The Sales Commission Plan for early stage startups
How do you pay salespeople fairly if you are an early-stage startup?
Despite their critical role in driving growth, salespeople in many startups are often not compensated fairly for their efforts.
It can lead to high turnover, low morale, and a negative impact on your organisation.
Early-stage organisations are also very fragile and need a system to avoid bad decisions. It can lead to companies going out of business.
Here is a 6-point compensation plan system you can use:
Set the goal and the OTE (On Target Earning)
Pay salespeople based on their % achievement vs set goal.
The average SaaS AE can bring an average €250-350K ARR.
Give a reasonable goal to start.
Aim for a 2-3X Cost of Revenue Ratio for the first time. (salary+bonus+taxes vs revenue brought in by the person).
In addition, assign to each sales role (SDR, AEs, AM, CSM) a yearly bonus (OTE).
Then deploy a system that pays monthly or quarterly depending on your financials.
Payout Scale
Use a scale that allows you to pay salespeople when they hit a specific % achievement.
In this way, you have a minimum revenue guaranteed before paying out.
Also, have a lower limit (i.e. 50%) and an upper limit together with a kicker/penalty. If you want to be generous you can set a lower limit.
Some companies pay from 0%, others from 30% or 50%.
Example:
Commission Payout = Monthly bonus x % achievement x Penalty/Kicker.
payout scale
Uncap
Commission plans are uncapped. If you set the right goal you shouldn't be surprised.
Also, if you close-won a multi-million dollar deal and didn't know...well, you should be happy anyway.
Putting a cap means putting a cap on performance and you want to foster an over-performing team.
Clawback Clause
Have a three months clause if your won customers don't pay.
At this stage, there might be emotional buying and customers not paying.
Have a system that claws back the commissions paid if there is a fallback in getting the money in.
Design compensation plan for sales roles
AEs, SDRs, AMs, and CSMs should have different compensation plans.
For example: pay SDRs on demo booked, AEs on closed won. AMs on renewal/upsell vs their baseline.
Refine Every Quarter
Comp plan at your company's stage should be quarterly.
The whole system needs refinement based on data until you hit the right one.
For example: If nobody is hitting the goal, you need to lower your quota. Instead, if a part of your business is hitting consistently, then goals need to be adjusted.
The objective is to establish a culture of top performance where people should expect the right output for their inputs.
Bonus point: you should take time to explain the comp plan and gain feedback from your teams. Never communicate top-down. Always seek your teams' input before finalising it.
Finally, you have a system that can set you apart from other startups and attract top talents.
