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Companies with recurring revenues or those looking to implement a recurring revenue model aim to improve the stability and profitability of their organization.
If you have salespeople who are actively involved in each sales, it is essential to be aware of the impacts that a recurring revenue model will have internally before you set it up. Recurring revenues generally impact these 3 areas:
- The structure of the sales team;
- The compensation plan;
- Your CRM.
All three need to be planned to favour success.
Impact on the sales team structure
First, to support a recurring revenue business model, your company must first structure its sales force and ensure that everyone’s role is clear. A hunter-type representative assures the company’s growth by seeking new customers. An account manager is responsible for maintenance, and a farmer develops existing accounts.
The size and expertise of the organization will have a significant influence on the structure of the sales team and the number of people required to close a sale.
Don’t neglect the customer experience
If your organization doesn’t currently have a recurring revenue model and you’re looking to implement one, you have to be very attentive to the customer once you’ve reviewed the sales structure. Because more people might now be in charge of each client, they could be overwhelmed by this army of representatives taking over their account.
If that’s your situation, it’s necessary to make your clients’ lives easier by communicating who’s responsible for securing the initial sale, who will provide after-sales service, who will maintain the account and, finally, whom to speak with when new proposals need to be made.
In other words, take the necessary steps to avoid possible client confusion.
Moreover, the transparency of your structure’s workings will demonstrate that your organization is well organized and able to ensure effective follow-ups.
Impact on sales compensation plans
When adopting a recurring revenue business model, your company must also review the representatives’ compensation plan.
The plan must be clearly defined because when a business model involves the intervention of several people with the same client, the issue of income attribution can be complicated. Attribution challenges are even more true for collaborations between other departments and sales. Who contributed to this income? Who should receive a commission for this sale?
Reward sales effort
Compensation must genuinely reflect of the efforts made by each representative. To reward sales efforts, you need to weigh two things.
Divide joint sales efforts
Marketing and market development strategies are becoming increasingly complex. Most companies now use multi-channel tactics to improve the customer experience. They, therefore, use several means to reach clients, such as websites, social networks and mobile applications.
As a result, two representatives can work on the same sale within a single company. The former may, for example, target management at a strategic level, while the latter may target users in the field.
In a case like this, it’s difficult to know whom to assign the sale to and, above all, how to reward the two representatives fairly.
Determine the contribution of the representative
Intangible causes are sometimes likely to mask or enhance a salesperson’s real effort. Efforts are veiled or improved particularly when the market is experiencing significant growth or decline, or when your currency fluctuations make your product or service more attractive.
These revenue sources can lead to sales growth. It is therefore imperative to know and understand them to reward the rep’s actual contribution, and not for elements unrelated to his or her actions.
To accurately calculate the remuneration, it is necessary to analyze the role of the salesperson according to the strategy and structure.
Pay attention to the motivation of the representatives
Executives also need to prepare the sales team for a transition to a recurring revenue model. Otherwise, the new compensation plan could demotivate and disengage some salespeople.
Their compensation plan needs to motivate and encourage salespeople not to rely on their past successes and the benefits of recurring sales. In other words, the compensation plan shouldn’t promote complacency.
This revised compensation must force each rep to double their efforts by seeking new income, whether as a hunter, account manager or farmer. In this sense, it must adapt to the risks and challenges of each role within the same organization.
Set-up your CRM to ensure proper follow-ups
A recurring revenue business model requires the use of a good CRM. On the one hand, it needs to track the pipeline of potential customers, and on the other, it needs to stay up to date on the renewal of sales of existing customers. Your CRM should indicate when it is time to renew an account.
In other words, depending on your context, you shouldn’t assume that renewals will be automatic; otherwise, accounts may be overlooked.
Some companies with a well-established recurring revenue model have a renewal automation system. However, if a renewal doesn’t happen, an account manager will need to contact the client to understand the why.
A recurring revenue model that isn’t set up correctly can be dangerous. For a sales rep, making most of his or her revenue from recurring income can make them complacent when things go well and take them by surprise when things don’t.
If you want to implement a recurring revenue business model within your company, you must:
- Properly structure your sales team, and adjust the focus as you grow;
- Establish a motivating and adapted compensation plan;
- Have the right technology to ensure this revenue recurrence.
Making such changes is not easy, so I encourage you to plan carefully to integrate recurring revenues into your business model and to act methodically.