S A A S I N D U S T R YINCENTIVE COMPENSATION

BENCHMARK REPORT

TABLE OF CONTENTS

EXECUTIVE SUMMARY

PLAN DESIGN IN A SAAS WORLD

MANAGING SALES REPRESENTATIVE PERFORMANCE

MANAGING SAAS SALES TEAMS

CONCLUSION

ABOUT XACTLY

1

3

4

8

10

12

E X E C U T I V E S U M M A R YOVER AND UNDERACHIEVEMENT IN SAAS:

A TALE OF TWO EXTREMES

EXECUTIVE SUMMARY 1Xactly Corporation, 225 W Santa Clara St, Suite 1200, San Jose, CA 95113 © 2005-2014 Xactly Corporation. All rights reserved.

SaaS companies today are expected to scale rapidly and drive accelerated revenue growth as they continue to mature. In this dynamic, high-growth environment, according to the Xactly SaaS Benchmark Study, incentive compensation can play a key role in determining the success or failure of a business.

In the first study of its kind, Xactly Corporation, “Xactly,” leveraging its big data platform that includes aggregated and anonymous empirical data, analyzed the sales and incentive compensation patterns of SaaS companies during 2013 to pinpoint the impact of compensation on sales performance.

The findings of the study reveal the following:

The study further reveals that SaaS companies are prioritizing growth over sales performance. Moreover, a subset of the data demonstrates a bimodal distribution of performance, with high populations either materially overachieving or greatly underachieving. This indicates that many SaaS companies may be responding to demands for growth with a feast or famine mentality, creating a risk of being too heavily dependent on only a few top sales performers.

This approach suggests that SaaS businesses may be tolerating underperformance and may want to rethink their sales strategy to ensure it aligns to long-term company objectives of growth, retention and profitability. Further, both the average quota attainment and the bimodal distribution of the attainment have serious implications for executive teams as they plan for top line sales growth and setting quotas.

THE MARKET FOR TALENT

Attracting and retaining talent is important for any industry and for SaaS companies, its importance can’t be overstated. We found that smaller SaaS companies are paying higher total variable compensation as compared to their larger competitors. This fact can be likely explained by smaller companies desire to attract better sales talent and increase the probability of their success. So the question is: if you are a new SaaS company how will you attract new sales talent? And if you are a larger, more established SaaS company, are you incenting to retain your best talent?

EXECUTIVE SUMMARY 2

SaaS companies generally follow best practices in incentive plan design; focusing on one primary plan component, with an average of two plan components.

The median quota size for a primary quota-carrying sales representative (Account Executive) is $1.2 million.

A large percentage of quota-carrying SaaS sales representatives do not achieve their goals—79 percent of sales representatives miss their quota and 14 percent never achieve even 10 percent of their quota.

The average quota attainment for a SaaS sales representative is 58 percent, independent of tenure, company size and market.

Companies with under $100 million in sales on average pay 46 percent more in incentive compensation relative to companies with more than $1 billion in sales, irrespective of the size of the quota.

·

·

·

·

·

Xactly Corporation, 225 W Santa Clara St, Suite 1200, San Jose, CA 95113 © 2005-2014 Xactly Corporation. All rights reserved.

EXECUTIVE SUMMARY

P L A N D E S I G N I N S A A S W O R L D

PLAN DESIGN IN A SAAS WORLD 3Xactly Corporation, 225 W Santa Clara St, Suite 1200, San Jose, CA 95113 © 2005-2014 Xactly Corporation. All rights reserved.

Going one step further into the plan design, Xactly found that the SaaS companies in the study had a median quota size of $1.2 million for primary quota-carrying sales representatives, or Account Executives (AEs).

PLAN COMPONENT WEIGHTING

The data shows SaaS companies follow accepted best practices with respect to measures and weighting, and deserve credit for doing so. But these companies also need to ask whether they are incenting on the correct components to drive growth. Additionally, as SaaS companies continue to grow, they need to ensure that their incentive plans are properly aligned and clearly communicated to sales representative in order to get the right behaviors to ensure reaching or exceeding company goals.

PLAN DESIGN IN A SAAS WORLD 4

PLAN DESIGN IN A SAAS WORLD

As the SaaS industry continues to experience strong growth, Xactly wanted to understand how these high-growth companies are creating their incentive compensation plans. In particular, Xactly was interested in learning how company efforts compare with known best practices, including assessing the average quota size for these emerging, high-growth businesses.

This benchmark study further indicates that the SaaS companies in the study are behaving similar to mature companies by using a generally accepted number of plan components. Specifically, Xactly found that the SaaS companies use an average of two plan components. This allows sales representatives to focus on a single component, or at most two components, to drive company objectives and achieve company goals.

