Multi-product Software and the Single Quota Simplify Your Plans AND Focus Effort Where It s Needed Most

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Multi-product Software and the Single Quota Simplify Your Plans AND Focus Effort Where It s Needed Most Tom Notar Vice President, Corporate Sales and Financial Operations, Deltek Inc.

1 Multi-product Software and the Single Quota Simplify Your Plans AND Focus Effort Where It s Needed Most Tom Notar Vice President, Corporate Sales and Financial Operations, Deltek Inc. Donya Rose Director, Sales Effectiveness & Rewards, Towers Watson Jessica Waddell Sr. Manager Compensation Administration and Pricing, Deltek Inc. Perpetual License Bookings + Subscription Bookings + Focus on Strategic Products + Solution Selling (what customer really needs) + Enough Services Sales Success 1

Donya Rose Director, Sales Effectiveness & Rewards, Towers Watson Jessica Waddell Sr.

2 Payout % Target Measuring sales contribution for software Market Share In-year Revenue Lifetime Value Annuity Balance Sheet ACV Annual Contract Value MRR Monthly Recurring Revenue New Logos SLF Software License Fees ACV/MRR (proxy) RR Recognized Revenue OTC One-time charges (install fees, training) SLF TCV Total Contract Value Term Length SLF ACV / MRR Annual Maintenance Payment timing Subscription Software Measure Both On-Premise Licensed Software Measure 2015 Towers Watson. All rights reserved. 3 Business and Plan Overview Business Summary Project-focused enterprise software solutions for government contractors & professional services firms Private International Employees on plans 300+ Compensation plans Old Plan Thumbnail 2 structures: (1) License/Services (2) Membership/Renewal Plan Bookings by product category Services bookings New clients + Strategic products Measurement Period Total year quotas Pay Frequency Monthly year-to-date Quota credit Perpetual & Term: TCV Payout calculation Perpetual: TCV Term: TCV with out-years discounted 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% 0% 20% 40% 60% 80% 100% 120% 140% 160% Actual Sales % Quota 2015 Towers Watson. All rights reserved. 4 2

Subscription Software Measure Both On-Premise Licensed Software Measure 2015 Towers Watson. All rights reserved.

3 Illustrative example of the old plans Payout Table Product/Services Commissions Focus Sales Bounty Actual Bookings % Annual Quota P1 SaaS/Term TCV Commission Rates (within ranges) P1 On-Prem SLF P1 On-Prem SLF P4 On-Prem SLF Services Services Actual Sales % Annual Goal Payout 0% % 4.03% 4.43% 4.97% 5.76% 0.79% Less than 100% 80% % 6.27% 6.89% 7.73% 8.97% 1.23% 110% or more 8.96% 9.85% 11.49% 12.81% 1.75% 100% or more $0 $26,250 Quota: $39k $2,025k $300k $260k $1,598k $1,280k Target Incentive: $1,749 $99,751 $16,625 $16,625 $14,000 $26,250 % Total Incentive: 1% 57% 9.5% 9.5% 8% 15% 2015 Towers Watson. All rights reserved. 5 The business goals for the new plans Simplify Term (/SaaS) Comp Fewer separate quotas, leading to improved quota accuracy Sales people who meet their goals earn their target incentive Add comp for longer term, without over-valuing it Fewer/no cross-gates improved emphasis on how TO earn Protect in-year revenue (Perpetual focus, multi-year protection) 2015 Towers Watson. All rights reserved. 6 3

85% 11.49% 12.81% 1.75% 100% or more $0 $26,250 Quota: $39k $2,025k $300k $260k $1,598k $1,280k Target Incentive: $1,749 $99,751 $16,625 $16,625 $14,000 $26,250 % Total Incentive: 1% 57% 9.5% 9.

