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Comp Plans for Consumption-based Businesses
00:10:39
In this short segment of the Revenue Builders Podcast, we revisit the discussion with Jose Fernandez — former Head of Global Sales Development at Google and now CEO of Easy Comp — breaks down how compensation must evolve when companies shift from traditional SaaS licensing to consumption-based models. Drawing from his experience at Google Ads, one of the most successful consumption engines in business history, Jose lays out the structural advantages of consumption models and how GTM, onboarding, forecasting, and comp plans must align to unlock growth. John McMahon and John Kaplan then expand on how consumption changes seller behavior, deal sizing, renewal dynamics, forecast accuracy, and quota mechanics. This is a must-listen for revenue leaders, sellers, and anyone navigating the industry-wide shift toward usage-based pricing. KEY TAKEAWAYS [00:00:46] Companies transitioning to consumption models often copy SaaS licensing structures instead of designing comp that amplifies cons...
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Transcript8 lines
- [00:00]
Jose Fernandez
Foreign.
- [00:06]
Podcast Host
Welcome to the Revenue Builders podcast with John McMahon and John Kaplan. This podcast is brought to you by Force Management. Today, a segment from our episode on compensation with Jose Fernandez. Jose is the former head of global sales development at Google. He's also held leadership roles at MongoDB and Intact. He's now the co founder and CEO of East Coast. This segment talks about compensation in a consumption model.
- [00:33]
Jose Fernandez
I mean when you talk about consumption now, and John, you mentioned that before, it presents its own challenges with respect to compensation. And remember in consumption basically you are trying to get that customer to use more of your product to engage and spend money on your product. I think one of the key that we see is that when companies transition from a licensing model, from a SaaS licensing model to a consumption model, they take a bit too much inspiration from the old model instead of thinking what are the advantages that this new model brings to us and how do we develop a go to market strategy and the compliance that amplify those advantages. Taking an example from a different industry, I was at Google for a while and I was managing the VDR team for Google Ads. Google Ads is one of the most successful consumption models in the history of business. They figured out that the three key advantages of our consumption model are one, that reduces the barriers to entry for a customer. You can get a new customer without asking them for a huge upfront commitment. Number two, that as much as you want that customer to continue spending and growing, the spend of a customer is directly proportional to the value that they get out of your product and your ability to communicate that value back to the customer. They need to get the value and they need to understand that they're getting the value. And number three, and maybe a little more controversial, is that if you have an amazing product, some of that consumption and some of that growth is going to be product led, meaning it's going to happen regardless of what the sales team does. So now you have, so now they build a go to market strategy and compensation around those three pillars. So for instance, I was part of the new business sales team that was in charge of bringing new advertisers and when you got a new advertiser, you got paid for the first three months of that spend. It has to be net neo somebody that hadn't spent with Google before. And here's the catch. Because we had to reduce the barriers to entry, the customer didn't need to agree to spend money. They just had to sign a paper that said I will start an advertising campaign by this date. Right when they signed that paper, they were transferred to a second team that was the onboarding team. And that onboarding team was in charge of that second principle, which was making sure that the customer was set for success and that they understood the value. So they were paid on points for helping the customer set up Google Analytics, helping the customer run a first really successful campaign, and helping the customer understand the ROI that they were getting from the product. Once that happened, they graduated to an account management team. And now he's tricked. Because forecasting in a consumption model is an analytical exercise, it's not fair to ask an account executive to forecast a number if it is an analytical exercise. We have the models and today there's even better models that will predict where a customer was going to land every quarter based on their trajectory. Basically, if they didn't have an account manager, the account managers were paid from $1 on that. But then if they changed the trajectory, then they got paid big time. They got big dollars for that. That was a good alignment of that strategy. And you might say, look, you have a first team here, like the team that brought the new logos and they got paid on the first three months of spend, but they didn't control it. So isn't that a problem? That team was in charge of getting advertisers through the door that were a really good fit and that will be getting a lot of value from the product and hopefully with the means to spend. To give you an example, we had talking about the big payouts, the typical quota for an account executive was about $400,000 per quarter. And I still remember one of them brought E commerce player at the time unknown, but they got a lot of funding and they were trying to make a bigger splash in the business. That advertiser spent in the first three months, $15 million. So that was a huge paycheck for that account executive. If you manage to get the right customer through the door, you can make a lot of money.
