The Rally Ventures SaaS+ Playbook
Sales Structure and Compensation
SaaS+ is the strategy of adding payments, lending, insurance, background screening and other tools on top of a SaaS platform. It’s a company changing model that can 10X your revenue, and there are many SaaS platforms that have the ability to become a SaaS+ business. In our introductory article to this emergent business model, we talked about why we’re so bullish on SaaS+ and how it’s become a core area of investment for Rally Ventures.
In the coming months, we’ll dig deeper into the Rally Ventures SaaS+ playbook with the founders, investors, executives and technologists who helped build it over the course of 10 years. We’ve been fortunate to invest in and cocreate alongside some incredible people as we finetune our approach to this emerging business model.
About Order and Why They Chose to be a SaaS+ Company
Order was founded in 2016 with the mission to simplify buying for businesses, which is often unnecessarily complex and leads to wasted time, money and chaos for those doing the purchasing work. Order is a business purchasing marketplace where companies can source office products, software and services. The entire platform is powered by predictive applications and embedded fintech that delivers tailored experiences up and down the buying process. It currently has more than $500 million in annualized spend, with customers like WeWork and SoulCycle.
Co-Founder and CEO Zach Garippa shared his big reason for building Order into a SaaS+ company: He believes that there is just no better business model to connect every part of your business (i.e. product innovation, revenue generation) to what is best for the customer. SaaS+ businesses are uniquely positioned to solve complex customer problems because their incentives are perfectly aligned with the customer.
In order for a business to increase revenue per customer, they need to create new products and services to serve their existing customer base. The more aligned these products and services are with what their customers actually want, the more customers will onboard these new products and services, which leads to more transaction fees flowing through their platform.
When done correctly, this results in a product that customers trust with more and more of their spend, which leads to high net dollar retention, high revenue predictability and a rapid product deployment cycle. To underscore this point: Order’s revenue and spend figures have grown between 200% and 300% annually, with NRR above 200%. All this means that their customers are tripling in value every 12 months, due primarily to their increased spending volume on the Order platform.
Marketing and Education
Because SaaS+ is still an emerging category, one of the biggest lessons we’ve learned over the years is the importance of educating all stakeholders on the business model. Incorporating a culture of learning in everything from employee training to marketing outreach to onboarding can make all the difference between success and failure.
Rally Managing Director Justin Kaufenberg was previously the founder and CEO of SportsEngine, which he built from zero to $100m+ in ARR. He recalls how important educating prospects on the SaaS+ revenue model was during the sales process. It is helpful to be transparent about the fact that in a SaaS+ model, the majority of a company’s revenue comes from non SaaS sources — like payment processing fees, screening (credit, background), certifications, credit products etc — as opposed to the monthly SaaS fee.
The majority of customers you’ll encounter are used to a traditional SaaS business model. Without the education component, there will be a variety of friction points that come up throughout the sale and implementation process simply because it isn’t familiar.
Plus, understanding the mechanics of how SaaS+ businesses operate and generate revenue can become a valuable tool in the sales process. SaaS+ businesses make the majority of their revenue from transaction fees generated by the flow of funds through integrated products and services. It’s critical for customers to understand that these fees are all taken from the payment partner, like Visa and Mastercard. Or, are pure margin add-ons like insurance or screening. Not a dollar is taken from the customer’s pocket.
Educating prospects and customers about the additional revenue streams generated by a SaaS+ company helps them understand why they’re receiving fantastic software subscription pricing and why a company can irrationally invest in software above and beyond competitors.
This same logic applies to training the sales team, so they understand where value is created and can in turn educate prospects and customers. Your team has to be comfortable operating within and talking to people about the model in order to drive value.
Bottom Line: Embracing a culture of education helps all stakeholders understand why SaaS+ is a superior solution and can deliver in ways other companies cannot.
Packaging and Pricing
One of the great debates since the invention of the SaaS+ business model is whether SaaS fees should be reduced or even eliminated in order to reduce friction during the sales process.
What we’ve seen with Rally portfolio companies is that SaaS+ revenue sources can easily grow to dwarf SaaS revenue, making it seem like a good idea to eliminate the SaaS subscription fee to more rapidly attract customers. We have found the opposite to be true.
