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The Ultimate Guide to Sales Compensation Plans for Startups | Vouris
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On the flip side, a bad comp plan might instead incentivize a self-interested, cutthroat culture where every rep is looking out for themselves. Everyone’s heard of those “churn-and-burn” type sales environments. They run on testosterone and caffeine. They’re filled with Wolf of Wallstreet cliches, and the environment can be very toxic. Not the best if you want your employees to stick around. “3. Be Profitable” This doesn’t get talked about enough. The number one problem that I’ve found in startup sales comp plans is that the cost-per-sale (total $$ spent in sales commissions or other sales costs to close each deal) is way too high. Essentially, they’re paying their reps way too much relative to revenue the company gets from each deal.
Startup Sales Comp Plan Example: Incentivizing Behaviors “The commission structure in this example is for an SDR. We’ve set 30% of their compensation to come from demos booked (again, for that instant gratification), and 70% to come from SAOs. Again, we do recommend considering 10% on closed deals for SDRs, but for the sake of simplicity we kept this example to two metrics.” Step 3.2: Add Accelerators
Step 2.2: Decide What % of OTE Should Be Base Compensation vs. Variable “For startups, we recommend base compensation be 60% – 70% of OTE for both SDRs and AEs.” Further, variables completely out of their control might hurt their ability to set meetings or close deals. Let me give you an example…
Startup Sales Comp Plan Example: Base vs. Variable Compensation “In our example, the startup was hiring their first SDR, didn’t have lots of historical data, and was still experimenting to find product-market fit, so we set their split to 30% variable and 70% base.” Step 3: Create Your Variable Compensation Structure
On the other hand, you might sell low-priced bookkeeping software to small businesses. In this case, incentivizing meetings at all costs probably makes sense. “For most of our clients, we recommend they compensate SDRs 70% on SAOs, 20% on meetings booked, and 10% on closed deals. The reason for this is we want to prioritize quality meetings first, above all else. But can be weeks of lag between an SDR booking a meeting and an AE marking it as an SAO. So the 20% for meetings booked gives them instant gratification for booking the meeting without being so much that it incentivizes them to book bad meetings.” So what about the remaining 10% on closed deals? We’ll talk about that next.
SDRs are not the ones closing deals. And if they’re incentivized on SAOs, which have a high likelihood of closing, what good does it do to tie 10% of their compensation to closed deals? Isn’t closing the deal squarely on the shoulders of the AE? “If you incentivize SDRs on closed deals, they’re going to be excited the AE closes the deal. This fosters unity between the SDR and AE teams, but even further, it also encourages the SDR to follow the opportunity through the sales process. As they’re watching it go from one stage to the next, reading the AE’s meeting notes in the CRM, they learn a lot about how to sell your solution. In our experience, the SDRs that follow opportunities from SAO through close tend to have a lot more success when they get promoted to AE.” So if upward career progression and employee retention are important, a little compensation on closed deals is a good thing to add to the mix.
In this case, the SDR will be getting their payout, which increases your cost-per-sale, all the while the AE wastes time chasing a prospect that’ll never close. Not a good scenario. “Incentivizing SDRs on just meetings is the number one mistake I run into when it comes to sales compensation plans for startups.” How Qualified Do Your Prospects Need to Be?
Meaning if they have an unqualified prospect on the line who really isn’t a good fit, but seems interested anyways, what are they going to do? They’re going to book the meeting. Even if the AE stands no chance of closing them. “In this case, the SDR will be getting their payout, which increases your cost-per-sale, all the while the AE wastes time chasing a prospect that’ll never close.” Incentivizing SDRs on just meetings is the number one mistake I run into when it comes to sales compensation plans for startups. To avoid this, let’s consider a few decisions you’ll want to make around your sales team’s behavior:
Once you have the numbers, plug them into the spreadsheet under “ORG GOALS”: “For the example in this screenshot, they were looking to hire their first SDR to hit a quarterly revenue goal of $300,000. They had a historical close rate of 30%, which meant they needed to generate $1,000,000 in pipeline. At an ACV of $15,000, this meant they needed to book 67 demos in order for the team to hit its revenue target.” Okay, so now we’re clear on the numbers needed to hit our target. Next, we need to figure out the best way to incentivize our reps to hit these numbers.
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