Your business development team might be the most entry-level folks on your team.
Yet, they set the first impressions of your organization to prospects while tasked with building out your pipeline with quality leads. These responsibilities, driven by your business development incentive structure, are crucial to the growth and success of your go-to-market strategy.
That’s why you have to carefully set your business development commission structure to ensure your reps focus on the right accounts, exercise quality control, and are competitive with industry and regional compensation packages.
In this blog, we’ll review the basics of business development compensation, how to build your first plan or modify an existing one, and offer plan templates to inform your next comp design.
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Start TrialBusiness development compensation: The basics
First, what is business development?
Business development involves the sales process of identifying, qualifying, and closing new business opportunities. It plays a critical function for any organization that wants to grow and succeed. The roles and responsibilities may change depending on the size and stage of the organization.
For instance, a person in business development at a startup or early-stage company might be an experienced leader. This was the case at Katy Stover’s talent development startup, HigherPeople. Her first sales hire, a Head of Business Development, came to her with a decade of experience to build a sales motion and GTM strategy while actively prospecting and closing deals himself. We wrote a blog that included aspects of his business development incentive structure.
Meanwhile, here at QuotaPath, our business development representative joined us with a year of selling experience in his first software-as-a-service (SaaS) role. His responsibilities include outbound prospecting, following up on inbound leads, and qualifying opportunities before handing them off to our account executives (AE). His commission structure, as a result, varies quite a bit from the business development seller at HigherPeople.
So, what is a business development representative? A business development representative (BDR) is a sales professional responsible for generating new business opportunities for a company. We often interchange BDR with sales development representatives (SDR) and market development representatives (MDR).
BDRs typically work by identifying potential customers, qualifying their interests, and then setting up meetings with sales representatives. They may also be responsible for building relationships with potential customers and providing them with information about the company’s products or services.
When should you add a BDR team?
Not every company has a team of business development reps.
For instance, smaller companies may not have the resources to support a dedicated BDR team. If that’s the case, the responsibilities usually tied to BDRs fall under Sales and Marketing.
The industry also plays a role. Some industries are more competitive than others, and companies in these industries may need a dedicated business development team to compete effectively. Companies in the technology industry, for instance, often have dedicated business development teams to help them find new customers and partners.
A company’s strategy also may impact whether or not to have a BDR team. For example, a company that is focused on organic growth may not need a dedicated business development team.
So, how do you know when to start a BDR team?
Our Director of Demand Generation Bret Lehnhof suggests looking at:
- The time it takes for a sales rep to respond to an inbound inquiry
- How many demos a rep has per day or week
“Don’t wait too late to build a BDR team,” said Bret. “Look at lead response times and your reps’ calendars. If their schedules are full, then hesitating to move forward with BDRs can ultimately affect the company’s revenue.”
Business development commission structure: Getting started
So, if the time is now to add your first BDR team, here’s what you need to know to get started with your business development commission structure.
Set main responsibilities
You’ll want to begin by setting the main goals and responsibilities that you want your BDRs focused on.
Are they following up on inbound leads, or are they responsible for cold outbound as well? What is their primary goal, to run demos or set demos? Convert free users to paid users? All of the above?
Start here so that your comp structure can follow.
Establish pay mix
Now you’re ready to set your pay mix. In Compensation Hub, our pay mixes for SDR comp plan templates follow a 68:32 split. That means 68% of the plan consists of base pay and the remaining 32% is tied to commissions.
We see this split most often because BDR roles are frequently considered entry-level sales roles which tend to have a greater percentage of guaranteed income.
However, 50/50 pay mixes are also fairly common at this sales level.
Define Quota and OTE
Once you have your pay mix set, you’re ready to determine your quota and on-target earnings (OTE).
Your OTE is the expected amount of total income the BDR makes if they hit 100% goal. It includes both the base pay and the variable compensation.
In 2023, Betts Recruiting reported the following average OTEs for BDRs:
- BDR (Recent Grad)
- $50K salary | $70K OTE
- BDR (6+ months experience)
- $60K base | $80K OTE
Now that you have some average salary business development rep numbers to consider, you should be ready to define your quota.