4 The more finely a goal is divided, the less accurate it is 2015 Towers Watson. All rights reserved. 7 New plans overview Total Incentive = Software Commission Perpetual License + Term ACV + Services Commission Overview One commission rate for all Perpetual License Bookings Commission rates increase with term length (but not with quota attainment) One commission rate for all Services Bookings Added commission on all software sales once 85% of Strategic Product quota is attained Total software quota tiers are attained 2015 Towers Watson. All rights reserved. 8 4

for all Perpetual License Bookings Commission rates increase with term length (but not with quota attainment) One commission rate for all

5 New plans What the sales person needs to know Services Annual Contract Value Software License Fees 2015 Towers Watson. All rights reserved. 9 What the plan really looks like to the sales person Due to historical practices in the way the plans have been tracked and shown in the administrative system, this is the format used for the presentation of the plans. The rates aren t precisely the same as those shown on the prior page due to a slight difference in the method for applying the Term Uplift Towers Watson. All rights reserved. 10 5

9 What the plan really looks like to the sales person Due to historical practices in the way the plans have been tracked and shown in

Tuning the plans While there s only one hard quota, there must be productivity expectations for each category with its own rate Perpetual Licenses Term Licenses Mix of ACV by term length Services

6 Tuning the plans While there s only one hard quota, there must be productivity expectations for each category with its own rate Perpetual Licenses Term Licenses Mix of ACV by term length Services Sales The relative comp value of each category must also be established Perpetual vs. Term Increasing value with increasing term length Services Once these decisions are made, it s just algebra 2015 Towers Watson. All rights reserved. 11 New plan - example scenarios This example shows all productivity expectations coming in as planned, and proves out the alignment of the rates, the goals, and the stated target incentive 2015 Towers Watson. All rights reserved. 12 6

Term Increasing value with increasing term length Services Once these decisions are made, it s just algebra 2015 Towers Watson. All rights reserved.

7 New plan - example scenarios Here total earnings are under target even though the total quota is exactly achieved. This is because the quota was attained with all Perpetual and none of the higher-value Term software sales Towers Watson. All rights reserved. 13 New plan - example scenarios It is important to test the tuned plan with a range of possible performance scenarios to confirm it behaves as intended. Deltek tested their plan using each sales person s prior year actual performance and compared old plan/new plan payouts to confirm that the differences aligned with the company s interests and could be sold to the sales person as reasonable Towers Watson. All rights reserved. 14 7

13 New plan - example scenarios It is important to test the tuned plan with a range of possible performance scenarios to confirm it behaves as intended.

8 Deltek experience from the first year Wins Clear message about the relative value of different categories of sale Simplicity of all Perpetual Products at the same rate Term/SaaS sales relieves quota in alignment with in-year revenue, but longer terms are worth more to the rep Increased focus on getting higher ACV instead of higher TCV to align with company focus Realized no abnormal rep attrition Lessons learned Communication at the sales management level can t be over-done SaaS bookings on an annual quota mean that reps can meet their number late in the year, and the business misses revenue Even though there s only one quota, getting the mix right in the assumptions is very important Ended up increasing rates on Term/SaaS sales ensure focus on the mix from a sales perspective 2015 Towers Watson. All rights reserved Towers Watson. All rights reserved. 8

attrition Lessons learned Communication at the sales management level can t be over-done SaaS bookings on an annual quota mean that reps can meet their number late in the year, and the business

Another Example Plan Recurring revenue mature, with multiple focus areas Plan features Total Comp at Target Measurement period Base Commission New Sales Rep

92% ACV Add-on Commissions + Category Product 1 Product 2 Commission Adder + 1.6% ACV + 4.0% ACV + Actual ACV % Quota Commission Adder 0% - 100% No adder 100.

9 Another Example Plan Recurring revenue mature, with multiple focus areas Plan features Total Comp at Target Measurement period Base Commission New Sales Rep $200,000 = $100k base + $100k target incentive Year Measure = Quota = $3.2M ACV per year Term (years) Commission Rate % ACV % ACV % ACV % ACV Add-on Commissions + Category Product 1 Product 2 Commission Adder + 1.6% ACV + 4.0% ACV + Actual ACV % Quota Commission Adder 0% - 100% No adder 100.1% - 150% % ACV New Logo + 3.2% ACV 150% or more % ACV 2015 Towers Watson. All rights reserved Towers Watson. All rights reserved. 9

Sales Compensation in a Recurring Revenue Business

Sales Compensation in a Recurring Business Webinar sponsored by IBM and WorldatWork February 25, 2014 The Cygnal Group has prepared this document for the benefit of attendees at the above named event.