Shabadoo

Head of Growth

Clawback on enterprise deals

Hi Gang,

I'm negotiating my contract for a Head of Sales role. A big part of the role is building the enterprise sales business.

the contract has a clawback for any deals that churn in the first 12 months. I have asked to reduce that to three months but I was wondering what others' experience was for clawback terms?

Update: Looks like contract terms are a minimum of 12 months so minimal concern here regarding churn within that period. I am still interested to hear what everyone else has baked into their contract based on the type of sales they do.

🧠 Advice

🍾 Commission

😜 contracts

49 comments

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Revenue_Rambo

Politicker

Director, Revenue Enablement

Let’s pause and back up for a minute. What kind of contract do they have that would allow a company to churn in term?

oldcloser

Arsonist

💀

☝️ - A fine point you make.

Shabadoo

Contributor

Head of Growth

According to data. It looks like they are confident due to super low churn

Revenue_Rambo

Politicker

Director, Revenue Enablement

Yeah but why have a 12 month claw back. Company signs a 12 month or multi year agreement, your company gets paid for that first year. So if that company backs out of their deal you get dinged, but your company has already been paid.

This makes absolutely no sense unless they have some clause that doesn’t start a contract until a customer is live.

Titanic

Opinionated

Senior VP - Sales

Either they’re really confident in their product, or they know it’s a bomb.

butwhy

Politicker

Solutions Engineer

This this this this this! A past startup added 90 day and that alone fucked me relentlessly with clawbacks.

jefe

Arsonist

🍁

Really? I haven't had many clawbacks in my career.. (Thankfully)

butwhy

Politicker

Solutions Engineer

Yep! I had two clawbacks within the next quarter they introduced it. Says a lot about the product too, but that's a whole other story.

jefe

Arsonist

🍁

Ouch, that's both painful and NOT a good sign. Can't imagine you were feeling confident about selling that product.

GDO

Politicker

BDM

Yeah get into why they put it in? Does it happen? Often?

ChumpChange

Politicker

Channel Manager

I've seen some contracts with some language included to have a 60/90/180 exit clauses. But you're still paid for it up until the contract is terminated.

Maybe this is a worst-case scenario where a customer doesn't pay them which means they don't have the month to pay you.

oldcloser

Arsonist

💀

You gotta take’em the same way your team does.

braintank

Politicker

Enterprise Account Executive

Why are you negotiating around the worst case scenario? Are you expecting clients to churn in 3-6 months?

CuriousFox

WR Officer

🦊

I like this question 👀🍿

Shabadoo

Contributor

Head of Growth

Not at all. In all previous roles the claw back has been 3 months. Meeting with the CFO now so will get more data and let you know. What has your experience been. With clawback periods?

braintank

Politicker

Enterprise Account Executive

Had to dig through old comp plans. Previous employers had clawbacks if churned before 12 months or if customer doesn't pay.
My take is that it doesn't leave a good impression to try to negotiate around something that's bad for business. If I was hiring someone and this was their ask I'd wonder if they had some shady shit cooking.

Shabadoo

Contributor

Head of Growth

Thanks I dig into it and we stuck with 12 months. Nearly impossible for the customer to churn in first 12 months due to contract terms

Shabadoo

Contributor

Head of Growth

Great question. I don’t know as I have not started. First thing I am going to change.

oldcloser

Arsonist

💀

What’s the second thing?

Shabadoo

Contributor

Head of Growth

Put some sales tools in and build out the rev. Expansion motion. They are leaving too much money on the table with customer. Lots of order taking at the moment

oldcloser

Arsonist

💀

But boss! That's not how we've always done it! We eat ALL the cherries we pick! Seen that. Good luck!

oldcloser

Arsonist

💀

Also, not a requirement around here, but definitely good form to upvote your replies if you find any value.

Shabadoo

Contributor

Head of Growth

Cheers oldcloser

DataCorrupter

Politicker

Account Executive

Don't you have enough commission already, OLD MAN?! You've been taking my rigorous up-voting for at least 6 months now.

oldcloser

Arsonist

💀

Upvote the above too @Shabadoo - We don't drop this kind of knowledge (or whatever it is) for free. :)

...as for enough commission... speechless.

Titanic

Opinionated

Senior VP - Sales

Sounds like they’re gearing up for a potential sale, merger or expansion and using 12 month contracts to levy their borrowing power from a bank or investor.

braintank

Politicker

Enterprise Account Executive

What makes you say this?

Titanic

Opinionated

Senior VP - Sales

Think about it. If they’re firm on 12 month contracts, they can use that as negotiating leverage for any of the above. In an asset purchase, your contracts are what they’re purchasing, not just the company list. Drives the valuation of the company upward, and by putting a strict 12 month churn rule in place, they’re trying to incentivize the AEs to keep those contracts active for at least 1 year. That way they can turn to the bank/investor/buyer/mergee and say “look, we have all of these contracts that had the option to leave and stayed anyway.”

