After months of crafting a sales compensation plan and meticulously calculating quotas and commissions, you roll it out with fanfare.

But instead of attainment results to match, you’re met with missed targets, a revolving door of frustrated reps, and a growing misalignment with your overall business goals. 

Unfortunately, this scenario isn’t uncommon. 

A shocking 39% of revenue leaders admit their compensation plans fail to align with business targets. What’s more, 30% said their plans don’t motivate their reps. 

 Why? Because too often, companies rely on outdated data, gut feelings, or worse yet, simply copying plans that worked for someone else.

This traditional approach leads to a slew of problems.

Setting fair and achievable quotas becomes a guessing game. Compensation structures might not incentivize the behaviors that drive your company’s “north star” metrics, like customer lifetime value or gross revenue retention.

Confusion and a lack of transparency can demotivate even the best reps. And perhaps most concerning, you’re left in the dark about the true impact and cost of your compensation plan on revenue.

But what if there was a better way?

Below, we highlight how QuotaPath positions customers to make informed sales compensation decisions. 

By leveraging powerful analytics, actionable insights, and an adaptable user experience, QuotaPath helps you build and revise high-performing comp plans that motivate your team, align with your goals, and ultimately, drive sustainable revenue growth.

Unlocking the Power of Sales Compensation Data 

Intuition and guesswork might have a place in the world, but designing a high-performing sales compensation plan is not one of them. 

The key to unlocking true effectiveness lies in the power of data.

QuotaPath empowers revenue leaders with a wealth of rich sales performance information, giving them the insights needed to build and refine compensation strategies that drive results.

The Data Advantage

Imagine having a crystal ball that reveals your sales team’s historical performance, individual and team contributions, and even attainment rates for different quota levels. This isn’t magic; it’s the power of QuotaPath’s data. 

By providing access to these crucial data points, QuotaPath equips you to:

• Set Smarter Goals: Historical sales data allows you to identify trends and seasonality, enabling you to set realistic yet challenging quotas paired with accelerators and bonuses to offset slower periods. This data can also be factored in with market forecasts to ensure your goals are aligned with broader industry trends.
• Identify Your All-Stars: QuotaPath dives deep into individual and team performance metrics. You can easily identify top performers and understand the behaviors that drive their success. Are they selling the most multi-year contracts? Most profitable products? Do they discount the least? You can use these insights to tailor compensation plans to incentivize those behaviors across your entire team.
• Uncover Hidden Gems: Sometimes, hidden potential lies beneath the surface. QuotaPath’s data can reveal reps who consistently exceed specific metrics, even if they fall short of overall quotas. These “unsung heroes” might benefit from targeted coaching or adjustments to their territories or quotas to unlock their full potential.

Data-Driven Decision Making

Data is powerful, but without insights, it’s just numbers.

QuotaPath goes beyond raw data, transforming it into actionable intelligence that empowers you to make informed decisions about your compensation strategy. 

Access to past compensation plans and performances gives leaders the information they need to confidently adjust and set quotas. This is especially timely, as 91% of teams missed the quota last year due to market conditions and unrealistic expectations.

Plus, QuotaPath allows you to analyze how different compensation structures impact metrics beyond just pure sales volume. 

If you want to incentivize customer lifetime value (CLTV) or retention, we can help you design plans that reward reps for upselling, renewals, and other behaviors that drive long-term customer relationships and recurring revenue.

Customized Commission Reporting

QuotaPath’s commission reporting measures the business value and performance of the GTM team’s compensation plans and performance.

Check Out Reports

Our platform also highlights your top, middle, and bottom performers so that you can tailor compensation plans to incentivize those behaviors across the entire team. This can include things like rewarding reps who focus on selling to ideal customer profiles (ICPs), closing multi-year deals, or driving early customer renewals.

Scenario Modeling/Testing: The Crystal Ball of Compensation

Lastly, QuotaPath developed modeling and testing tools to project the total compensation costs based on performance bands and use historical data against new plans to see how they’d perform. 

This allows you to create “what-if” scenarios by modeling different compensation structures and their potential impact on key metrics. Imagine testing a commission plan that rewards early renewals before you actually implement it. QuotaPath can show you the predicted impact on churn rates and revenue, allowing you to refine your plan before launch.

This data-driven approach to testing eliminates the guesswork and allows you to make adjustments before rolling out a new compensation plan, saving you time, money, and frustration in the long run.

Building Powerful Compensation Strategies with QuotaPath 

Next, the business landscape is anything but static. 

Market conditions shift, team structures evolve, and your North Star metrics might need to adjust accordingly. 

A truly powerful compensation strategy and process needs to be adaptable to keep pace with these changes.

QuotaPath offers you the flexibility and adaptability to manage your comp plans dynamically. 

Easily adjust commission structures and quotas as needed, using the testing and modeling tools along the way to avoid guesswork. This allows you to adapt your comp plans with your business goals based on market volatility. 

Here’s where QuotaPath truly shines:

Dynamic Adjustments: When market trends call for quota adjustments, QuotaPath’s user-friendly interface allows you to make adjustments to quotas and commission structures quickly and easily. The same holds true for individuals measured on aggregated teams or rolled-up quotas and reps who shift between teams.

Make quick edits without needing a call to support to maintain seamless automation. 

Transparency is Key: Building trust and motivation within your salesforce starts with transparency. QuotaPath fosters this by providing reps with real-time visibility into their earnings and clear, easy-to-understand commission structures. This eliminates confusion or hidden calculations. 

Reps can see exactly how their performance translates to their paycheck, keeping them engaged and focused on achieving their goals.

Trusting the Data: Through trusted integrations with CRMs, ERPs, data analytics and business intelligence, spreadsheets, and payment accounting systems, leaders can trust the data feeding QuotaPath is accurate. This creates seamless workflows, shared naming conventions, and data hygiene. 

The Data-Driven Advantage

Building a high-performing sales compensation plan requires a data-driven approach, seamless workflows, and partnership mentalities rooted in first-hand expertise. That’s where QuotaPath steps in.

QuotaPath empowers revenue leaders with the tools and insights needed to make informed decisions about their compensation strategies.

By leveraging QuotaPath’s data analytics, you can unlock a multitude of benefits:

• Hit Your Numbers Consistently: Set quotas with confidence based on historical performance and market trends. This not only keeps your reps motivated with achievable goals, but also allows for more accurate revenue forecasting.
• Build a Winning Team: Identify and reward your top performers. Analyze their winning behaviors and tailor compensation plans to incentivize those behaviors across your entire team. This fosters a culture of high performance and drives overall sales effectiveness.
• Reduce Turnover: A demotivated salesforce is a revolving door. QuotaPath’s transparent commission structures and real-time earnings visibility keep reps engaged and focused on achieving their goals, leading to a more stable and productive sales team.
• Maximize ROI: Stop throwing money at a broken system. QuotaPath allows you to test different compensation structures and measure their impact on key metrics. This data-driven approach ensures you’re getting the most out of your compensation investment.

Ultimately, QuotaPath goes beyond just compensation. 

It’s an investment in your revenue engine to drive repeatable revenue growth. By leveraging the power of data and fostering a motivated salesforce, QuotaPath equips you to achieve your most ambitious revenue goals in alignment.

To learn more, schedule time with our team. 

I’ll be the first to admit that we weren’t the perfect commission-tracking tool when we launched QuotaPath in 2018. However, it was never about “perfection” but rather about aligning with the “perfect” customer. Today’s launch does just that.

We started QuotaPath to simplify commissions and address broken compensation processes that compromised paying reps correctly. But simplifying a process that should be as dynamic as their teams wasn’t enough—something we identified from thousands of customer conversations over the years. 

Instead, we needed to improve QuotaPath to adapt to scaling organizations and offer the most flexible, intuitive platform that evolves alongside our customers.

This marks a pivotal moment for QuotaPath and our customers.

We’re thrilled to announce broad enhancements that make our platform the most adaptive in the market, empowering you to embrace change and growth confidently.

Now, Sales Managers have full visibility into their own attainment, even as reps move between teams. Our Dynamic Team Assignments make that a reality, updating quotas automatically to eliminate tedious manual adjustments.

Plus, compensation workflows flex to fit your precise needs. 

With Multi-Level Approvals, you can customize workflows for reps, managers, execs, and finance, ensuring the right eyes are on each deal at the right time. 

These are just a few of the ways we’re ushering in a new era of adaptability.

We’ve also expanded our integrations to include Xero and Microsoft Dynamics and launched a new app on the Salesforce AppExchange that embeds earnings data directly where reps work. 

The result is a centralized, friction-free experience that keeps everyone aligned.

The impact is real, which we can attest to personally. 

Since rolling these out internally at the beginning of the year, our own sales team has seen:

• 20% improvement in quota attainment
• 10 hours per month saved on comp plan administration
• 25% increase in the team’s eNPS

At its core, QuotaPath empowers you to build comp plans that are as dynamic as your business—plans that motivate reps with transparency, keep pace with growth, and scale with you. We’re committed to being your partner on that journey today and in the future.

Come see for yourself…

More than 60 percent of SEC enforcement actions against companies for financial statement fraud relate to improper revenue recognition.

Some of these violations were the result of unethical practices. However, many are due to sales compensation compliance challenges including the:

• Complexity of regulations
• Misclassifications and Worker Status
• Data Management and Record-Keeping
• Communication and Transparency
• Audits and Investigations

The potential risks of non-compliance are quite serious, resulting in hefty fines, penalties, and reputational damage.