This trend is also borne out by examining where commissions are paid. As Figure 1 shows, in 2013, 79% of commissions were paid on the primary plan component, with 15% of commissions paid on the secondary plan component. The weighting is similar for first line managers, which demonstrates solid alignment between sales representatives and managers.

v

COMPANIES ARE KEEPING THEIR PLANS SIMPLE WITH A PRIMARY

PLAN COMPONENT THAT ALLOWS SALES REPRESENTATIVES TO UNDERSTAND THEIR FOCUS.

SAAS ACCOUNT EXECUTIVES HAD A MEDIAN QUOTA

AMOUNT OF $1.2 MILLION.

PRIMARY COMPONENT 79%

SECONDARY COMPONENT

15%

OTHER 6%

Xactly Corporation, 225 W Santa Clara St, Suite 1200, San Jose, CA 95113 © 2005-2014 Xactly Corporation. All rights reserved.

Figure 1

M A N A G I N G S A L E S R E P R E S E N TAT I V E P E R F O R M A N C E

MANAGING SALES REPRESENTATIVE PERFORMANCE 5Xactly Corporation, 225 W Santa Clara St, Suite 1200, San Jose, CA 95113 © 2005-2014 Xactly Corporation. All rights reserved.

MANAGING SALES REPRESENTATIVE PERFORMANCE 6

MANAGING SALES REPRESENTATIVE PERFORMANCE

Managing employee performance is a key objective for managers regardless of industry, and the key performance measurement for sales representatives (AEs) is quota attainment. Industry best practices guide sales management to expect that 60 to 65% of sales representatives should achieve quota. Surprisingly, according to the Xactly data, SaaS companies, on average, are not meeting this benchmark.

Xactly data indicates that only 21% of sales representatives achieved or exceeded quota in 2013 (see figure 2). With this being the case, how were the SaaS companies able to meet company objectives? The data revealed that the sales representatives who did achieve quota actually overachieved significantly. A good representative is a good representative regardless of industry. This indicates that SaaS companies more generally rely on a small subset of team members to achieve company success at the company level.

Due to high demands for growth, SaaS companies may have sacrificed traditional approaches of talent and performance management to achieve shorter-term growth goals.

Interestingly, the pattern of underachievement seems to be consistent regardless of the tenure in role (see figure 3). For instance, a reasonable expectation would be for sales representatives with greater tenure to be more successful. However, on average, only 15% of sales representatives with at least one year in their role achieved quota, while 5% did not achieve even 10% of their goal.

For sales representatives with less than one year in their role, 16% achieved quota, with 19% performing under 10% of their goal.

Additionally, smaller companies seem to have paid the price for lackluster performance in 2013. According to analysis, smaller SaaS companies paid 46% more in incentive compensation than their larger counterparts (for equal dollars of sales achievement) with similar underachievement (see figure 4). The report shows that smaller companies are paying $1,000 in variable compensation for every $22,000 in sales, compared to larger companies who pay $1,000 in variable compensation for every $36,000 in sales. Competition for talent is fierce, and smaller companies seem willing to invest heavily to compete for all-star representatives to carry their teams.

Further, the data indicates that smaller companies may be responding to demands for growth with a feast or famine mentality, creating the risk of being too heavily dependent on top sales performers. Only time can tell whether this departure from traditional sales performance expectations can lead to long-term success.

Xactly Corporation, 225 W Santa Clara St, Suite 1200, San Jose, CA 95113 © 2005-2014 Xactly Corporation. All rights reserved.

0%

5%

10%

15%

20%

0-10% 20-30% 40-50% 60-70% 80-90% 100-110% 120-130% 140-150% 160-170% 180-190% 200-210% 220-230% 240-250%

0%

5%

10%

15%

20%

0-10% 20-30% 40-50% 60-70% 80-90% 100-110% 120-130% 140-150% 160-170% 180-190% 200-210% 220-230% 240-250%

TENURED NON-TENURED

QUOTA ATTAINMENT FOR SALES REPRESENTATIVES

QUOTA ATTAINMENT FOR SALES REPRESENTATIVES: TENURED VS. NON-TENURED

TOTAL VARIABLE PAY FOR SALES REPRESENTATIVES

Figure 2QUOTA ATTAINMENT

QUOTA ATTAINMENT

% O

F S

ALE

S R

EPR

ESEN

TATI

VES

% O

F S

ALE

S R

EPR

ESEN

TATI

VES

Figure 3

Figure 4

MANAGING SALES REPRESENTATIVE PERFORMANCE 7Xactly Corporation, 225 W Santa Clara St, Suite 1200, San Jose, CA 95113 © 2005-2014 Xactly Corporation. All rights reserved.

46%

REVENUE UNDER $100M REVENUE ABOVE $100M

M A N A G I N G S A A S S A L E S T E A M S

MANAGING SAAS SALES TEAMS 8Xactly Corporation, 225 W Santa Clara St, Suite 1200, San Jose, CA 95113 © 2005-2014 Xactly Corporation. All rights reserved.