The quota represents the numerical goal that individual sellers and teams must reach by the end of a specific period. In our experience, about 45% of the plans on QuotaPath fall under a quarterly quota frequency. Meanwhile, 25% of the plans follow annual quotas, and another 25% follow monthly quota cycles.
Your quota should be 5x to 8x the size of your BDR’s OTE.
How to set a quota
The formula we adopt is as follows:
Activity x conversion rate = Opportunities x close rate = # of Closed/Won deals x average contract value = Revenue
Backwards, this looks like:
Revenue / average contract value = # Closed/Won deals / close rate = Opportunities / conversion rate = Activity
Key:
Activity conversion rate: The percentage of activities (calls, emails, chats, demos) that develop into a qualified opportunity
Close rate: The percentage of those opportunities that convert to customers.
Example:
SDR OTE: $72,000
Quota (5x OTE): $360,000
Monthly quota: $30,000
Average contract value: $15,000
Close rate: 10%
Conversion rate: 2.5%
$30,000 / $15,000 = 2 closed/won opportunities / 10% close rate = 20 opportunities / 2.5% conversion rate = 800 activities per month (or 40 activities per day)
Another way to look at quotas is to determine how much of your new business your BDR team will be responsible for. Operatix, for example, reported that BDR teams at SaaS companies are responsible for producing between 30 to 45% of the sales pipeline.
If you follow that logic, take your annual number of new revenue. What is 30% to 45% of that number? That’s your BDR team’s quota, which you can then divide based on the number of reps you have.
The last step involves defining what sales activities you want to pay your BDRs on, which we unpack below.
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Talk to SalesBusiness development compensation plans to consider
Next is determining what events trigger a commission or bonus for your BDRs. You can pay on activities, closed/won deals, or a mixture of both — which we see most commonly.
Activity-based commission BDR compensation plan:
- Demos Completed Bonus: The demos completed bonus rewards your team for scheduling demos that actually occur to keep no-shows at bay. Anytime a demo runs that the BDR schedules, the rep earns $160 as part of an activity-based commission.
- Qualified Opportunity Bonus: The Qualified Opportunity Bonus example pays a bonus on every opportunity the BDR sources and hands off to the account executives. The quarterly quota here (before adjusting) calls for 30 qualified opportunities per quarter that pay $200 an opp.
Closed-won commission plan:
- Closed Won Commission: Use this compensation structure when you want to give your BDRs a piece of the deal that they helped generated. This compensation template includes a 4% commission rate that’s applicable to every deal that comes from a BDR.
Mix of outcome + activity-based plans:
- Qualified Opportunity Bonus & Closed Won Commission: We love this combination because it promotes quality leads and gives the BDR a taste for the commissions they could earn when they become an account executive. Before adjusting the inputs in this template, the rep would earn $100 for every opportunity generated and 2% off every closed/won deal.
- Opps Created & Demos Completed Bonuses, & Closed Won Commissions: This model blends two activities with closed-won commissions. The Demos Completed Bonus, which pays $25 per demo, accounts for 25% of the total variable while opportunities created account for 50% and pay $100 generated opportunity. And, since the rep is earning variable pay from three sources, the commission rate on closed-won deals drops to 1%.
Which one should you use? That’ll depend on your business model and how much you’re willing to pay your BDRs. The more “paths” they have to earn incentive pay, then the more complex the plan grows. However, that shouldn’t deter you from adopting a plan that promotes quality leads and rewards the BDRs for sending hot opportunities to the AEs.
Plus, when you adopt automated sales and commission tracking software, we’ll keep everything up-to-date and calculated correctly for you.
Examples of business development compensation models
Qualified Opportunity Bonus
This model only pays a bonus when they send their account executive a qualified opportunity.
| OTE: $75,000 | Annual revenue quota: $450,000 |
| Base: $51,000 | Average contract value: $20,000 |
| Variable: $24,000 | # of opps per quarter: 22.5 |
| Quota Multiplier: 6 | Bonus per opp: $266.70 |
Activity Breakdown:
Qualified Opportunity Bonus & Closed Won Commission
A compensation plan template that pays the BDR a qualified opportunity bonus and a percentage of the closed/won deal upon the AE converting the lead to customer.
| OTE: $80,000 | Average contract value: $20,000 |
| Base: $54,400 | # of opps per quarter: 30 |
| Variable: $25,600 | Bonus per opp: $106.67 |
| Quota Multiplier: 7.5 | Quarterly ARR: $150,000 |
| Annual revenue quota: $600,000 | Commission on closed/won: 2.133% |
Activity Breakdown:
Business Development Manager Compensation Structure
For a business development manager compensation plan, structures will mirror the reps’ plans with a leadership twist.
