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Ask HN: How to structure sales compensation package at b2b startup?

5 points by louisswiss ↗ HN
I am the founder of a startup which provides a SaaS to small business owners. Given the specific branch of companies we are targeting, direct sales works best.

We expect our sales reps to make between 3-6 sales each month, yet we are struggling to find a compensation structure which works well for the team and we are comfortable scaling up to 40-50 people over the next few months.

Ideally it would be a mix of fixed salary and commission, incentivising those who can constantly achieve 4-6 sales/month and providing no incentive for those with 2 sales or fewer each month to stick around.

Thanks for any tips/links.

6 comments

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sharemywin
https://www.glassdoor.com/Salaries/sales-representative-sala...

Eighteen percent of respondents used a mix of 80 percent salary and 20 percent commission. Sixteen percent used a 70 percent salary, 30 percent commission ration. And 14 percent reported a mix of 60 percent salary and 40 percent commission. http://www.inc.com/guides/sales-compensation-plan.html

sharemywin
As for 2 or less sales you need to set up a quota and if they don't hit it over 2 months they're gone(or something like that). But you need to also figure out your sales cycle. How long does it take someone to make a buying decision. The longer the decision cycle the more the salary.
louisswiss
Thanks for the reply.

We have a good idea of the sales cycle etc, just weren't/aren't happy with the compensation structure. Evaluating a sales person's performance is not the difficult part, we were hoping for a change which puts off the kind of person who sits around for two months just going through the motions, yet gives a motivated team member the space they need to reach an amazing salary.

Thanks for the food for thought.

wayn3
You don't structure your compensation in such a way that makes people leave. If they don't perform, you just fire them. That's the sales game.

Your comp plan doesn't concern itself with punishment. You lay out quota and a stretch goal and if your reps hit them, you compensate them dearly. Why not just hire a VPS who can do this for you if you want to scale to 40 reps anyway.

Are you in a jurisdiction where firing someone is not as easy?

sharemywin
welcome to sales management for every 10 people you hire:

8 can't sell there way out of a paper bag

1 can sell but they're lazy or has personal problems.

and 1 sells 80%-90% of your sales but you either can't stand to be in the same room with them or they want so much of the pie there's nothing left(or both)

aynulhabib
Luckily, SaaS sales compensation has been largely figured out and documented. I implore you to NOT benchmark numbers to inc.com guides or sales jobs in general.

If you do, you will likely frame your salary targets poorly against the wrong baselines and your reps will figure this out and quickly get jobs at other SaaS companies.

"Sales Rep" is a bit ambiguous to SaaS orgs which are usually made up of "Sales Development Reps" (entry level, openers, demo-bookers) and "Account Executives" (demo-performers, closers, opportunity managers).

I would search for the title "Account Executive" in your region on Glassdoor for hints on base salaries and total compensation.

Angellist is also a great place to get a sense for how similar start-ups are positioning themselves in job listings. (maybe look up your competitors)

Sales salaries are typically presented in OTE (On Target Earnings) or essentially, Base Salary + Commission for the year. OTE is usually around 20% of annual quotas. SMB annual quotas are usually in the range 300k - 500k quotas = so $60k-$100k OTE packages.

Best Practices: Cost of living should guide a guaranteed base salary. Don't be stingy on the commission, read the Jason Lemkin article at the bottom to get a sense for what those %'s should be.

Hyperbolizing a bit, but you generally get what you pay for, no SaaS company ever went under because it paid too much commission, assuming it did so with cash-flow in mind and had minimal churn. Also, uncapped commission is the norm in SaaS, don't brag about it, it's like bragging about having bathrooms.

Commission should also be a clear % of every incremental sale or super easy mental math, so that the rep can visualize for every X in sales they get Y without having to pull out an excel model. (although the best ones will anyway)

Try to avoid complicated accelerators, multi-tiered goal structures, decelerators and building a too Darwinian firing culture, those places can be toxic. 1 accelerator is okay.

DO - build a model where most hires can hit quota and that you can really kill it if you go above and beyond. A culture of winning.

DONT - make quota the pie in the sky, penultimate, out of reach thing. It sounds obvious but it's not, set people up for success and you will find it.

You should read everything by Jason Lemkin and Tom Tunguz on this topic, especially these two posts:

https://www.saastr.com/a-framework-and-some-ideas-for-your-f...

And really, really think about this: http://tomtunguz.com/smallest-acv-to-justify-inside-sales-te...