire for multi-year deals.
95 times out of 100, I strongly recommend against giving quota credit for any year beyond Year 1 — even if you pay out a full commission. Pay the rep, by all means, for multi-year deals, especially for cash up front. Cash is king. But your ARR goals for the year will become highly distorted if you give quota credit for revenue that can’t be recognized that year. I’ve seen this multiple times.
You want bookings to align almost 100% with ARR goals for the year. At least, until you are very, very large. So give quota credit for ARR attainment. Any revenue that can’t be recognized this year doesn’t do that.
And to be specific — when I’ve seen full quota credit for multi-year deals, I’ve seen ARR gains for the year suffer. Don’t do that in a recurring-revenue model.
(note: an updated SaaStr Classic answer; multiyear image from here)
