Fair and Competitive: Finding the Right Payment Structure for Salespeople in Early Stage Startups.
Today, I would like to talk about money. 💰
Most of the time, our attention is towards generating more revenue for our companies. However, today, I want to shift the focus towards spending money. 💸
Especially for early-stage startups, financial challenges are quite common.
While some companies may not face these challenges (fortunate for them), the majority of startups do.
To grow your company, you need talent. However, talent can be expensive, both in terms of acquisition and development.
However, if you know me, you know I’m a big fan of hiring A-Players, even in early-stage startups.
I believe that it is better to have one strong AE than three mediocre AEs.
Hiring top talent can be expensive, and most of the time we can't compete with giants like LinkedIn, Salesforce, Microsoft, and Google.
Yet, we are in the same field and play in the same league.
Is it fair? No, it isn't.
However, the job market has levelled in the past years.
With the growth of remote work and decentralisation, an AE has the same chances of going to Google or joining your 10-person startup.
Equal opportunities.
Yet, most startups fail to manage their talent effectively.
They may excel in areas such as product, recruiting, and structure of their sales team, but they struggle to attract top talent for one simple reason: they offer low salaries or lack an appealing compensation plan.
As a result, A-players, opt to work for larger corporations, leaving startups with B or C-players.
If you want to compete with top organisations, you need to start behaving like one.
To start paying your sales team effectively, there are three components that you need to consider:
On Target Earning (Salary + Commission)
Benefits
Compensation Plan
I will focus on the aspects that I have control over, such as number 1 and number 3.
On Target Earnings (OTE)
How do we compensate our salespeople?
To begin, we provide them with a base salary and a commission-based bonus.
Let me clarify something: I am referring to salaries and bonuses that are suitable for countries like Italy or Spain, specifically for early-stage startups (seed, Series A).
Additionally, these figures are applicable for SMB/Mid Market sales, and not for Enterprise deals or multi-million dollar contracts. That is a different scenario.
If you are in Germany, the UK, or the US, please adjust these figures according to the cost of living and add an extra ~30% on top of the amounts mentioned below.
Compensation Plan
Now you need to set the goals for each role and pay them accordingly.
Again, an average B2B SaaS example of sales goals could be:
Payout Scale
Implement a scale that enables you to pay salespeople based on their achievement percentage.
This approach ensures that you have a guaranteed minimum revenue before making any payouts.
Additionally, establish a lower limit (e.g., 50%) and an upper limit, along with a corresponding kicker or penalty. You can set a more generous lower limit, different companies may pay out starting from 0%, 30% for example.
Watch this video for guidance on constructing the payout scale.
Uncapped
Keep in mind that commission plans are uncapped. If you set the right goal, you shouldn’t be caught off guard.
I still come across many founders and CEOs who want to limit commissions because they are afraid of large, unpredictable deals.
Well, if you close a $500K deal and need to pay your Account Executive an additional $20K, well… you may still come out ahead.
Clawback Clause
It is crucial to include a three-month clause in case your customers fail to make payment.
Implement a system that allows for the recovery of previously paid commissions if there are issues with receiving payment.
Similar to this is the invoicing and payment structure. Avoid extended payment terms and aim for a maximum of 30 days net.
Summary
The objective of all of this is to establish a sustainable and appealing payment structure in order to recruit and grow top players.
I understand that these salaries may appear low or high, depending on your perspective.
However, I can assure you that I have successfully hired exceptional salespeople multiple times using the same structure.
A-Players are not solely motivated by money. They may have other priorities or considerations. But they have to be paid fairly.
By developing a fair compensation plan, offering attractive benefits (such as remote working), and providing a competitive basic salary, you increase your chances of attracting A-players.
Having a well-structured and comprehensive hiring process (as discussed in my previous newsletter) is crucial for identifying these top performers.
You will be surprised when you begin to recruit talent from larger corporations. What may have once seemed impossible can become possible.
Your small startup is no longer insignificant or invisible and remember: A-Players attract A-Players.
Thank you for reading this far. I look forward to connecting with you all again next Saturday!
