Plug the Leak: Sales Comp Strategies to Avert Recurring Revenue Churn

Picture this, your recurring revenue company just had five of its best years, but now your monthly recurring revenue (MRR) is declining. How?

Referred to as “The Leaky Bucket” dilemma, many fast-growing recurring revenue companies come face-to-face with revenue growth challenges if their sales compensation program doesn’t evolve with them. This article explores the reality of the leaky bucket and how sales compensation, alongside other tools, can help patch the holes.

The (W)hole Story on This Issue

The leaky bucket is a common metaphor used to describe the relationship between dollars coming in and out of a business. If churn (the loss of revenue from departing customers) rises too much, business growth will remain flat or slow down — no matter the strength of new sales. Enter the bucket metaphor: Sellers pour new sales (like water) into a bucket, but churn causes those sales (water) to leak out. The bucket never fills up completely.

Alexander Group research shows that, over the past three years, average gross revenue retention (GRR) and net revenue retention (NRR) have materially deteriorated in the technology industry, intensifying the leak. GRR has slid from 92% to approximately 86%, while NRR has dropped from 115% to approximately 109%. This decline is creating real pressure for leaders as they plan how to maximize revenue growth, underscoring the importance of addressing churn and retaining revenue.

When leakage occurs, many leaders will continue to push for more new business. However, it merely masks the underlying leakage and doesn’t fix the root problem. To effectively reward sellers and address revenue leaks, companies should adapt their sales compensation strategies to prioritize renewals.

Solutions to Address Churn for Core Sellers

There are multiple sales compensation solutions to focus a core seller on maximizing renewals and mitigating churn. The right solution depends on the core seller’s responsibility compared to other go-to-market (GTM) jobs and the level of persuasion required to complete renewals. Specifically, is the renewal a “reorder” that requires administrative activities to get an order signed? Or, is it a “resell” that requires persuasion skills to address customers’ needs and objectives to close an order?

The following table outlines eight renewal options for core sellers, with each subsequent option increasing in renewal responsibility and persuasion level.

Case Study: Renewal Metric Roadmap to Stabilize Revenue Leakage

A global technology company experienced hypergrowth during the COVID-19 pandemic. Following its rapid expansion, the company entered 2024 confronting the “Leaky Bucket Dilemma” directly. Facing more than 10 quarters of increasing churn, daily competitive displacement threats and increasingly saturated markets, the company needed a resolution to their problem. A key issue was the sales compensation plan. The account executives were “accountable” for renewals, but their sales compensation plan was focused on new recurring revenue bookings, with no consequences for customer churn.

A detailed role‑by‑role review looked at renewal ownership and where churn was highest. From there, the team built a phased sales compensation solution. In the near term, the plan included a renewal hurdle and a growth metric to link pay to churn. The team also created a longer-term roadmap to introduce a separate renewal metric designed to measure both new and renewal results.

Many Levers to Mitigate Churn

Sales compensation is a strong lever to drive seller behaviors. However, you also can leverage other non-sales compensation solutions, such as:

• Ensure pricing and packaging don’t include solutions that aren’t needed by the customer.
• Ensure sellers collaborate with customers on their needs and don’t oversell unneeded solutions.
• Leverage customer success motions to ensure solutions are deployed, activated and used.
• Use quarterly business reviews to highlight the value realized from investments.
• Ensure any customer service issues are resolved quickly and effectively.

So, what should you take away from all this?

1. High new business performance can hide worsening revenue leakage, creating the illusion of healthy growth while retention rates decline.
2. When sellers aren’t incented for renewals, churn becomes a rational — but costly — byproduct of the sales model.
3. Sales compensation solutions focused on churn mitigation should scale based on the level of seller responsibility, ranging from light linkages to distinct retention metrics.

Regardless of the approach, now is the time to act before churn quietly steals tomorrow’s growth.

Editor’s Note: Additional Content

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:

• Finance and Budgeting
• Organizational Performance
• Sales Compensation