Avoid these risks by knowing how to navigate sales compensation compliance with best practices for clear structures, record-keeping, and audit prep. The benefits of implementing these strategies include avoiding costly mistakes, fostering trust with employees and auditors, and ensuring a smooth and efficient sales program.

In this blog, we discuss: 

• Regulatory Requirements: Understanding the legal landscape governing sales compensation.
• Legal Considerations: Addressing potential legal pitfalls associated with commission plans.
• Risk Mitigation Strategies: Implementing best practices to minimize the risk of non-compliance.
• Resources: Providing valuable tools and references to help you navigate sales compensation compliance effectively.

Sales Compensation Compliance Challenges

Knowledge is power.

Understanding the challenges of sales compensation compliance will help you overcome these obstacles and boost your success. Read on to grasp potential difficulties before they arise.

• Complexity of Regulations: Sales compensation plans are subject to various regulations depending on your location. These regulations can be intricate and change over time. Keeping up to date on relevant laws and ensuring your plan adheres to them can be a significant challenge.
• Different regulations might apply to different types of sales compensation, such as commissions, bonuses, and profit sharing, or different types of employees, for instance, salaried versus hourly. Navigating these nuances can be complex.
• Misclassifications and Worker Status: Improperly classifying employees, such as misclassifying a salesperson as exempt from overtime, can lead to legal trouble. Determining the appropriate classification based on job duties and compensation structure also requires careful attention.
• Data Management and Record-Keeping: Maintaining accurate and detailed records of all sales activity, commission calculations, and payouts is crucial for demonstrating compliance during audits. This can be a time-consuming and tedious task, especially for companies with large sales teams or complex compensation plans.
• Communication and Transparency: Ensuring clear communication with employees about their compensation plan and its calculation can help prevent misunderstandings and potential legal disputes. Employees need to understand their eligibility for commissions, bonus structures, and how deductions and taxes impact their pay. Using a compensation communication plan is one way to avoid these issues and enhance employee understanding.
• Audits and Investigations: The possibility of audits by government agencies can be stressful. Having a well-organized and compliant system in place allows for a smooth audit process and minimizes the risk of penalties.
• Integration with Existing Systems: Ensuring seamless integration between your sales compensation software and other HR or payroll systems can be a challenge, potentially leading to data inconsistencies and errors.
• Internal Controls: Implementing strong internal controls to safeguard against errors and ensure data accuracy throughout the commission calculation and payout process can be complex. Controls might include establishing data validation procedures, keeping a clear audit trail for all calculations, and mandating supervisor approvals for commission payouts.
• Globalization: For companies operating in multiple countries, managing compliance with the varying regulations in each location can be a significant obstacle.

Download your copy of a customizable commission policy template.

Regulatory Requirements

Understanding relevant regulations for compliant sales compensation plans is crucial. Otherwise, you risk consequences of non-compliance such as fines, penalties, and legal issues.

Key Regulatory Bodies

Although regulations vary based on location, the main regulatory bodies that govern sales compensation in the United States include: 

• The Fair Labor Standards Act (FLSA): The FLSA defines minimum wage, overtime pay, and employee exemptions such as commission-based salespersons under certain criteria may be exempt from overtime. The Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) administers and enforces the FLSA.
• The Equal Pay Act (EPA): The EPA is focused on ensuring equal pay for equal work regardless of gender or sex. For instance, The EPA prohibits paying female salespeople a lower commission rate than their male counterparts performing the same job duties. The EPA is part of the FLSA and is administered and enforced by the U.S. Equal Employment Opportunity Commission (EEOC)
• The Internal Revenue Service (IRS): The IRS dictates how commissions are categorized for tax purposes, impacting withholding requirements and employee tax burdens.

Additional Regulations to Consider

Regulations vary not only by country but also depend on the state, industry, or specific circumstances. For example, state wage and hour laws and industry-specific regulations exist. To ensure compliance, it’s best to consult with legal counsel or HR professionals for guidance on regulations specific to your location and industry.

Staying Up to Date

Staying informed about changes in regulations is essential to sales compensation compliance. Some resources for helping you stay up to date with regulatory changes include government websites such as the DOL website and the website for your specific state labor law agency as well as reputable legal publications.

Legal Considerations

Beyond adhering to official regulations, there’s an additional layer of legal considerations. Failure to consider these can lead to potential legal disputes arising from unclear or poorly designed commission plans.

Key Legal Considerations

Independent Contractor vs. Employee Misclassification

It’s crucial that businesses correctly classify individuals providing services to the company as independent contractors or employees. An employee, also known as a W-2 worker, is a person who works for and under the direction of the company. By contrast, an independent contractor, also known as a 1099 worker, can perform their work at their discretion in terms of means and methods.

Proper classification carries implications for compensation structure. Businesses must withhold and deposit income, social security, and Medicare taxes from the wages paid to employees. Businesses must also pay the matching employer amount of social security and Medicare taxes along with unemployment taxes. Typically, tax withholding or payment is not required on payments to independent contractors.

The potential consequences of misclassification include unpaid overtime and tax liabilities. For instance, improperly classifying a salesperson as an independent contractor can result in the company being liable for back pay of overtime wages and payroll taxes.

Employment Contracts and Commission Agreements

Having clear and well-drafted employment contracts or written commission agreements that outline the terms of compensation is essential, preventing confusion and potential future issues.

Eligibility criteria, commission rates, calculation methods, payout schedules, and termination clauses are key elements to include.

QuotaPath is a tool where you can distribute, track, and collect signatures of sales compensation policies while giving employees access to their comp plans. This increases transparency while helping employees better understand how they earn commissions and streamlines compensation communication and adoption.

Non-Compete Agreements and Clawback Provisions

Non-compete agreements were historically quite common, designating a period after termination of employment where the employee could not work for a direct competitor. The enforceability of non-competes varied by region.

However, the Federal Trade Commission (FTC) recently banned the implementation of new non-compete agreements in the United States, which is set to go into effect in September 2024.

Assuming their legality in your region, non-compete agreements may limit geographic scope and duration depending on your location. Consult legal counsel to ensure enforceability.

Clawback provisions are clauses that allow the company to recoup commissions in certain situations such as customer returns or product cancellations.

Seeking Legal Advice

Proactively seeking legal counsel from an attorney experienced in employment law can help reduce the odds of legal disputes or litigation. Consulting a lawyer is highly recommended in situations like developing a new compensation plan or facing potential legal disputes.

Risk Mitigation

Proactive risk mitigation is key to minimizing the chances of non-compliance issues. Effective risk mitigation delivers many potential benefits such as avoiding costly fines and penalties, fostering employee trust, and streamlining internal processes.

Key Risk Mitigation Strategies

Develop Clear and Transparent Commission Plans

Commission plans must be clearly defined and well-documented to ensure employees understand them. This increases plan effectiveness, which drives company objectives and increases plan adoption.

Key elements to consider for clarity include eligibility criteria, commission rates, calculation methods, and payout schedules. Covering all these details reduces the odds of misunderstandings or disagreements.

Implement Strong Internal Controls

Establishing internal controls safeguards against errors and ensures data accuracy throughout the sales compensation process. For instance, this could mean implementing data validation procedures, mandating supervisor approvals for commission payouts, and keeping a clear audit trail for calculations.

Automate Calculations and Data Management

Leveraging sales compensation software to automate calculations, data entry, and record-keeping reduces the risks of human error and ensures commission tracking consistency. Sales compensation software like QuotaPath automatically pulls sales activity data from your CRM, increases accuracy, and streamlines processes.

“ASC 606 involves recognizing both revenue and expenses over the proper period of a SaaS or enterprise contract. Software like QuotaPath automates those calculations to keep you compliant,” Amy Walker shared.

How to Scale Finance Operations

In your first year as a startup, your finance operations can survive with a good, solid bookkeeper and cash-based accounting. However, the minute you start raising money, you should follow these steps.

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Regular Reviews and Audits

Conducting regular internal reviews of your sales compensation practices is essential for compliance. These internal audits allow for the early identification of potential issues while ensuring continued adherence to regulations and internal controls.

Consider including external audits at regular intervals for an independent assessment of your practices.

Proper documentation is crucial for audit preparedness. During a due diligence audit, “they’re going to want to see you have a solid set of books, you have a closing process, you have SOPs in place for your accounting function, and that you’ve got the proper controls in place,” according to Amy, “That lets people have faith in you and what you say your business is doing.”

Employee Training and Communication

Educating your sales team about the company’s compensation plan and their rights and responsibilities is vital to the plan’s success. Sharing the reasoning behind the plan helps develop rep buy-in, enthusiasm, and understanding of how they earn commissions.

By contrast, failing to provide proper training and information increases your risk of confusing and frustrating employees, possibly causing them to quit.

Regular communication is also essential, as it keeps employees informed and fosters trust in the system.

Resources

Use the resources in the following table to support your sales compensation compliance success.

Simplify Sales Compensation Compliance

Navigating sales compensation compliance is challenging. Develop an understanding of the relevant regulations and legal considerations. Then implement proactive risk mitigation measures to ensure sales compensation compliance.

Schedule time with our team to learn how QuotaPath can simplify sales compensation compliance navigation for Finance and Accounting teams.

Without a clear understanding of your sales compensation costs, you’re flying blind. It’s impossible to optimize your sales strategy or forecast future profitability accurately.

