Building a sales compensation plan that works for your startup can be extremely tricky. Oftentimes, it takes multiple iterations to reach a compensation plan that works for your startup. This blog covers 7 guiding principles that will help accelerate the process of finding a sales compensation plan that works for startups in various industries and stages. Not sure what a compensation plan is? Check out this blog post to learn about the basics of a compensation plan.
First, there are three factors that need to be considered when creating a startup sales compensation plan.
Size/Stage of the startup
An early-stage startup typically has fewer employees and an inconsistent revenue stream. This is the stage when figuring out a solid sales strategy and understanding your value proposition is key in scaling revenue. In the growth stage, a startup is most likely to figure out how to optimize their sales strategy. The main thing to point out is that no matter what happens, the sales strategy is going to have to adapt to the needs of the business. Once the startup is more established it becomes a lot easier to project sales targets based on historical data.
Startups are typically strapped for cash (or at least careful with where their cash is going), so the design of the compensation plan itself needs to be planned out to maximize efficiency early on. Cash-strapped startups make higher base salary compensation plans nearly impossible since there isn’t much cash in the bank. This holds especially true for companies that are pre-revenue. Having a blended mix of salary and commission is probably going to be the best compensation plan for the majority of startups. Don’t forget that equity is a powerful tool you can use as well!
This one is pretty obvious. Sales compensation plans can look different across various industries.
“SaaS companies typically have annual contracts, whereas consulting companies may have a month-to-month agreement, and ad-tech companies may have consumption-based billing,” QuotaPath’s Head of Growth, Graham Collins shared, “so you have to pay your sales reps accordingly. Do some research on the way your competitor’s bill and therefore pay their sales reps.”
The 7 Guiding Principles
1. Don’t overcomplicate the sales compensation plan
Keep it simple. The general rule is that if you can’t explain your sales compensation in one or two sentences, it’s probably too complicated. We wrote all about what makes a good compensation plan in a previous post.
Typically, a blended method with 50% salary and 50% commissions is the standard split for most startups. Of course, this is assuming that the product is fairly simple to sell and has a shorter sales cycle. If the product is more difficult to sell, it might be wise to do a 75% salary to 25% commission split so your sales team doesn’t have a high churn rate. If you’re super early stage and you’re having to do an even higher salary to commission split, it might be too early to hire sales reps and you should consider focusing first on improving the product.
2. Be sure to cultivate the right culture
Cultivating the right culture for your startup, specifically your sales team, is extremely important. When building your early sales team, you want to try and hire sales reps that understand the problem you are solving and resonate with the mission of the company. The early hires are going to set the precedent for the sales team as the startup scales, so it’s important to vet them properly. It might even be helpful to hire someone with more experience in sales, to help train the next couple of hires. Our CEO, AJ Bruno, goes into more detail about how to cultivate the first sales hires into champions in this post.
There’s something to be said about creating a culture of competitiveness to keep reps motivated but be careful to not allow this to transform into a cutthroat sales culture where everyone acts as a “lone wolf.”
3. Make sure your reps have a clear understanding of your value proposition and your target market
At an early stage startup, the founder is typically the first salesperson. They need to be able to clearly convey their vision and drive to their sales team. If the reps don’t have a clear understanding of the value proposition of the product, it can be difficult to convince initial customers to buy into the vision of the startup. If the founders can’t sell the product, there is a good chance that the sales team won’t be able to either. Check out this blog post for more on why product knowledge is key to the success of your sales reps.
4. Ensure quotas are attainable for your reps… but not TOO attainable
If only a small percentage of your sales reps are consistently hitting their quota, that is usually a good indication that the quotas are too high. Whereas if all your reps are hitting quota easily, that’s an indication that your quotas are too low. Even if you have superstar sales reps that can close the majority of their deals and hitting their quota every quarter, you also have to cater to the reps that are not quite hitting their quota as well.
If a rep is struggling to hit their quotas, the sales manager should focus on trying to improve the rep’s performance. QuotaPath is a great way to motivate your reps by seeing how they can visually track their progress and see how they compare to their fellow reps. Another tactic to help struggling reps is to sit in on their conversations to see what the rep is potentially doing wrong and providing constructive feedback. If that isn’t working, it might be time to hire someone new to replace the lagging rep.
5. Make sure that company goals are aligned with the rep goals
One of the main points of friction that startups and companies with high sales rep churn face is misalignment between company goals and the reps goals. The person running the sales team needs to understand what drives each of their reps to succeed. An example of not understanding the reps goals is capped commissions. Rarely, if ever, do capped commissions make sense, and they especially don’t make sense for a startup looking to grow as fast as possible. For more info on capped commissions, check out this blog post about why capping your team’s commissions is almost never a good idea.
6. Make sure your plan can scale with your business
As you grow and scale your business, the last thing you want to have to worry about is constantly adjusting your sales team’s compensation plans drastically to fit the current stage of the startup. The best way to ensure that your plans can scale is to keep them as simple as possible. Simplicity scales.
Now, of course, the sales incentive plan you have as a five-person sales team is going to change when you have a 50 person sales team. It’s important to optimize along the way to drive the behavior that leadership is trying to promote. You just don’t want the plan to change with every new hire.
7. Ensure that your reps can track their commissions and quotas
Sales reps hate not knowing what they’re going to be paid. They want to make sure that they are getting the commissions they deserve for the work they put into the startup. Being able to visually see how they are contributing to company attainment and personal goals is a powerful tool to motivate sales reps.
Luckily, visually tracking commissions and quotas is made simple through QuotaPath. Built by salespeople for salespeople, QuotaPath empowers the individual sales rep to crush their quotas and make those important sales. If you’re interested in seeing how QuotaPath can work for your sales organization, sign up for free.