How to Create a Sales Compensation Plan to Drive RMR
Recurring services typically have a gross margin of more than 50 percent and increase business value many times more than revenue from installation, so it’s no wonder that many integrators are looking to increase RMR.
RMR requires a different business model than installation sales, and many integrators making the transition need to change the way they compensate their salespeople to drive RMR sales. If you are one of them, read on for some practical tips on creating an RMR sales compensation plan.
First, Hire Salespeople Who Know Recurring Monthly Revenue (RMR)
If your business has focused on selling on-prem solutions, asking people to pay every month may be out of your current sales team’s comfort zone. Before you invest in creating a compensation plan to drive RMR, be sure you have salespeople who are comfortable with subscription sales. People who use online subscription services in their personal lives (like Netflix or Spotify) or have experience selling service-oriented products like alarm systems are likely to be the most successful.
Use Higher Commissions to Drive RMR Sales
Sales compensation plans should promote behaviors that help you reach your business goals for RMR. If you have always focused on large, on-premise installation projects, then it’s likely that your sales commissions reward this type of sale. To grow RMR, you need to change your commission structure to incentivize your salespeople to make more, smaller sales. Otherwise, they will continue to chase higher-dollar installations over $1,000 RMR sales, and your RMR won’t grow.
Most security integrators do not pay enough commission on recurring revenue to drive sales. To grow your RMR, you need to make commissions for RMR at least as attractive, and ideally more attractive, than selling traditional installation projects. Paying higher commission rates for RMR than you do for hardware and installation is the best way to get your salespeople to pay attention to RMR over traditional sales. Fortunately, you can afford to pay higher commissions on RMR, because one dollar of recurring revenue is 15 times as valuable to your business as a dollar of installation revenue.
Pay Out Commissions in the Way That Works for You
There are many ways to pay out the RMR commission structure. Two common ways to pay your salespeople are:
- A one-time bonus at the time of sale of two to 12 times the monthly revenue; or
- An annuity paid out over the life of the contract.
Paying upfront for RMR is a strong motivator to your sales staff to sell RMR deals; however, it requires relatively deep pockets and may not be feasible for all businesses.
Slow and Steady Wins the Race
Building an RMR business is like going on a diet. You have to be consistent and stick with it to be rewarded. Success doesn’t happen overnight, but if you’re persistent and patient, adding RMR to your business can pay off handsomely for you. Having a solid RMR incentive plan will ensure your salespeople are set up to share in that bounty.
Download our sales compensation plan template here