According to Alexander Group, the cash portion of sales compensation represents 40% of total sales costs and 7.9% of sales revenue. (Use this benchmark to determine if you’re getting the most from your sales investment while achieving sales goals and retaining team members.)

A percentage higher or lower than the benchmark may indicate poor performance, like when the sales team is falling short of quota. It can also indicate that pay mix, variable incentives, and other compensation factors require adjustment.

The other 60% of total sales costs include elements such as hiring, onboarding, management, support, technology, and training.

In this post, we explore the hidden costs of your sales compensation plan and dive into a practical approach for calculating the true cost of commissions and bonuses.

Key Metrics for Calculating True Cost

Let’s start by reviewing the various types of direct and indirect costs to consider when calculating the true cost of sales compensation.

Direct Costs

Base Salary & Commissions: Factor base salaries, commission rates, and bonus structures into the calculation.

Benefits & Taxes: Don’t forget to account for employer-paid benefits and payroll taxes associated with sales compensation. We recommend consulting with a financial advisor or tax professional for company-specific guidance on the tax implications of your sales compensation plan. Consider consulting with a financial advisor or tax professional experienced in payroll and employee benefits.

You should also review your Employer’s Payroll Provider Resources. Many payroll providers offer resources and guidance on tax and benefit implications of various compensation structures. Check their website or contact their support team for more information.
Additional online resources include: 

• Internal Revenue Service (IRS): The IRS website offers a wealth of information on employer payroll taxes and employee benefits. You can search for specific topics related to sales compensation, commission structures, and fringe benefits.
• Department of Labor (DOL): The DOL website provides information on employee benefits regulations, including health insurance, retirement plans, and overtime pay. These can all be relevant factors depending on the type of sales compensation offered.

Indirect Costs

Recruiting & Onboarding: Consider the costs associated with recruiting, hiring, and onboarding new sales reps. New hire ramp time, the amount of time it takes new reps to start achieving full quota, averages 3.1 months according to research by The Bridge Group. This is a cost you need to consider when calculating the cost of sales compensation. New reps cost more in commissions if you’re offering new hire quota relief and produce proportionally less revenue during this time.

Management & Support: Factor in the cost of sales managers, support staff, and sales enablement resources.

Technology & Tools: Include the cost of CRM systems, sales automation tools, and other technology used by the sales team. CRM software pricing starts around $7 per user per month, with more sophisticated options costing anywhere from $15 to $150 per user per month.

Note: Check out the CRMs that QuotaPath integrates with.

Based on online pricing we found that HubSpot CRM’s Professional Customer Platform is $3,105/month and Salesforce CRM Professional runs $4,000/month for 50 users when billed annually.

Training & Development: Account for the cost of training programs and ongoing development opportunities for reps.

Considerations Beyond the Numbers

In addition to the above, pay attention to the following when assessing your true cost of sales compensation. All of these elements can influence your actual sales comp cost, so if yours looks high, don’t assume you’re paying too much. Investigate these other areas to determine which contributing factors are impacting your numbers. 

• Sales Cycle Length: The length of your sales cycle can significantly impact the true cost of sales compensation. Longer sales cycles often require higher upfront investments such as salaries before commissions are earned.
• Sales Team Performance: Overall sales team performance directly affects the true cost. Lower-than-expected sales volume will result in lower commission payouts but might not necessarily offset the fixed costs like salaries and benefits.
• Alignment with Business Goals: Ensure your compensation plan incentivizes the right behaviors. A plan focused solely on closing deals might neglect customer retention or upselling opportunities.

Optimizing Your Sales Compensation Plan

Using a tool like QuotaPath, you can optimize cost at the plan level by identifying inefficiencies, running attainment scenarios, and aligning plans with business objectives.

Use QuotaPath to:

Identify inefficiencies

Discover aspects of your compensation plan that are raising costs.

Surface total effective commission rates per deal to determine if you are paying too much commission per deal without maneuvering a spreadsheet. Then analyze your least and most profitable sales reps according to gross margin.

Run attainment scenarios

Using Plan Performance Modeling, you can run attainment scenarios in QuotaPath to see how much you would pay in compensation if your team hit 80% attainment vs. 150%. This reporting functionality simplifies the modeling process by forecasting plan costs and their impact on other essential business metrics without creating a formula-filled spreadsheet.

Align your plans to business targets

Start your comp plan by agreeing on your key business metrics for the year. Then, add incentive components that directly influence those numbers. For instance, to boost retention, encourage account executives with a SPIF for each multi-year deal closed and offer account managers incentives for early or multi-year renewals.

Your comp plan needs to motivate sales rep behaviors that drive business objective achievement. Regardless of if your North Star metric is increasing gross margin, reducing customer acquisition (CAC) costs, or promoting cash flow, there’s a comp plan lever you can pull.

Learn Your True Cost of Sales Compensation

Calculating and understanding the true cost of sales compensation is crucial to the health of your business. Failing to do so hampers your ability to optimize your sales strategy or effectively forecast profitability.

Factor in the direct and indirect costs. Then bear in mind how sales cycle length, team performance, and plan alignment with business goals affect your actual sales compensation cost.

Simplify optimizing your sales compensation plan by using a tool like QuotaPath. It facilitates steps like identifying inefficiencies, running scenarios, and aligning plan business targets without creating a formula-filled spreadsheet.

For further guidance, explore our additional resources or schedule time with a team member to see how QuotaPath facilitates optimizing the cost of sales compensation.

Who needs to improve their inbound lead response strategies? 

Timing is everything when it comes to qualifying inbound leads. The possibility of qualifying a prospect drops by a staggering 21X when the response time is 5 to 30 minutes.

However, the response time isn’t the only challenge here. Take, for instance, one sales leader who is struggling with not only the reps lagging in responding but also giving up after two attempts.

If this is you, we’re here to help.

Below, we’ll review strategies to drive inbound leads response time and conversions.

Let’s get started.

What is Lead Response Time?

Lead response time is a measure of the average time it takes for a sales rep to respond to a contact after the prospect takes an action such as downloading content, completing a form, or responding to a call.

This metric is crucial under today’s market conditions. For instance, right now buyers are intent on eliminating needless tech and focusing on core tech stacks. So, if a buyer is reaching out to learn more about your platform, they consider it a possibility as a member of the essential stack.

Therefore, sellers have to strike when the buyer recognizes they have a problem versus allowing time to settle and enabling the buyer to accept the status quo.

How to Drive Inbound Leads Response Times

Here are a few ways you can start improving your team’s inbound leads response times today.

Add an Intermediate Role

One solution is to add an Inbound Sales Rep (ISR) role to your business development team.

This intermediate role sits between sales and marketing to triage leads as they come in. With an ISR in place, leads are sorted as follows: Unqualified Inbound Leads, Big ‘Whale’ Inbound Leads that are hot, and Just Right Inbound (‘Goldilocks’) Leads that are smaller but qualified.

The ISR can ask the unqualified lead challenger questions and direct them to the free product tier if appropriate or add them to a nurturing sequence. Then they can engage ‘Goldilocks’ leads through to close and get big ‘Whale’ leads in front of an AE ASAP.

Plus, with a dedicated role to manage inbound leads, you can set touchpoint minimums in place to overcome reps who stop trying to get in touch after a couple of times.

The ISR role was created in the early 2000s when businesses, especially SaaS, started implementing inbound marketing strategies. It has risen in popularity over the years, to the point that our query for ISR jobs on Zippia revealed 118,186 openings with a 5% growth rate.

Recommended Reading: SDR Compensation Plans

Automated Cadences

Another option to support lead response times is adopting automation.

Automating scheduled lead engagements can boost the efficiency of sales and marketing lead cadences. This ensures consistent and timely outreach and follow-ups and lightens the load on your sales and marketing teams by reducing the number of tasks requiring human intervention.

For instance, this is what QuotaPath does via our RevOps engine. All marketing leads fall into a lead cadence, and as they engage with our brand more via content or events, they score higher before qualifying as an opportunity.

Once they become an opportunity, or if they come in as a demo booked or trial sign-up, a new automated cadence is triggered between the rep and the contact.

Building a cadence for the expected timing, plus the number and type of engagements, helps ensure your reps can satisfy your performance criteria.

Recommended Reading: How to Start a RevOps Team

Incentivize Faster Response times

Last, and our favorite, consider incentivizing for faster responses.

You could do this using SPIFs to motivate reps to improve their performance on this KPI.

For example, identify the reps with the best response times and longest times. Leverage this information to identify coaching opportunities, convey what the highest-performing reps are doing, and then offer SPIF incentives to drive performance improvements.

Do SPIFs work? Why and when to use SPIFs.

“I’m a big fan of SPIFs,” said Mallorie Maranda, VP of Sales, WorkRamp, who had just implemented a team-wide SPIF.

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Another way to use SPIFs to improve response times is by setting up automated reminders for team members to follow up at specific intervals to maintain engagement with leads. Reward reps with a SPIF when they act on these reminders, helping them build this essential habit.

After all, timing is everything when it comes to inbound lead response times.

According to Chili Piper, “On average, it takes B2B sales teams 42 hours to respond to a new lead and 38% of those leads never reply back. It typically takes 4.3 days of back-and-forth communication before the first meeting even happens. Meaning, you have more chances of getting ghosted by your new opportunities the longer you wait.”

Recommended Reading: How to Shorten Sales Cycles

Conclusion

Timing is crucial in terms of inbound lead response times. Failure to contact inbound leads quickly means wasted leads, missed opportunities, and potential revenue that you can’t afford to lose.

