Usage Based Pricing & Sales Compensation Models - with Rachel Parrinello, The Alexander Group

**Ray Rike** (0:00)
Hello, I'm Ray Reich, founder and CEO of RevOp Squared, and your host of the Metrics that Measure Up podcast. We talked to a wide variety of B2B, Saas, and Cloud thought leaders, executives, investors, and people just like you to discuss the metrics and benchmarks they use to make metrics-informed decisions. Now on to today's show. Welcome to today's episode of the Metrics that Measure Up podcast. Today, we are joined by Rachel Parrinello, Sales Compensation Practice Leader at The Alexander Group. Today, we'll be covering three main areas with Rachel. First, state of B2B technology compensation in 2022 and beyond, the impact of usage-based pricing or consumption-based pricing on compensation models, and third, what are the key variables to consider in developing your FY22 compensation models and plans, specifically to usage-based pricing environments. Rachel, can you please take a moment to give a brief background overview of your journey to becoming a guest on the Metrics Measure Up podcast?

**Rachel Parrinello** (1:19)
Yeah. Well, first of all, thank you so much, Ray, for inviting me to be here today, and thank you for those who are tuning in to this podcast. I've been at The Alexander Group for 22 years now. The Alexander Group is a revenue growth consulting firm, and we basically help our clients with their strategy, their structure, and their management practices to help their clients grow their revenue in a profitable way. About 14 years ago, I decided to specialize at The Alexander Group with regard to sales compensation.
And the reason why I grabbed on to this practice area within The Alexander Group is I really loved sort of the political arena that the sales compensation program design process fell within. You have the sales leaders who think about sales compensation as their key lever to drive their revenue growth strategy. You have HR that needs to make sure that the plan aligns to their pay philosophy and reward philosophy. And then you have finance, obviously, that wants to make sure that it fits within the budget. And then you have operations who needs to make sure that they can operationalize the compensation program design. So getting all those stakeholders together in a room to agree on a plan design structure is a lot of fun. And so that's probably the main reason why I decided to focus in this area at The Alexander Group. So in my role at The Alexander Group today, at the principal, I oversee our benchmarking, as well as oversee our IP, as it pertains to sales compensation plan design. I'm based in the Valley, the Silicon Valley, and so I tend to work almost predominantly with our technology clients. And over the past six, seven, eight years, I've been working a lot with consumption based companies. So for example, Snowflake, Databricks, Google Cloud, and other companies like that. And so it's been kind of fun to see how these companies have adopted a consumption based pricing model and that led me here today. So excited to be here and share what I know.

**Ray Rike** (3:41)
Well, Rachel, thank you so much for joining us. I never thought of sales compensation being kind of an analogy to the political arena, but you're so right. And there's not just two sides of the aisle, right? Sometimes there's three or four sides of the aisle, as you mentioned. But let's kind of double click right into sales compensation for B2B, SaaS and cloud companies. And my first question is, you see the evolution of go to market motions. You see more consumption based or usage based pricing models. You see product led growth models. But I really don't see sales compensation models have evolved that much in the last 10 to 15 years. Would you agree with that? Or do you see a lot of evolution of comp models and comp plans?

**Rachel Parrinello** (4:28)
I actually do. I've seen quite a large evolution of the sales compensation models, primarily with the measurement system. And I would argue that the measures is the most important part of the plan design process because the measures are going to direct your sellers on what to do and how to spend their time. So if you go back 20 years ago, we were predominantly, particularly in the software space, we were predominantly on-prem perpetual models with maintenance subscriptions that were sold, you know, to provide support and upgrades to their software, a very different kind of sales process model, right? You kind of land and then every once in a while, you know, you get the renewal, the maintenance renewal, and then what you're trying to do is expand with new products or maybe get them to buy for new users. And then Salesforce came along and they completely changed the model, right? They started with their cloud-based subscription model. And then all these other companies came along and they took their on-prem perpetual model and they started to sell it at the term subscription because they wanted to move into this reoccurring revenue business model that was being valued by the marketplace. And so we had this trend from on-prem to cloud, as well as from perpetual license models to subscription models, whether they be on-prem term licenses or Saas, you know, in the cloud licenses.