- [05:34]
John Kaplan
Johnny, you've been through with some of the greatest. I mean you've been through it with open source people, you've been through it with disruptors. Talk to the audience, the salespeople. Is there anything with like this consumption and what should we be thinking about as it go, like skill sets, what's compensation, what behaviors could potentially change or the same with consumption? Because I get a lot of questions from sellers about that, like what's going to happen?
- [06:08]
John McMahon
Well, let's, let's back up all the way to the beginning. When you and I first sold, we sold Perpetual License.
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John Kaplan
Yeah.
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John McMahon
When the customer bought the license. That's it. They owned it. Right. And you know, that had some benefits from a customer support standpoint. You know, if the customer bought everything that they needed, you, you know, you almost could just go off to the next customer. And it was really a problem for customer support. It wasn't a problem for the sales rep so much. Yeah, I mean, you wanted to make sure you, let's be clear, you wanted to keep your reputation in the territory. So you still called on the customer, but for the most part, it was a customer support job. When you got to subscription, you know, now you've had, if it was an annual subscription, you had maybe six to seven months to start to fix that customer's problems or you're gonna, that customer is going to churn and you got a problem, you're going to pay the penalty for churn. Now, with consumption, that customer could be using that product for a week. And if they're not happy, they turn it off. It's like a light switch. They go to, they go to another company. So when, when salespeople are selling deals, a lot of times they'll do no different than we've always done. When you sell, do a real consultative sell, sell them 1.2 million dollar deal. But now the compensation plans are holding you responsible for burning those credits down. So they get a booking for 1.2 million, but they have to consume. So now the sales reps are on the hook to make sure that that customer is burning the $1.2 million down. Right. So in some ways, what a lot of sales reps are doing, to Jose's point, if I really think when I size it, it's a $1.2 million deal, you know, let's make it $1 million to make sure that I can get that customer to burn down. Maybe they burn the million dollars down in the first nine months, and then I just get another order, you know, to go for the next year or the next three months until there's a renewal. Now, he also talked about plg. So plg, maybe the customer came across and they, they buy off their credit card for 500 bucks. And then they start to use the product over time and they're consuming. And I might get credit for that, especially if it was never touched by sales. But sometimes it comes in through plg and then it's sold actually by the sales rep because of the, maybe the size of the account. Now what happens there is sales rep sells the deal. So to Jose's point, he wants to get it in for a minimum amount, just get the customer to use it. So I tell the customer, just give me a credit card for a thousand bucks. They give me a thousand bucks. They burn a thousand dollars in month one. They like it 2000 in month two, 3000 in month three, 4000 in month four. I say to my company, well now pay me based upon my quota. That's obviously a customer that's not going to turn the customer. The company saying, well, wait a second, if I, how are we going to do this? So sometimes they'll prorate it and say based upon the fact that they're at 4,000 after, let's call it three months, you know, I'll multiply it by four and I'll give you $16,000 credit for that. Now if they churn, I'm going to come back and call a bunch of that back, right? So this is where consumption can get really like hairy for salespeople. Because I want to get in, I want to get the new logo and I got to, you know, get that customer. Maybe I get them for a thousand because I know I can get them up towards 10 or 12,000 by the end of the year. And then when they, and then now they're burning 12,000amonth. Now I can talk them into a big deal and say, look, you're burning 12,000amonth, that's 144,000. Why don't you give me a three year deal for like $500,000, right? And they can turn that deal into a, you know, a much bigger deal. But for companies and for sales reps, the sales reps are putting themselves out there, you know, really supporting the account in addition to selling it. And then the companies are sometimes putting them paying in advance, but also with the clawback claws that I could claw that back if it does turn.
- [10:31]
Podcast Host
There's a lot of good takes in this full episode. It's linked in the show notes. Be sure to check it out. Make it a great week.