Sunbunny31

Arsonist

Sr Sales Executive 🐰

If I'm reading this right, you're accounting for termination without cause. 12 mo with only T4C would be more common. At my company, the standard term is 36 mos with no termination without cause. So my curiosity would be around what the contracts look like and if they allow termination at any time - which I have seen, but don't love.

braintank

Politicker

Enterprise Account Executive

But this applies to virtually every SaaS company. Requiring a 12 month contract is standard. Hell my firm requires 36 months minimum.
Requiring 12 month contract is status quo for enterprise SaaS, not indicative of anything.

Sunbunny31

Arsonist

Sr Sales Executive 🐰

Well, I've seen some that are month to month (crazy) and others that allow termination without cause (even crazier) which is why I've asked. What you and I know as best practices may not be applied everywhere. And if I was stepping into a company that had some non-standard language or practice in their contracts, I'd want to know about that up front.

Titanic

Opinionated

Senior VP - Sales

I allow month to month, quarterly or yearly (customer choice). Cancel anytime, because if you’re a pissed off customer, I don’t need my companies reputation trashed. In fact, I’ll help you move on. And that’s one of our major selling points. Next to no attrition, and if someone has an issue, they can always contact my office and get a personal call back from me. It’s not about the bottom dollar, it’s about how you make a customer feel comfortable with you and your company. Give the customer the idea of having control, build rapport, and understand their needs. Hands on approach, and go to bat for them. It goes a long way. The entire company has adopted what they originally called “my insane idea,” and I’m happy to report that this month alone we’re closing 3 deals that will be roughly $500k total. Obviously we have many others closing that are much, much smaller, but it works, and like I’ve said previously, I’ve turned it into a horizontal hierarchy where titles are worth nothing. Leading by example, my team has adopted this, found it strange at first, but love it now. Bottom line is perform and excel at being personal or get out. And if you get out, you’ll get a great letter of recommendation (unless you really screw up).

Sunbunny31

Arsonist

Sr Sales Executive 🐰

Might work in some situations. Does not work well in ours - complex platform, not exactly plug & play. There’s a need for commitment on all sides as the implementation can take some time, very much depending on the size of customer and their requirements. So I guess I need to soften my crazy/crazier stance. It’s crazy in my particular corner. May not be in others.

Shabadoo

Contributor

Head of Growth

This is an excellent way of working. Focus on the customer and they will bring you more customers.

Titanic

Opinionated

Senior VP - Sales

Thank you!

Titanic

Opinionated

Senior VP - Sales

My company is no where near plug and play. It’s very much hands on, installers on site and labor added to the final bill.

Sunbunny31

Arsonist

Sr Sales Executive 🐰

One other key thought I had here that I neglected to add, which is crucial to my company and others: having long term commitments in hand is important for a few other reasons. Stability is one. For example, I deal with a lot of enterprise FSIs. If a significant number of our customers decided to leave the platform because they can, that puts our cash flow, and thus the fate of every other remaining customer, at risk. The mutual commitment is critical not only to avoid this worst-case scenario, but also to land the business in the first place. They know they have an out if we breach, so they are more concerned with security and longevity. They’re not looking for an out. They’re looking for us to be around for the long term.

We also operate with the requirement for recognizable revenue. Long term contracts with T4C aren’t recognized the same way, and affect our valuation. That valuation and growth are also critical to our enterprise customers. They aren’t looking for easy outs; they’re looking for reasons to buy and be assured that they are entering into a long term agreement with a company that can handle them. They’re risk-averse. Other companies having T4C creates risk.

Shabadoo

Contributor

Head of Growth

Great context. Thank you

Shabadoo

Contributor

Head of Growth

Yeah, that is what I am getting into as well. Even in this environment, you need to focus on the customer to get that flywheel turning and word of mouth going. Cheaper CaC by far.

Sunbunny31

Arsonist

Sr Sales Executive 🐰

Laser focus on the customer is critical, no matter the terms of the contract.

Phillip_J_Fry

Opinionated

Director of Revenue

Just want to go on record saying that clawbacks are so f-ing stupid.
I did my job by selling the deal. Getting payment should fall to accounting. Why do i get penalized because they couldn't do their job?

Sunbunny31

Arsonist

Sr Sales Executive 🐰

I don't get paid until the customer pays, so clawbacks are extremely rare at my workplace. It incentivizes reps to stick to the net-30 and to get that PO number with the order.
That said, it typically means I wait an additional month for my commission, but it avoids clawback pain, so I'll take it.

DataCorrupter

Politicker

Account Executive

Amen.

Titanic

Opinionated

Senior VP - Sales

AR isn’t responsible for customer retention. That falls on the AE to maintain and understand customer needs. It’s about the customer. Bottom line.

Kosta_Konfucius

Politicker

ERP Sales

3 months is ever where I worked at

Beans

Big Shot

Enterprise Account Executive

Comp plan language?

pirate

Big Shot

Account Executive

12 months sounds crazy. So many things could go wrong that sre nothing to do with you

saaskicker

Tycoon

Enterprise AE

Ask to see the MSA. Best way to mitigate this risk is to have it in the customers contract in legal language saying they can't churn.

BigShrimpin

Politicker

Account executive

If the contracts are strong and youre selling into a market that is doing alright in the economy you should be fine

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Shabadoo

Clawback on enterprise deals

49 comments

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