You can drive better inbound lead response times by adding an inbound sales rep role to manage inbound lead distribution and responses. Automated cadences can help boost the efficiency of lead engagement consistency and timing. Then you can leverage SPIF incentives to reinforce desired response times.

Schedule time with a team member to learn how QuotaPath can help you run sales and revenue operations more efficiently.

Your go-to-market teams often earn incentive pay in addition to their base salary.

If they don’t, they should (in our humble opinion). 

And if your RevOps teams support your GTM team (which they do), shouldn’t they also earn variable pay?

“I do think RevOps should have their own compensation structures,” said RevOps Leader Sarah Ditmars. “The better the team does, the more revenue made. This revenue directly reflects your team’s performance, which is tied to RevOps’ efforts and responsibilities.”

But if your RevOps practice supports all core revenue operations functions—marketing, customer success, and sales—then their comp plan should reflect that accordingly. 

“When you only incentivize revenue, you end up glorifying sales and alienating the other two,” said Sarah. 

So, how can you think about RevOps compensation plans? With help from Sarah, we outlined a few structure options below. 

Recommended Reading

RevOps vs. Sales Ops: An interview with RevOps Leader Christian Freese

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RevOps Compensation Plans Examples

According to Pavilion’s most recent compensation benchmark report, the most common variable pay split with RevOps is 85% base and 15% variable.

“As is the case with all comp plans, you pay them for what you want them to do and the results you want,” said Graham Collins, QuotaPath Head of Partnerships. 

One RevOps comp plan example that encompasses all of RevOps focuses is a profit-sharing model.

Profit Share RevOps Comp Plans

Sarah, for instance, earned a quarterly percentage of profits at a previous company.

“I really liked it,” Sarah said. “Your leaders feel like you have ownership of your cash flow forecast, and it was more transparent than giving someone options when it’s not a publicly traded company.”

This might look like:

• Cash Bonuses Based on Profits: A portion of the company’s profits are set aside for a bonus pool, which is then distributed to leaders based on pre-defined criteria (e.g., individual performance or achievement of company goals). This directly ties leader compensation to profitability. (Think: EBITDA, or earnings before interest tax depreciation amortization.)
• Performance-Based Profit Sharing: This is similar to cash bonuses based on profits, but the payout is based on a combination of company profitability and individual or team performance metrics.

The percentage of their cut will vary depending on the company’s stage, size, and industry.  

For example, earlier-stage startups might allocate a smaller percentage of profits for sharing, potentially in the 5-10% range.  Conversely, mature and profitable SaaS companies might allocate a larger portion, potentially in the 15-20% range or even higher, depending on their financial strength.

RevOps Comp Plan With Options

You could also look into RevOps incentive pay structures based on options, although this has decreased in popularity in recent years.

Carta’s 2023 State of Startup Compensation report revealed that the average equity benchmark for new hires was down nearly 37% in 2023 from November 2022. (We are starting to see a slight rebound in 2024.)

In an option/equity structure most common with startups, the company offers employees a percentage of ownership in exchange for their contributions. This builds on the idea of individual contributor ownership, but it’s often a gamble that rarely pays out.

90% of startups fail, with 70% folding between the second and five-year mark. 

Plus, as Sarah pointed out, option models aren’t easy to actualize into earnings.

“Not everyone understands what options mean,” said Sarah. “It’s hard to see what compensation is outside of a base salary.”

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RevOps Compensation Plans Featuring Accelerators

Another option is accelerators.

We love an accelerator for our individual sellers and sales leadership. Could it work for RevOps, too?

“Since RevOps doesn’t have full control over sales outcomes, I don’t think they should have the same structure as sales, but there should be some type of plan, like a quarterly accelerator,” said Sarah. “That’d be a great payout.” 

If the goal is revenue growth, tie the accelerator to the goal’s timeline. If your company has a smaller RevOps function that supports CS, marketing, and sales, consider separate accelerators for each one. That encourages them to evenly distribute their time and efforts evenly instead of focusing entirely on sales.

Or, if you want to stick with one accelerator, “find your business’s North Star metric and align it with that,” Graham said. 

MBO-Based RevOps Comp Plans

David Maxey, a RevOps leader and consultant, recommended pairing a percentage of incentive pay tied to the business’s most important metric with management by objectives (MBO). 

“What I recommend is tying at least a quarter of the variable compensation to overall company revenue, especially if the RevOps person played an integral part in the annual operating plan.  The other 3/4, however, could be tied to revenue if the machine is up and running and needs guidance and maintenance, but if there are major projects to be completed, such as the implementation of a pipeline system, then a large portion of the variable should be tied to completion of that MBO,” David said in a LinkedIn article.   

He even offered this free spreadsheet that outlines a RevOps comp plan with an MBO component.

Best Practice: Offer Choices & Manage Up

Before we part ways, Sarah offered some best practices to consider before solidifying RevOps compensation packages.

“When it comes to a RevOps leader, you’re not talking to someone new to the industry,”
Sarah said. 

As such, taking a bottom-up approach to RevOps leaders comp plans is recommended.

“Give them options,” Sarah suggested, which is what her previous company offered to managers. 

“We gave them an option with a higher base and lower variable pay, and the reverse option,” Sarah said. “They all chose lower base because the incentive on the top end was much higher.”

This allows them to feel like they own it and have a say in their pay. 

“It’s managing up,” Sarah said. 

GTM Role-Based Comp Plans Examples and Resources

For additional comp plan examples, check out our following free resources:

• VP of Sales Compensation Package
• Customer Success Compensation Plans
• SDR Comp Plans
• Account Executive Comp Plans
• Sales Manager Compensation Plans
• Solutions/Sales Engineer Compensation Plans

About QuotaPath

QuotaPath partners with leaders to design fair, transparent, and strategically aligned compensation plans with a company’s North Star Metric. By providing data-driven insights, modeling capabilities, and automated commission processes, QuotaPath empowers companies to create an environment where sales behaviors are directly motivated to achieve the most significant business goals. 
Learn more about our sales compensation management platform and expertise by scheduling time with our team.

A solid sales compensation strategy will drive revenue and your most important business metrics. It motivates your reps’ selling behaviors, receives positive feedback from your go-to-market teams, and builds loyalty between leadership and your front line. 

Sounds nice, right?

Wouldn’t you know that 97% of leaders admitted to experiencing challenges with their sales compensation plans in our most recent compensation trends report? 

That’s because designing compensation structures that align teams (looking at you, Finance, Sales, and RevOps), drive North Star metrics, motivate reps, and are fair and logical is much easier said than done. 

Let us help.

Our team, namely our VP of RevOps Ryan Milligan and Head of Partnerships Graham Collins, conduct compensation consultation calls to review your compensation structure and offer feedback and suggestions.

Both kickoff calls include the same seven questions to gauge the health of your plans. Fortunately, we’ve automated this to give you instant feedback on your plans. 

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Answer 7 questions to assess if your new business compensation plan strategy is healthy and balanced.

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However, if you’d like to skip that step and read five ways to immediately enhance your compensation strategy for sales growth, see below.   

Align Your Compensation Plan to Business Objectives

First, you need to focus on alignment.

39% of RevOps leaders said their comp plans fail to align with their key performance indicators, according to our report. This step is crucial to the success of your compensation plan. Aligning your compensation plan with company goals and sales activities ensures reps are rewarded for the behaviors that drive success.

One way to do this is to wait to develop your incentive plans until your team has solidified your KPIs for the year. This is especially prevalent for those looking to address their startup company sales compensation strategy. Wait for board approval.

Then, build incentive components that directly correspond to those objectives. For instance, if your focus is growing retention and increasing closed/won rates, motivate your commission-earning reps to close and retain accounts that fit your ideal customer profile.

Test Your Compensation Plan 

Next, you should test different structures through pilot programs or simulations to help identify potential issues and unintended consequences before full implementation. You can do this by:

• Applying last year’s numbers to your new proposed plan. (This is considered high-level testing)
• Scenario test according to next year’s revenue assumptions. (Include SPIFs and any overlaps with bonuses and accelerators). 
• Identify the highest possible commission payout a rep can achieve on a deal, considering all applicable commission rules.
• When testing, look at the average annual commission earnings across the sales team.
• Test the impact of individual factors like quota-to-OTE ratio, commission rates, and multipliers in isolated settings.

Measure Performance

Once your plan is up and running, you must monitor its performance. You can do this by regularly tracking critical metrics to see how your compensation plan impacts sales results, rep behavior, cost, etc.

We recommend the following:

• Attainment over time to identify seasonal trends and rep selling consistency
• Revenue growth rate to evaluate the impact of sales commissions on revenue increases
• Earnings by comp plan component to learn which part of your comp plans sellers are earning the most from
• Commission expense ratio to compare compensation expenses to gross profit margin
• Commission payout ratio to track the percentage of revenue used to payout commissions
• Effective rates to see if you’re underpaying or overpaying everyone who earns a commission per deal
• Average deal size to measure the average value of sales transactions against the size of deals reps sell most of
  

Recommended Reading: How to Measure Sales Commission Effectiveness

Accept That You’ll Need to Adjust It

Now that you know which metrics to pay attention to, you can adapt your plan according to those data points, anecdotal rep feedback, and what the market conditions call for.

Should you need to make adjustments, remember that you can test future changes by implementing a SPIFF. This lets you see how a comp component influences selling behavior before solidifying it within your comp plan.