MANAGING SAAS SALES TEAMS 9

79%

MANAGING SAAS SALES TEAMS

Although sales managers are pioneering new sales performance management techniques, they seem to be doing so with similar-sized sales forces. In 2013, for example, SaaS sales managers managed an average of six people, regardless of company size. However, study data indicates that larger companies are not performing as well, at least in terms of first line manager quota attainment.

In 2013, the average quota attainment for team members was strong at 75%. Interestingly, smaller companies seemed to exhibit a higher level of performance with 78% quota attainment, while teams from larger companies performed noticeably lower with an average quota attainment of 67%.

While the collective group of SaaS sales representatives seemed to struggle in attaining their goals, managers faired far better, further supporting the idea that sales representative talent management takes a back seat to company growth. The average quota attainment for first line managers in SaaS companies was 81% in 2013, with smaller companies achieving 86% of quota. Surprisingly, first line managers from the larger companies achieved only 67% of quota on average.

One might assume that a high growth organization would adopt a ”do more with less” mentality, however, the SaaS companies in Xactly’s study do not seem to fit this model. With team size uncorrelated to better performance, achieving success appears to be all about having the right manager, the right sales resources, and the right team.

0%

25%

50%

75%

100%

% O

F Q

UO

TA A

TTA

INM

ENT

ALL BUSINESSES

FIRST LINE MANAGER TEAM

81%86%

78%

67%67%

75%

REVENUE UNDER $100M REVENUE ABOVE $100M

FIRST LINE MANAGER & TEAM QUOTA ATTAINMENT

Xactly Corporation, 225 W Santa Clara St, Suite 1200, San Jose, CA 95113 © 2005-2014 Xactly Corporation. All rights reserved.

Figure 5

C O N C L U S I O N

CONCLUSION 10Xactly Corporation, 225 W Santa Clara St, Suite 1200, San Jose, CA 95113 © 2005-2014 Xactly Corporation. All rights reserved.

SAAS INDUSTRY INCENTIVE COMPENSATION FINDINGS 9

CONCLUSION

SaaS companies are innovative by nature. Moving from an on-premise model to cloud based computing has been revolutionary in the marketplace. SaaS companies are taking a similar revolutionary approach to incentive compensation. As demonstrated by the high revenue growth of SaaS companies, it seems to be working at this time. However, time will determine whether this approach continues to prove successful or whether the industry migrates to more traditional methods of incentive compensation given long-term company objectives of growth, retention and profitability.

Xactly’s rich data set offers even more opportunities for exploration. To this end, Xactly offers multiple methods for deeper examination of actual practices in incentive compensation.

XACTLY INSIGHTS (COMING IN Q3 2014)

Xactly Insights is the first cloud-based benchmarking platform that allows companies to interact with the Xactly data set. Companies can harness the power of Xactly Insights to analyze plan, credit, and spend data, filtering by industry, company type, revenue, and job role.

Integrating with Xactly Incent or independently Insights allows you to drive key business decisions using meaningful empirical industry data.

XACTLY BENCHMARK ENGAGEMENTS

Xactly offers benchmark engagements that empower companies to harness the full potential of their sales incentive compensation programs. Benchmark engagements with Xactly are a high-touch, in-depth analysis of incentive compensation processes.

Working with Xactly specialists, the program takes an all-encompassing look at your incentive compensation plan from the perspectives of C-suite, finance, sales, and IT operations. Using these engagements, business leaders can now leverage Xactly’s unique data set—featuring over seven terabytes of industry data—to benchmark their incentive compensation practices, delivering commercially meaningful intelligence.

Xactly Benchmark Engagements lets you zero in on where your plan is “right on the money,” and helps you identify where changes may be needed.

For more information on Xactly Insights and Xactly Benchmark Engagements, contact us at 1-866-GO-XACTLY or insights@xactlycorp.com.

CONCLUSION 11Xactly Corporation, 225 W Santa Clara St, Suite 1200, San Jose, CA 95113 © 2005-2014 Xactly Corporation. All rights reserved.

A B O U T X A C T LY

ABOUT XACTLY 12

ABOUT XACTLY

Xactly has helped companies of all sizes and industries unleash the motivational power of their incentive compensation programs to inspire better employee performance and business results for over nine years. Xactly’s secure, cloud-based incentive compensation and performance management solutions enable emerging businesses to Fortune 500s to easily design, manage and optimize incentive programs that save time, cut costs, reduce risk and align employee behaviors with corporate goals. We continue to drive thought leadership around inspiring performance through the right incentives. We have built this knowledge by helping over 140,000 subscribers pay billions of dollars in incentive compensation across many industries.

Xactly, the Xactly logo, Inspire Performance and Xactly Insights are registered trademarks, or trademarks, of Xactly Corporation.

ABOUT XACTLY 13Xactly Corporation, 225 W Santa Clara St, Suite 1200, San Jose, CA 95113 © 2005-2014 Xactly Corporation. All rights reserved.