For example, if your reps are responsible for completing 180 meetings per month, and your team consists of 6 reps (equals 30 meetings per month/rep), then the manager would earn a fixed bonus for each meeting held. Additionally, a buffer will likely be in place so that the manager earns 100% of their incentive pay if the team hits 90% to the goal.
Example:
| BDR Manager | |
|---|---|
| Base salary: $50,000 | Quota: 180 meetings per month;6 reps at 30 meetings held per month |
| OTE: $100,000 | Bonus rate: $23.15 per meeting from direct reports |
If your BDR team earns commissions from meetings held as well as a commission percentage from closed/won deals, your business development manager compensation structure might look as follows:
Example:
| BDR Manager | |
|---|---|
| Base salary: $60,000 | Quota: 240 meetings per month $240K per month (8 reps at 30 meetings held per month; and $30K in revenue per month) |
| OTE: $120,000 | Bonus rate: $10.42 per meeting from direct reports |
| Commission rate: 1% on all deals sourced by direct reports |
Note:
- If your BDR plan relies on the number of cold calls or the number of activities completed, your managers are typically not held to that.
- Additionally, the split on the structure for the manager weighs heavily toward revenue. For example, if a rep is paid 50/50 between the number of demos and revenue, the manager might earn 30% from the number of demos and 70% from the revenue generated by the team. That’s because the manager of the team has more long-term control over the success of the team versus the individual rep.
Bonus structure for business development: compensation policy
Congratulations. You should now feel confident building out your business development incentive structure.
Your final step involves drafting a compensation policy template for you and your reps to sign off on.
This document ensures understanding from both parties and can be referenced if a commission dispute arises. We recommend issuing a new commission agreement every time you make a change to an existing compensation plan or roll out a new one.
It should highlight your commission and bonus rates, payment terms, performance metrics, and clawback clauses (if applicable).
Feel free to download our SDR compensation policy template to help guide yours. Note: this plan defaults to the Qualified Opportunity Bonus & Closed Won Commission SDR comp plan example.
Then use QuotaPath to automate the distribution and collection of signatures using our Plan Verification feature.
FAQs
Why is business development compensation important?
Business development compensation is important because it helps to attract, motivate, and retain top talent.
More importantly, your business development commission structure can help steer your BDRs toward potential leads that are the highest in quality and most likely to close. That’s especially necessary in a job function that typically compensates on quantity not quality.
But, with the right business development compensation models and corresponding business development manager compensation structure, you can put comp mechanics in place that improve the leads and pay your SDRs/BDRs/or MDRs for doing so.
There are a few key things to keep in mind when designing a business development compensation plan:
- Set clear goals. What do you want your business development team to achieve? Do you want them focused on ideal customer profile (ICP) leads or a specific industry? Design a comp plan that pushes them in that direction. Once you know your goals, you can create a plan that will help them reach them.
- Make sure your plan is fair, logical, and competitive. Your business development team should be able to understand how they can earn money and how their compensation is calculated. Additionally, the plans need to make sense logically and include competitive on-target earnings (OTE) based on region, experience, and size of the company.
- Evaluate twice a year. Your business development compensation plan may need to be adjusted as your business grows and changes. Keep a pulse on rep feedback, total earnings, and effective rates to see how successful your plans are.
By following these tips, you can create a business development compensation plan that will help you achieve your business goals.
How do business development incentives affect general sales team incentives?
Business development incentives affect general sales team incentives based on the selling behaviors you’re motivating. For instance, if your compensation model motivates BDRs to generate and nurture quality leads with the highest chances of closing, then your sales team is more likely to achieve quota and meet or exceed their OTEs.
Reversely, if your business development commission structures focus solely on quantity, such as the Demos Completed Bonus, your BDRs might drop their quality checks and send dozens of poor leads to your AE team. Then, while your BDRs consistently hit their demos completed number, your AEs continue to miss their goals.