For instance, if you’re contemplating multi-year contract accelerators, test a higher commission rate for a month or quarter as a SPIF for contracts lasting 2+ years. 

Recommended Reading: Do SPIFs Work? Why and When to Use SPIFs 

Customize to Role/Territory/Product/Team

Lastly, do not, under any circumstances, copy and paste a compensation plan across companies, teams, and products.

A one-size-fits-all approach rarely works.

Consider tailoring elements of the plan to account for specific roles, territories with varying sales cycles, or unique team dynamics. Your most senior reps should not be on the same comp plan as your junior account executives. While you may apply the same commission rates and SPIFs, your senior reps should have different quotas and OTEs. Likewise, reps entering a new territory should be on plans that mirror a startup’s first compensation plan. 

Recommended Reading: How to Build a Comp Plan For a New Territory or Product

Additional Considerations

These five practices should put you in a good position to increase the performance and value of your compensation strategy.

Some additional things to consider:

• Simplicity and Transparency: A complex compensation plan can be confusing and demotivating. Strive for clarity and easy comprehension for your sales team.
• Internal Controls and Audits: Maintain a system of checks and balances to ensure accuracy and prevent errors or potential abuse.
• Communication is Key: Communicate the rationale behind your compensation plan and any changes made. Explain the “whys” and provide ongoing support to reps.
• Competitive Benchmarking: Research industry standards and competitor compensation structures to stay competitive in attracting and retaining top talent.

By incorporating these elements, you can create a sales compensation strategy that effectively motivates your team, drives desired sales behaviors, and ultimately fuels business growth.

About QuotaPath

Need additional assistance with your compensation structures? QuotaPath partners with companies to design plans to motivate selling behaviors that align with their business goals. From free compensation plan consultations to in-app plan modeling and analytics, we’re here to help. Schedule a time with our team to learn more. 

Companies with a well-designed sales bonus structure report 50% higher employee retention.

Creating a strong plan is crucial to attract and retain top talent in the competitive SaaS industry, where more open roles exist than highly experienced candidates. Bonus structures also play an essential role in motivating employees and aligning individual performance with company goals.

A bonus structure is an incentive consisting of a designated sum of money awarded when an employee meets or exceeds a target. The key components of a sales bonus structure include target metrics, payout thresholds, and performance periods.

SaaS companies use various bonuses, including performance-based, spot, and profit-sharing bonuses. We’ll define these below.

In this article, we’ll explore various bonus structure examples across different roles in SaaS companies. Remember that bonuses will vary according to the role, such as sales, marketing, customer success, sales managers, or engineering, which we’ll outline below.

Bonus Structure Examples + Definitions

There are various bonus structures you can use in your incentive strategy. Consider these definitions and compensation structure examples as you build your plan.

Performance-based Bonuses:

Three popular performance-based bonuses include a single rate, a single rate attainment point bonus, and a milestone bonus.

Single rate: A quantity-based bonus plan that awards a set dollar amount for each deal a rep closes, regardless of how large or small the deal is. An example of a single rate bonus is when a sales rep earns $200 for each deal they sell.

Single rate attainment point bonus: A single rate, revenue-based bonus plan with a fixed dollar amount awarded per quota attainment point. For instance, under this bonus plan a rep earns $50 per quota attainment point. Therefore, if they achieve 100% of quota by the end of the period, they receive $50 x 100 points, or $5K.

Milestone bonus: A milestone bonus is a fixed amount awarded when a predetermined threshold is achieved or exceeded. This type of bonus is often used to motivate a specific level of achievement, such as hitting quota every month. Therefore, when a rep hits their quota, they earn the milestone bonus. If they fall short, they earn nothing. Then if they exceed quota, they do not earn any additional award in this scenario.

Spot Bonuses

A fixed monetary reward is paid when a specific result is achieved. For example, a new hire receives a signing bonus, or a sales rep is awarded a spot bonus for closing the most sales during a set time.

Profit-sharing

A percentage of a company’s profits over a designated time, such as quarterly or annually. This award is typically offered to management as an incentive and only applies when the company sees a profit.

Bonus Structure Examples by Roles

Now, let’s do the same but by role.

Sales Bonus Structures

Below are a few of the sales metrics tied to compensation.

• Quota attainment: A measure of individual or team performance compared to sales goals.  
• Revenue generated: The total revenue resulting from closed sales during a defined period.
• New customer acquisition: Number of new customers secured during a set period.
• Account expansion/upsell: Revenue growth generated by existing accounts purchasing an additional product or more of the product or service they’re already using.

To pay these out, you could offer:

• Commission-based bonus: The percentage of new sales or exceeding quota triggers a bonus payout. For instance, a 10% commission for exceeding quota by 10%.
• Tiered Commissions: Increasing commission percentages based on exceeding specific sales targets. For example, 10% commission for 100% quota attainment and 15% for 120%.
• Achievement Bonuses: Lump sum bonus for achieving specific goals like landing a large client or opening a new market.

Marketing Bonus Structures

Next, we’ll take a look at metrics tied to marketing incentive pay.

• Lead generation: Number of new potential customers identified and cultivated.
• Qualified lead conversion rate: The percentage of qualified leads that result in a closed deal.
• Customer acquisition cost (CAC): The total sales and marketing spend to close a deal.  
• Marketing qualified leads (MQLs) generated: Leads that have shown an interest and are more likely to buy. 

Payout on marketing plans could look like:

• Performance-based: Bonus tied to exceeding goals for lead generation or conversion rates. For instance, a bonus for achieving a 20% increase in MQLs.
• Campaign-specific: Bonus for successful marketing campaigns that achieve specific objectives such as brand awareness or website traffic.

Customer Success Bonus Structures

Customer Success Manager compensation plans can be a bit of a tossup. Let’s start with the most common metrics CSMs are held to.

• Customer retention rate:  The percentage of customers you keep compared to the amount you lose.
• Net Promoter Score (NPS): A measure used to assess customer loyalty, satisfaction, and excitement about a company based on a one-question survey inquiring how likely they are to recommend your product or company to a friend or colleague. 
• Customer lifetime value (CLTV): The total projected revenue a customer generates throughout their entire relationship with your company.
• Upsell/cross-sell success: Revenue generated from sales of more or additional products to existing accounts. 

Now, here are some ways you can pay out according to those metrics.

• Renewal Bonuses: Bonus based on exceeding customer retention targets. For example, a bonus for achieving a 95% renewal rate.
• Expansion Bonuses: Bonus for successfully upselling or cross-selling to existing customers such as a bonus for increasing average revenue per user (ARPU) by 10%.
• Customer Satisfaction Bonus: Bonus tied to achieving high customer satisfaction ratings like NPS scores.

Engineering Bonus Structures

It’s also a best practice to put your Sales Engineer or Solutions Engineer on a bonus structure. Some metrics within their control include:

• Project completion on time and within budget
• Bug fixes resolved
• Code quality
• Innovation and efficiency improvements 

As for structuring their payouts, consider:

• Project Milestones: Bonus for achieving key project milestones on time and within budget.
• Innovation Bonuses: Bonus for developing new features or improvements that significantly benefit the product or process.
• Team-based Bonuses: Bonuses awarded to the entire engineering team for achieving collective goals or overcoming major challenges.

Company Bonuses

Why not put your entire company on a bonus structure? This helps to align the entire organization toward a key metric of your business. Here are some examples:

Profit-sharing: Bonus pool based on exceeding company-wide profit goals, distributed proportionally among all employees.

Company Performance Bonus: Bonus based on achieving specific company-wide objectives, like reaching a certain market share or successful IPO. For example, at QuotaPath, we have a corporate bonus tied to our North Star metric which is a customer milestone within the product.

Setting Bonus Structure Best Practices

These best practices for setting bonus structure will help you prevent major missteps while boosting plan success.

Have a budget: Confirm that there’s room in the overall compensation budget or make the appropriate adjustments before implementing bonuses.

Test extreme payout scenarios: Leverage historical compensation data to test your new bonus structure. Then use pressure testing to prevent overpaying in comparison to annual recurring revenue.

Ensure the bonuses are attainable and competitive: Bonuses must be realistic, achievable, and competitive to be effective. Otherwise, they can backfire by demotivating employees. A couple of ways to gauge how realistic bonuses are is by using our Quota:OTE Calculator and reviewing industry averages to ensure your bonus structure is well aligned.

Ask for team feedback: Meet with qualifying team members to get their input and confirm these bonuses motivate them, otherwise they won’t drive the desired behaviors.

Communicate the structure clearly: Explain plan details in various formats including jargon-free documentation to increase team member understanding and adoption.

Conclusion

Well-designed bonus structures are essential in the highly competitive SaaS industry. They enable companies to attract, retain, and motivate employees while driving business goal achievement.

There are various bonus types and structure examples to suit your business objectives.

QuotaPath partners with organizations to set bonuses that align and drive performance to achieve your key business objectives while measuring outcomes and efficiently running payouts. Schedule time with a team member for help setting your bonus structures today.

Companies with thoughtful incentive compensation plans see an average of 22% increase in sales performance. Traditional compensation structures can leave employees feeling unmotivated and disengaged, yet aligning employee performance with company goals can be complex.

Incentive compensation management offers a strategic approach to sales team motivation and retention through performance-based rewards.  Implementing a well-designed incentive program can boost employee engagement, improve performance metrics, and ultimately drive business growth.

