Update: Although this piece originally published in 2019, AJ has confirmed as of Dec. 9, 2021, that the following remains true today.
Given my experience leading and running sales teams and now having founded a commission tracking software company, people ask me “what’s the best comp plan?” all the time. Unfortunately, there’s no one answer to that question. It depends on what you’re selling (software has a very different comp plan vs. car sales), what your average contract value is, how long your sales cycle is, etc. (Check out my post where I break down the good, the bad, and the ugly of comp plans).
The other day, I was asked the question in a unique way that made me stop and think. “What’s my favorite comp plan?” Now THAT I can answer!
My favorite comp plan is this:
- Base salary – 50% of total pay being base salary, 50% being variable
- Flat % of anything you close
- A bonus if you hit your monthly quota
- A bonus if you hit your quarterly quota (ideally the same as monthly)
(This plan assumes bookings vs ARR/MRR)
Why is it my favorite? Three reasons.
- Simplicity. My rule of thumb is that plans should be so simple, someone could explain it to you in about 15 seconds.
- Consistency. A scalable sales team relies on consistent performance. If your entire team misses their quota for two months then crushes it on the third that causes a lot of stress and heartburn. By having a monthly quota bonus, you incentivize people hitting quota month after month.
- It allows reps to ‘make up lost ground’. Say a rep misses their quota on the first month of the quarter, they still have a chance to get two of the three monthly bonuses AND if they overperform the next two months, they can get the quarterly bonus.
There you have it. Like I mentioned, not one comp plan fits all. As you’re restructuring or coming up with your plan for 2019, keep the three points above in mind. The simpler the plan, the better it is.
Oh, and if you want to track and calculate your commissions without using a spreadsheet, check out QuotaPath. We’re pretty good at that. Also, if you already have an account, see if your comp plan follows these three simple guidelines.