Transcript: Hi, I’m Anna Talerico with Married2Growth and here are some tips for creating your SaaS sales compensation plan.
First, determine your On-target earnings (or, OTE) This is what someone will make if they hit quota. Take into consideration: Market norms (you can use a resource like salary.com for regional comparisons, and find benchmarking reports too).
Also, think about the split between base and commission. As a rule of thumb when you are starting out, design your comp plan to be 50% base and 50% commission. So, for example, if OTE is $150,000 that means the base salary is $75,000 and the commission potential (if the quota is hit) is $75,000.
OTE is often roughly based on a total percent of new bookings. For example, if a rep’s quota is $1,000,000, and if they hit quota they will earn $200,000, then that means they earn about 20% of their total bookings. In terms of norms, I see a lot of variances here depending on the market, company funding level, other benefits, etc. But it’s usually between 10-25% of total bookings.
Just plan backward from there to see what the actual commission rate that works out to be. As a rule of thumb, the commission percent ranges from 5–20% of the contract value, again depending on many factors including margins, target profitability a company may be trying to reach, funding levels, overall customer acquisition costs, etc.
After you have determined OTE, plan for competition and achievement. Sales reps thrive on winning and recognition. In addition to base and commission, set incentives and bonuses that will be available based on individual and team goal attainment. These will range from small like $50 cash at the end of the week to large, like a trip to Vail at the end of the year. I also always like to build in accelerators so that reps who exceed quota have the opportunity for bigger earnings, and incentives on top of their OTE as well.
And then as you are finalizing your comp plan, just remember to think through all the details. For example, will all roles have the same comp plan, or will you provide different base or commission rates based on experience level or tenure?
Plan holistically—it’s not just the AE’s you are compensating with commission. You will need some level of incentives or commission for roles like sales operations, sales engineers, SDRs, etc.
The most important thing is to be strategic when considering your comp plan because you get what you incentivize. Want longer or non-cancelable contracts? Make the commission higher on those. Want to sell more deals with services attached to them? Pay a higher commission on services. Want to focus on the sheer number of new customers, not contract value? Bonus those who close the most customers in a month/quarter/year. Whatever you incentivize is, without a doubt, what you will get, so consider that carefully.
And, that’s it! Remember, to keep your comp plan simple! If your comp plan is hard to understand or overly complex it will be a burden on you and your team. Keep it as straightforward and simple as you possibly can. Your number one mission is to create a compensation strategy that motivates and retains your team and rewards achievement. Thanks for watching, I hope you will join me on the Married2Growth.com blog where we talk about lots of stuff like this!