Understanding Incentive Compensation Management

Incentive compensation management creates, establishes, and administers an incentive compensation plan. Incentive compensation typically consists of performance or results-based variable pay.

Variable pay commonly consists of a base salary plus some form of incentive reward. Various types of variable pay include commissions, bonuses, stock options, and performance-based pay tied to performance or results metrics.

Incentive compensation management is intended to motivate employees to drive specific behaviors, reward the desired performance, and achieve business objectives.

The Importance of Incentive Compensation In Sales

Both businesses and employees benefit from effective incentive compensation management, making it a win-win.

Key Components of Incentive Compensation Plans

The essential elements of incentive compensation plans include:

• Designing Effective Incentive Plans

Building an effective incentive compensation plan requires the selection of bonus and commission structures, setting goals, and aligning incentives with company strategy.

There are various types of incentive structures to choose from such as commissions, bonuses, profit sharing, and stock options. Consider which of these bonus and commission elements you’ll include in your incentive plans.

Set SMART goals for your incentive compensation plans that are Specific, Measurable, Achievable, Relevant, and Time-bound.

Align incentives with company strategy by rewarding behaviors that drive business goal achievement. Otherwise, you’re setting yourself up to fall short of company objectives.

• Communication and Transparency

Your methods and clarity in communicating, implementing, and managing compensation greatly influence the plan’s overall success.

Effective compensation communication plans are essential to the success of your incentive plan. They help employees understand the plan details, its intent, and what support reps can expect under the new plan.

Provide regular feedback on performance to eliminate miscommunications or misunderstandings. This allows you to gauge the incentive plan’s effectiveness of driving desired behaviors and increases employee understanding.

Standardizing compensation plans for every person with the same role will ensure fairness and consistency in plan application. Then, by evening out territory, everyone can have the same shot at achieving on-target earnings (OTE) for their position.

• Technology and Tools

Software facilitates effective incentive compensation management.

Utilizing software for automating calculations and tracking performance data ensures accuracy while reducing errors and commission disputes.

Leveraging data analytics to monitor plan effectiveness provides insights and sales performance metrics to identify trends and facilitate plan improvement easily.

Streamlining administration and reporting processes, saving valuable staff time by reducing manual data input. Software integration capabilities make this possible by pulling relevant data from CRMs and accounting software.

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The Role of Software in Incentive Compensation Management

Compensation management software boosts efficiency, accuracy, and plan effectiveness in the following ways:

• Automating Calculations: Eliminate manual calculations for things like commissions, bonuses, and other payouts. This reduces errors and ensures accuracy in incentive compensation which builds trust with employees.
• Tracking Performance Data: Consolidate and track sales performance metrics relevant to the incentive plan. Providing individual and team real-time performance tracking provides additional plan transparency while increasing the team’s understanding of the plan. The ability to track their own progress also boosts individual and team motivation as they strive to hit targets and milestones in the plan.
• Streamlining Administration: Automate workflows for approvals, payouts, and reporting to reduce the administrative burden for HR and finance teams–a huge time-saver.
• Testing and Modeling: With QuotaPath specifically, revenue leaders can draft their next comp plan, test them against last year’s data, and even model potential attainment scenarios to estimate the total cost of the compensation model. This helps you avoid unpleasant surprises and potential compensation plan pitfalls while ensuring the plan won’t break the budget.
• Data Analytics and Reporting: Analyze incentive program effectiveness and identify areas for improvement. Generate reports for tracking trends and monitoring program performance to facilitate data-driven compensation decisions. Democratize the data and provide one source of truth vs. gated spreadsheets to increase transparency and trust while streamlining processes.
• Improved Communication and Transparency: Facilitate clear communication of plan details and performance data to employees, increasing their plan understanding and adoption. Enhancing transparency and trust in the incentive program also boosts the plan’s effectiveness in increasing team performance and goal achievement.

5 Incentive Compensation Best Practices For Sales Teams

Ready to start creating your incentive plan? Here are some best practices for successfully designing an effective compensation plan for sales teams:

1. Align Incentives with Business Goals:  Don’t incentivize activities that don’t ultimately drive business growth. Ensure your incentive plan rewards behaviors directly contributing to achieving your company’s strategic objectives.  For example, if increasing customer lifetime value is a key goal, the plan might reward sales reps for securing longer-term contracts or upselling additional products to existing customers.
2. Transparency and Clear Communication:  A well-defined and clearly communicated plan is essential.  Sales reps need to understand eligibility criteria, performance metrics, commission rates, and payout structures.  Regular communication and updates on performance progress keep reps motivated and engaged.
3. Balance Individual and Team Performance:  A healthy balance is key.  While rewarding individual achievement can motivate top performers, neglecting team incentives can hinder collaboration and teamwork. Consider incorporating elements that reward both individual sales quotas and team-based goals like exceeding overall sales targets or achieving high customer satisfaction ratings.
4. Data-Driven Plan Design and Monitoring:  Don’t rely on guesswork.  Utilize sales data and performance metrics to design your incentive plan and track its effectiveness.  Analyze the impact of the plan on sales performance and adjust components like commission rates or target setting as needed to ensure alignment with your business goals.
5. Recognition and Rewards Beyond Money:  Financial rewards are a powerful sales motivator, but recognition programs can go a long way in boosting morale and fostering a culture of achievement.  Public recognition within the team or company, awarding titles or badges for exceeding targets, or offering non-monetary rewards like extra vacation days can add value and create a well-rounded incentive program.

Measuring The Success of Your Incentive Compensation Plan

Gauging the effectiveness of your chosen incentive compensation strategies is essential for various reasons. It offers insights into how well aligned the comp plan is with business goals, aids with budgeting and financial planning, and sales performance optimization. Measuring incentive plan success also helps improve operational efficiency, informs data-driven plan decisions, supports regulatory compliance and fairness, and helps assess motivation and retention effectiveness.

Organizations can optimize incentive compensation plans by analyzing key metrics relevant to commission effectiveness. We recommend tracking the following data points to assess incentive plan success:

Assess business goal alignment with metrics like attainment over time, revenue growth rate, and earnings by comp plan component. 

• Attainment over time: Measures how effectively sales commissions align with overall business objectives by tracking sales target attainment over time to reveal seasonality and rep consistency across periods. 
• Revenue growth rate: Gauges the impact of sales commissions on driving revenue growth and achieving business goals. Calculate the revenue growth rate using the following formula:
  
  To calculate the revenue growth rate
  = (Current revenue – previous revenue) x 100
  Previous revenue
  
• Earnings by comp plan component: To assess how well your comp plan is driving your North Star metrics or key business objectives, look at which parts of your comp plan you’re paying the most commissions on.

Useful metrics for budgeting and financial planning include commission expense ratio, commission payout ratio, and effective rates.

• Commission expense ratio: Helps ensure commissions are within budget by comparing commission expenses with gross margin or total revenue.
• Commission payout ratio: Enables accurate financial forecasting and planning by monitoring the percentage of revenue allotted to commissions.
• Effective rates: Combined commission percentage per deal across every commission-earning role. NOTE: This needs to be below 25% 

Sales performance optimization metrics to review when gauging the success of the incentive plan include sales conversion rate and average deal size. 

• Sales conversion rate: Measures the effectiveness of sales activities in converting leads into customers, revealing the influence of commission structures on sales performance.
• Average deal size: Quantifies the average value of sales transactions, showing how commission incentives affect sales representatives’ prioritization of high-value deals.

Gauge operational efficiency with metrics like sales cycle duration and time to quota attainment.

• Sales cycle duration: Measure the effectiveness of sales processes and the impact of commission structures on sales cycle length.
• Time to quota attainment: Reveals how rapidly sales representatives achieve their targets, gauging the efficiency and effectiveness of commission plans.

Metrics that aid data-driven decisions include commission payout variance and sales performance analytics.

• Commission payout variance: Identifies deviations from anticipated commission payouts, facilitating data-driven commission plan adjustments based on performance trends.
• Sales performance analytics: Leverages individual and team sales performance data to guide commission adjustments and optimize incentive structures.

Assess regulatory compliance and fairness by reviewing measurements including commission payout accuracy, commission dispute resolution time, and discrepancy/resolution count.

• Commission payout accuracy: Gauges commission calculation accuracy to confirm regulatory compliance and fairness in compensation.
• Commission dispute resolution time: Measures the amount of time taken to resolve commission disputes, confirming fairness and compliance with regulatory standards.
• Discrepancy/resolution count: Tracks the number of commission errors or questions per pay period to discern how well your reps understand how they earn commission and how accurate (or inaccurate) your incentive calculations and data are.
  

Gauge the effectiveness of the incentive plan for motivation and retention with metrics such as sales team turnover rate, employee satisfaction with commission plans, and SPIF success.

• Sales team turnover rate: Reveals the rate at which sales representatives leave the organization, expressing the effectiveness of commission structures in motivating and retaining talent.
• Employee satisfaction with commission plans: Measures the average level of sales rep satisfaction with their commission structures, which is an indicator of motivation and retention levels.
• SPIF success: Assesses the impact of short-term incentive plans like sales performance incentive funds or special performance incentive funds (SPIFs) to determine how effectively they drive selling behaviors and whether it’s a valid full-time addition to your compensation plan.

By tracking these essential metrics, organizations can gauge the effectiveness of their sales compensation plans in driving business objectives, optimizing sales performance, supporting financial stability, maintaining operational efficiency, guiding data-driven decisions, complying with regulations like ASC 606, and nurturing motivation and retention among sales teams.