Zach expands on Order’s experience navigating this tricky issue. He recalls how, in the beginning, he had a strong thesis that you don’t need the SaaS fee — it’s superfluous and would end up being a hindrance to the sales process. But after a trial period of eliminating the SaaS fee, they found that not having the SaaS fee became the hindrance, for two main reasons:
- The psychology of pricing and consumption shows that people are more likely to value and use a product that costs money. Customers are more likely to show up for kick-off, advocate within their company and follow through on the implementation process.
- Familiarity. There was a lot of confusion around why the Order platform was free when they tried going through the sales process with no SaaS fee. Customers are used to paying subscription fees for software, and not having that is unfamiliar and just seems too good to be true. This point also ties back to how important education around the SaaS+ structure is throughout the sales and onboarding process.
Bottom Line: It’s called SaaS+ for a reason! You do need some level of subscription or implementation fee for success.
Top of Funnel
Order Chief Revenue Officer Corey Beale spent many years working at Hubspot under a traditional SaaS model, and he had to explore how an effective revenue and customer engagement strategy would be similar and dissimilar in a SaaS+ model.
The first thing he and his team did at Order was take a close look at their Ideal Customer Profile (ICP), which is a core element of any go-to-market strategy, and figure out how operating within a SaaS+ model would change their marketing and lead generation tactics.
What we’ve found from 10+ years of deploying the Rally Ventures SaaS+ Playbook also held up at Order: many of the SaaS top of funnel tactics also work in a SaaS+ environment. The general plays for pipe, discovery and close hold up pretty well.
The number one driver of activity is typically the business development representative (BDR), who focuses on generating qualified prospects using a mix of cold outreach, social selling and networking. Corey did experiment with different traditional and non-traditional sales methods, specifically to find ways to be more efficient, but ultimately found that SaaS+ doesn’t change the output all that much.
Bottom Line: The motion of building a sales pipeline in a SaaS+ environment is very similar to a SaaS environment. You can leverage existing playbooks to achieve great results.
Demo and Sale Stage
Once the sales conversation moves forward, an Account Executive (AE) takes over to demo the product and close the sale. We found two key places at this stage where things are different in a SaaS+ organization.
- It is more important for the marketing channel to be diligent on qualification and discovery. Corey noted that he puts much more emphasis on qualification at Order, as opposed to previous traditional SaaS companies. This is because some customers have a higher volume of funds flowing through their platform and therefore place a higher emphasis on non SaaS features, such as embedded payments.
- Resources that are traditionally put into pre-sale should be reallocated to post-sale. For example, we recommend involving a sales engineer post-sale as opposed to pre-sale because companies need more support post-sale in order to be successful. Failing to correctly implement the software results in reduced usage and reduced funds flow, which directly impacts customer value.
You can’t really exist as a SaaS+ company without a strong post-sale process. When done correctly, revenue per customer is only going to grow. But a company needs support in order to make that happen, especially in the first 45 days after close. SaaS+ requires a more complex onboarding and implementation process, with significant resources needed from product and engineering. Plus, you don’t want to clutter or drag out the sales motion with activities that are better suited to implementation and onboarding.
Bottom Line: The majority of revenue from any given account in a SaaS+ company is achieved post-sale, so it makes sense to move resources to the onboarding and implementation stage.
At both SportsEngine and Order, accounts got 5x bigger on average by year 3 — all through education, upsell and nurturing. Below is an illustration of an average SportsEngine customer.
In just 3 years, the customer grew from $5,000 in annual revenue to $40,000 in revenue and their ramp is only just starting with significant additional uncaptured payment volume, additional adoption of insurance and e-commerce and products #4, #5, #6 and #7 not even introduced yet.
At first blush, this looked like a classic $5,000 per customer SMB market. In reality, this market is at least 20x larger than the traditional TAM analysis would suggest. For the additional $35,000 in revenue growth, not a single dollar came from the customer’s pocket. All of those revenue dollars were created by displacing legacy non-embedded vendors.
How do you manage onboarding and activation to achieve this kind of success? Order has Implementation Specialists who get the core software pieces setup and the first handful of orders completed from start to finish for each customer in the first 45 days. The account then gets handed over to the Account Manager (AM) who continues to drive spend and value.
The team constantly revisits and compares customer performance to benchmark metrics across the industry. Traditional SaaS is obsessed with pre-sale and sale; with SaaS+ you need people who are passionate about post-sale, too.
