HN Explorer

How to structure incentives for salespeople in an early stage startup

1 points by LamboJ ↗ HN
Hi, I've been working on a startup for about the two years and after multiple pivots and changes in strategies we think we've come up with a viable product in the education space. We've had a pilot already in a few classrooms and teachers (as well as students) loved the idea, and the principal was eager to purchase the product for her school. Now we're looking to expand as quickly as possible and trying to determine the best incentive structure for the salespeople. (They'll be working part-time on their own and receiving no base salary.) I believe it should be solely based on commission (e.g. they get 20% of the revenue they bring in), whereas my partner believes we should be giving out equity as well (10% - 20%) to make sure they're motivated, since the first few sales are so crucial to the company. We have no external funding, so without revenue coming in we can't really keep going. Does anyone have any suggestions, or links to relevant resources, on how we should structure this? I don't mind playing around with the percent commission since we can adjust later, but my concern is that once equity is given out there's no way to undo that. Thanks in advance for any help.

3 comments

[ 3.1 ms ] story [ 16.2 ms ] thread
corkill
Make more sales before you hire a salesperson otherwise you are just dumping the whole responsibility of making the business successful on someone else which regardless of how they are compensated is likely a very bad idea.
dossy
+1 this ^^ comment. If the founding members don't know how to sell their own product, I think you have bigger problems to solve before you worry about how to compensate your salespeople. (If you do know how, then sell it yourself until you reach the threshold where you can just hire sales people on base salary+commission).

If you absolutely must, bring in a partner (and equity) who will close your first N (for whatever "N" is that makes sense in your situation) sales, that you must close in order to "keep going."

You can tier the equity stake the partner earns (and cap it): e.g., first X sales gets $Y cash commission, next X' sales earns $Z cash + 0.N% equity per deal, up to M% total equity cap.

Edited to add:

The notion that you need to give out equity to keep sales people motivated is a HUGE mistake, IMHO. Unlike most employees, who are income-bound by salary plus bonus (e.g., their salaries don't scale directly based on their performance), equity can be a nice incentive. But, for commission-based sales where income scales directly with performance, a good sales person (who knows they're a good salesperson) knows they can make a killing right now (and thus, don't need the delayed gratification of an equity liquidity event) by just doing what they do REALLY well.

As long as you track sales properly and pay out commissions correctly and on time, making tons of money is usually incentive enough for good sales people.

And, bad sales people ... well, you're gonna want to throw them off the bus ASAP, and giving them equity makes that REAL hard.

LamboJ
Thanks for your reply.

The issue isn't that we can't sell the product it's that we don't have the free time available to scale out to the extent we'd like. We're already stretched quite thin, so having a separate sales force allows us to reach far more customers than we could ever reach on our own. Also, given that we're selling to schools, our salespeople have a lot more contacts, and can thus reach the relevant buyers more effectively.