Future Trends In Incentive Compensation Management

Despite a select few leaders who question the validity of variable pay structures, more companies are adopting them not only for sales, but also across other departments such as Marketing, Solutions, Partnerships, and RevOps.

For instance, in 2018, 77% of companies in the U.S. were using variable pay programs as part of their total rewards packages, with an additional 9% reporting they were planning to adopt a variable pay plan within the next two years. Then, by 2021, that number increased by 6%, according to Harvard Business Review, which included 250 of the largest S&P 500 firms implementing variable compensation.

Schedule time with our team to see how QuotaPath can simplify your incentive compensation management.

Effective comp plans act as a powerful engine, driving peak performance from your team, attracting and retaining top talent, and ultimately fueling business growth.

Yet 97% of RevOps, Sales, and Finance leaders struggle with their comp plan processes, according to our compensation report.

A poorly structured plan can backfire with unintended consequences. 

Imagine an engine struggling with misfiring cylinders and a leaky fuel line. That’s what a lousy comp plan can be like: high costs due to inefficient structures, low motivation from reps feeling unfairly compensated, and administrative burdens for your finance team bogged down in manual calculations.

The good news is that you can avoid these pitfalls and optimize your compensation plan for both performance and cost-effectiveness.  

Here, we’ll explore five key strategies to achieve this balance:

• Aligning Your Comp Plan with Key Business Objectives
• Strategic Use of Commission Floors for CSM and Leadership Roles
• Leveraging Modeling Tools for Cost Analysis
• Automation: Streamlining Calculations and Payments
• Data-Driven Adjustments According to Reporting and Feedback Loops data

We’ll explore each strategy in detail, giving you the tools to optimize your compensation plan and unlock your team’s peak performance.

Align Your Comp Plan to Your North Star Metric

First, check to see how well your compensation plans align with your key business goals for the year. This is important and should always be the first step when designing a comp plan, regardless of role or team.

Doing so drives focused behavior for long-term success by encouraging your team to sell the right kind of deals. (Think: accounts that generate recurring revenue or likely have a high customer lifetime value). 

When rewards are tied to the company’s overall success, employees feel their efforts contribute to a larger goal. This fosters a sense of purpose and motivates them to go beyond individual targets. It also creates strategic alignment across the company, leading to a unified front from marketing to product to your front-line sellers and those responsible for renewals. 

Plus, North Star Metrics, when created correctly, are measurable metrics. By tying your comp plan to this data, you can measure its effectiveness and identify where adjustments need to be made to your compensation structure. 

Remember: Aligning comp plans with the NSM isn’t a one-time event. It’s an ongoing process that requires clear communication, data analysis, and a willingness to adapt based on results. However, the long-term benefits of a focused and motivated workforce driving towards the company’s north star are well worth the effort.

Strategic Use of Commission Floors

Next, consider implementing commission floors for leadership and customer success roles.

A floor, or “cliff,” is a minimum sales or revenue generation threshold before qualifying to earn a commission.

Here’s a breakdown of how it works:

• Threshold: The company sets a specific target amount (revenue or units sold) that a salesperson needs to reach before becoming eligible for commission.
• No Commission Below the Floor: If the employee fails to meet the commission floor, they don’t earn any commission, regardless of the total amount they sold.
• Earning Commissions Above the Floor: Once a salesperson surpasses the commission floor, they typically start earning commission based on a pre-defined commission rate or structure. This commission rate could be a flat percentage, tiered based on performance, or a combination of both.

Why should you consider adding a floor to your CSM or leadership plans? 

1. It motivates performance.
2. Controls cost by preventing payouts for low-performing salespeople.
3. It discourages discounting since commissions are only earned once passing the floor.

However, keep in mind that floors can backfire and be demotivating. Note: We are not recommending this for individual sales reps, just customer teams and leadership. Make sure your floor is fair and attainable; otherwise, you’ll lose reps to comp plans at other companies. 

Leveraging Modeling Tools for Cost Analysis

Another great way to optimize your compensation strategy is to implement a tool to help you model scenarios and analyze costs. 

Making data-driven decisions is crucial, and modeling tools like QuotaPath can be invaluable.  These tools allow you to simulate different compensation structures and predict their financial impact, ensuring you choose the most cost-effective and performance-driving approach.

They allow you to:

• Simulate Different Scenarios: Draft new comp plans and test different structures for your sales team, CSMs, and leadership against past data and performance to see what you have paid using numbers from a previous period.
  • In QuotaPath, you can also model and run attainment scenarios to see how much in total compensation costs you would pay if your team hit 80% of the goal vs. 150%.
    
• Predict Financial Impact: See how changes to your comp plan will affect your overall commission expenses. This allows you to identify the most cost-effective approach while achieving your performance goals.
  
• Optimize for Long-Term Sustainability: By analyzing the long-term financial implications of different comp structures, you can choose a plan that supports your company’s growth trajectory without creating unsustainable cost burdens.
  

In short, modeling tools take the guesswork out of compensation plan design. They empower you to make informed decisions that drive peak performance from your team while ensuring financial responsibility for your organization.

Automation: Streamlining Calculations and Payments

Manual calculations are a recipe for costly errors and delays.

We recently discovered with a new customer that they had amassed hundreds of thousands of dollars worth of commission miscalculations over the previous year without automation. Automating the commission payment process and integrating it with your CRM or ERP immediately improves accuracy and efficiency. 

An automated commission tool also unlocks commission transparency for your team, leading to a more motivated group of sellers now that they can view their forecasted earnings. 

Imagine your sales team’s delight when they can ditch the spreadsheets and access real-time insights into their earnings and commission progress.  A commission tool fosters trust, reduces administrative burdens, and empowers your reps to focus on what they do best: selling.

Plus, you can reduce your Finance and RevOps team’s time calculating and running payouts from 5 days of work to a few hours. 

Data-Driven Adjustments and Feedback Loops

Now, let’s say you put all of the above into motion. Congrats, you’re in a great position to optimize your compensation plans’ performance and cost.

But remember, a well-designed comp plan is a living document, not a one-time project.

By monitoring performance through comprehensive reporting and establishing feedback loops with your team, you can identify areas for improvement and continuously make data-driven adjustments to optimize your plan for long-term success. Here are some suggestions for staying on top of this process:

• Schedule Regular Reviews: Set aside dedicated times (quarterly or biannually) to analyze reports generated by your compensation management tool. Track key metrics like quota attainment, commission payouts, and cost-to-revenue ratios.
• Embrace Feedback Mechanisms: Create anonymous or open forums for your sales team to provide feedback on their experience with the comp plan. This can reveal areas where the plan might be unclear, demotivating, or not driving the desired behaviors.
• Conduct Stay Interviews: Regularly connect with top performers and those struggling to understand their concerns and identify misalignments between the comp plan and daily activities.
• Stay Agile and Adapt: Don’t be afraid to adjust your compensation plan based on the data and feedback you gather. The market, your business goals, and your team’s needs may evolve over time, so your compensation plan should adapt accordingly.

By following these suggestions and fostering a culture of continuous improvement, you can ensure your compensation plan remains a powerful tool for driving peak performance, attracting top talent, and propelling your organization toward long-term success.

Start Optimizing

In conclusion, crafting a compensation plan that optimizes performance and cost is no small feat. 

But by following these five key strategies, you can empower your team and fuel your organization’s growth.

• Align your comp plan with your North Star Metric to ensure everyone’s efforts drive toward the ultimate goal.
• Implement floors to ensure a minimum performance before paying commissions to your renewal teams and leadership.
• Leverage modeling tools like QuotaPath to simulate different structures and predict financial impact, choosing the most cost-effective and performance-driving approach.
• Automate calculations and payments with QuotaPath to eliminate errors, free up your finance team, and foster transparency for your reps. 
• Finally, establish a culture of continuous improvement by monitoring data, gathering feedback, and making data-driven adjustments to optimize your comp plan for long-term success.

Ready to transform your compensation strategy and unlock the full potential of your GTM team?  Schedule time with the QuotaPath team today, or sign up for a free trial. 

Parental leave policies are generally lacking, especially for women in sales. 

According to a study published by Moms First last summer, nearly two-thirds (60%) of moms voiced negative experiences with their parental leave policies.

What’s more, 42% of expecting moms said they’d consider quitting their jobs upon giving birth, citing burnout as a leading reason. And for moms with children under 5, 39% worried they would fall behind on their career trajectory.

“It’s the only role in the business where you get punished for going on leave.”

Jessi Johanson, Tilt

That’s especially worrisome in today’s market amid an economic slowdown due to crushing inflation rates. 

Dual income scenarios are not just the norm — but a must. 

So why haven’t businesses done more to ensure both parents can work?  

“The economy has to thrive, which means we must build future generations. Women in the workforce need to be able to work and build families,” said Emily Bell, Head of Client Services at Blueprint Expansion.

“That’s the part that continues to baffle me. Logically, from a business perspective, how has this not resonated with leaders? It’s a miss. There has to be empathy, but at a minimum, there have to be appropriate parameters to ensure economic growth at the fundamental level,” said Emily. 

AKA – creating work environments that accommodate working parents, especially mothers, beginning with leave policies. 

Parental Leave In Sales

Now, keep in mind this study surveyed women across all professions. How do you think these percentages shift regarding moms in Sales roles, a profession notorious for its burnout and historically less inclusive and equitable work environments for women? 