Bottom Line: With the SaaS+ model, both the company and the customer get significant leverage post-sale. The company is highly motivated to create and improve products for their customers to elicit more spend — which in turn creates more value for the customer. You will not generate that 5x ARR growth unless the customer is given something that they want and are taught how to use it.
One of the most complicated aspects of the SaaS+ model is compensating the Account Executive (AE) who is responsible for getting customers through the door. In a traditional SaaS model, the bulk of revenue comes from the SaaS fee, so the AE’s quota is completely tied to the initial sale. AEs are less concerned about growth over time because the account is normally handed off to someone else at the point of purchase.
In a SaaS+ model, the bulk of revenue is generated from non SaaS sources after the point of purchase. What we recommend is to still largely tie the AE quota to the initial sale, but include added compensation for activation and spend after the point of purchase. This additional incentive both aligns with how a SaaS+ company is bringing in revenue and aligns the sales, implementation and account management teams around the idea of maximizing spend.
For example, Order divides AE compensation roughly 50% on the initial sale, and then gives an additional 50% based on the logo’s spend over the first four months, which are typically the most critical parts of a customer’s lifecycle. Order aligns a portion of comp around the idea of a “business in order” which is $20k in spend across 10+ vendors, as that yields 90%+ retention long term.
Once the sale is closed, accounts are assigned to an Implementation Specialist and an Account Manager. The Implementation Specialist runs the show for the first 45 days and then the AM takes over. These roles are very much considered sales roles in a SaaS+ organization and are tasked with driving non-SaaS revenue.
The North Star of compensation for AMs is to compensate based on a net book of business model. We have found the best practice here is to give AMs a goal NRR to achieve over the course of one year. In doing so, AMs have a clear goal to track towards, but are given freedom to operate within their own book of business. Options to achieve this goal are many of the items already discussed in this article: educating the customer around maximizing spend to drive up usage, selling additional products, fighting back against churn, etc. As an example, SportsEngine gave their AMs a goal of 150% NRR meaning that their $1 million book of business on January 1st needed to be worth $1.5 million on December 31st.
Order also operates on a net book of business model, and they have experimented between tracking against net growth of GMV and TPV while trying to really understand what type of spend they want their AMs to own and drive. They’re working their way towards NRR, but it’s a progression as they learn how to model and forecast a more accurate number.
The key challenge here is that AMs need to consistently get information about their book, so they can effectively run their own business. If you don’t have the right data, your NRR is likely to be off, which means your team’s compensation is based on speculation — which you never want to do. Sales reps want and need clear visibility into how much they’re going to make.
Bottom Line: Based on NRR book of business is right for a SaaS+ organization, but the execution path to get there is challenging. You have to have a clear understanding of your company’s data. Which brings us to our next point.
Sales and Rev Ops
Justin noted how the comp plan at SportsEngine put a huge burden on the sales operations team. They had to build tech on top of Salesforce, so reps knew what their book of business produced every 24 hours. It was a huge undertaking, but once the machinery was built it was powerful.
Zach commented that the necessary investment in sales and rev opps infrastructure has been a lesson they’re still learning. This infrastructure is much more important in a SaaS+ company, and he noted that you can hack success far faster by gaining visibility into your data as early as possible.
There are so many levers to understand in a SaaS+ model. Data becomes critical in order to model, forecast and adjust as behavior changes depending on which lever is pulled and determining whether or not it could scale. You’re constantly learning what is most valuable to your customer and what metric measures that value best.
Bottom Line: Rev opps and sales opps make all the difference in SaaS+. The data needs to be surfaced, and the sooner the better. When AEs and AMs know how much commission they’ve earned each day, based on the funds flow in their book of business, they’re highly motivated to keep improving and earning.
Being part of a sales team at a SaaS+ company gives you a wide view into the entire organization. If you’re just starting your career as a BDR, you’ll see the full lifecycle of a customer and get an education on onboarding, usage, activation, churn and more.
Justin noted that his last two CROs at SportsEngine went on to become CEOs. As a CRO at a SaaS+ company you represent and own logo acquisition, onboarding, activation, usage growth, logo retention, upsell and crossell, which are all interdependent on customer success, technical support and product. It’s a necessarily comprehensive view of revenue and the overall company operations.
Bottom Line: SaaS+ is a great training ground for a high-trajectory career path. We’ve seen more people who started out in sales at a SaaS+ organization go on to become VPs of Sales, CROs and in some cases Founders/CEOs than any other category.