Have we created workplace cultures and parental leave policies that encourage and invite new moms (and parents) to return to their performance-based sales roles?

In our experience, more often than not, companies do not adjust compensation plans and targets for their reps on parental leave.

So, while most offer a parental leave policy for sales roles in accordance with the State and Federal Family and Medical Leave Acts, companies fail to account for the entire on-target earnings (OTEs) reps earn versus their base pay. 

“Every other employee at the company is getting their full normal pay while on leave, and their manager and the business accept that output for that team will decrease,” wrote Parentaly co-founder and CEO Allison Whalen in her blog. “And yet, most companies still will only guarantee their sales reps just their base pay during this time, and often, the business will expect the sales team to hit numbers as though the sales rep isn’t on parental leave.”

“It’s the only role in the business where you get punished for going on leave,” said Jessi Johanson, VP of Sales at leave management company Tilt.

Jessi previously worked for a company that didn’t have an actual sales parental leave policy.

“From my perspective, I felt like I got totally screwed. My base was nothing compared to my take-home pay,” Jessi said. “The short-term disability accounted for 60% of my base pay, which for me, was a huge pay cut during a very significant time in my life.”

This base-only leave policy hurts our sales parents, specifically moms, who take full leave more frequently than the secondary caretaker.

“Men who have had children while working in sales typically take the minimum amount of leave,” said Sales Leader Olivia Millard, who we previously connected with. “They have a child, keep their pipeline, come back early, and end up not sacrificing any deals.”

Meanwhile, moms return to empty pipelines and full quotas while attempting to compensate for the lost commission wages tied to their OTEs that went unaccounted for in their parental leave policy. 

However, the more attention we give this topic, the more likely teams are to fairly compensate sales parents out on leave and adjust targets and pipelines so they don’t have to start from zero. 

To help ignite change at your organization, we talked to several revenue leaders to learn best practices and policies to consider.  

“My base was nothing compared to my take-home pay. The short-term disability accounted for 60% of my base pay, which for me, was a huge pay cut during a very significant time in my life.”

Jessi Johanson, Tilt

Jessi Johanson, VP of Sales, Tilt —  Commission Splits

After her less-than-desirable parental leave experience at a previous employer with her first child, Jessi joined Tilt in 2020 while pregnant with her second. 

Tilt is an end-to-end leave of absence management platform for companies of all sizes. It supports employees on leave, their direct supervisors, human resources, and payroll teams. 

As VP of Sales, Jessi has reviewed and advised hundreds of customers on their leave policies.  And at Tilt, she helped develop their policy for sales reps, which includes the following: 

• Account executives (AEs) work territory and pipeline until the day they leave.
• They pro-rate the quarterly quota when the rep leaves by breaking it down by month.
  • For example, if a rep leaves in the middle of the quarter, they are prorated a month and half of the quota.
• While the rep is out, the rep earns commission splits with a rep of equal performance based on the stage the deal was in when the rep left.
  • Quota retirement and earnings on commission split depend on the stage of the deal
  • If a deal is already in the closing process, Jessi takes it (rep on leave receives full commission)
• Rep’s return: With a sales cycle of about 90 days, Tilt’s reps on leave return to 90 days without a quota.
  • This allows the rep to build a pipeline for 90 days
  • Jessi also prorates the first quarter depending on the segment (enterprise vs. SMB)

Tilt has about 100 employees, so Jessi mentioned that larger businesses’ policies might look a little different. 

“One of the things I see quite a lot from larger companies who have a bunch of money and who do this well is instead of commission splits, they’ll take average commissions from the past four quarters and give it to the AE while on leave,” Jessi said. 

Jessi’s Best Practices on Adjusting Comp Plans For Your Parental Leave Policy

• Work with Tilt. “I’m happy to have conversations with people!” Jessi said. 
• Read content and consume other ideas to structure it (look at LinkedIn, read QuotaPath’s blogs, etc.)
• Be specific and document: “It can feel overwhelming, but in this situation, getting into the weeds is good and helpful. This is not a policy that you can stroke with a broad brush. Be specific. AEs will appreciate the shit out of it,” Jessi said.
  • Have a formula for prorating quota
  • Build templates
• Keep it consistent every time someone goes on leave

“If you don’t take this seriously and have a good policy in place, it does impact the business. I left! I was a top performer. That impacted their revenue,” said Jessi. “Have a policy. Make it as employee-friendly as you can in whatever stage of the company you are. It will hurt you in the long run.”

“Sales professionals should be given the same opportunities as other professionals. More importantly, we should see more females in sales. If there is an inherent punishment for doing things like having children, they won’t want to be in this business.”

Jessi Johanson, Tilt

Emily Bell, Head of Client Services, Blueprint Expansion — Average of OTE

Like Jessi, Emily experienced leave policies as an enterprise sales rep at two SaaS companies.

“One of the two did it way better, but neither was perfect,” Emily said.

Emily found that the three most significant concerns for sellers taking leave are:

1. What variable coverage will you have while you’re out? Who will close the rep’s deals? 
2. Who manages your accounts while you’re out? If they are closed/won, who gets paid, if at all?  What does that coverage plan look like?
3. How do you re-enter and manage that pipeline? “You’re asking your peers and colleagues to cover for you for 3-4 months, and they deserve compensation for that, but it shouldn’t come out of my maternity leave policy — especially at larger companies,” Emily said.

As far as the best of the two policies Emily shared, it included:

• 100% base salary coverage through 3 months’ leave
  • Employees there longer than 12 months were eligible for four months
• OTE: The company took cumulative variable attainment across the previous two years and gave the average monthly amount.
  • “I felt this was fair and equitable,” Emily said. 
• Peer coverage: Colleagues who covered her 7-8 working enterprise opportunities were paid in full while she earned average earnings tied to previous performance
• 30-day transition period when deals are passed back: Hold specific convos around exceptions and hold-over scenarios.
  • “As long as that individual is made whole in the pipeline scenario, I don’t need a deal that is about to close, but I do need pipeline because I was out for so long,” Emily said.

She added, “I haven’t been able to return without feeling like the wheel has stopped, but I thought it was a fair trade.”

Meanwhile, her other company had told her, “We don’t want to make you so comfortable that you don’t come back.”

“I lived through two very different scenarios,” Emily said. 

Emily’s Best Practices Adjusting Comp Plans For Your Parental Leave Policy

• Build a culture of diversity. “Make sure people understand that we value them,” Emily said. 
• Avoid guinea pigging your policy: “Leadership seems okay with women ‘helping us spearhead this,’” Emily said. “After two teams being the guinea pig, I’m tired. Expecting women to perform while navigating all this and pioneering these new policies is unreasonable.”
• Have empathy. Recognize how challenging this is for people in your workforce, especially when it’s their first child. 

“It’s impossible not to have dual-income households in today’s economic scenario. This is not a romantic statement. At the end of the day, it benefits our economy to have better policies in place. You must have women in the workforce, generating revenue and paying taxes. If we’re forced to do this, whether you’re having a family or not, mismanaged leave policies will eventually impact you.”

Emily Bell, Blueprint Expansion

Additional Considerations for Parental Leave

A few other leaders also shared their thoughts on comp plans for parental leave.

Sergey Mann, Head of RevOps at Hebbia AI, conducted extensive research before modeling their plan and noted that deal cycle lengths significantly impact your leave policy since enterprise deals tend to complicate things. 

To adjust for this, his company, which followed a 4- to 6-month-long enterprise sales motion, gave the reps a guaranteed variable draw for the months ahead.

“The amount was tied to the percentage of quota attainment from the previous year,” Sergey said. Reps could exceed the draw if they won deals while out on leave that they had worked leading up to it. Managers covered late-stage deals, and the rep on leave earned full credit. 

Another rep on the same manager’s team handled early-stage deals, and the two reps split the credit. Additionally, the company offered quota relief for the months out and a slight quota ramp upon return. 

“We tried to come up with a policy that was most fair to all parties: the rep on leave, their manager, other reps covering their deals, and the company,” said Sergey. 

Another source, who wished to remain anonymous, offered a glimpse into what her previous company offered during her parental leave. 

“Based on the last six months of my OTE history, they compensated me 100% OTE while out to make sure I stayed whole,” she said. “I hit 100% the previous two quarters, so that was awesome.”

What wasn’t great was when the company gave her book of business to other reps and then did not return those accounts in her pipeline upon her return. 

“Ramping up was difficult. So much of our quota depended on expansion. While I closed a ton of new business, I simply could not be on equal footing with my colleagues given I had no quota relief upon return,” she said, adding that she went from the top rep to the bottom.

She said, “I couldn’t get back to the top for at least six to 12 months.” 

Next Steps

We hope you found this piece of content meaningful and that you feel prepared to initiate change at your organization.

Your first step should be to start having conversations about your organization’s current policy (or lack thereof). Then, research policies within your peer networks and at other companies to compare and identify where yours falls short or exceeds.

For additional support sparking the conversation at your company, check out our full interview with Oliva Millard and learn what steps she took to impact change at her employer. 

Our VP of RevOps, Ryan Milligan, also helped develop QuotaPath’s policy to support our reps and leaders who earn variable payouts on parental leave. 

He recommends: 

1. Analyze Current Compensation Structure: Before designing parental leave policies for your sales compensation plan, it’s crucial to understand how your reps are currently compensated.
   
   This includes reviewing their base salary, variable pay structure (commissions, bonuses, etc.), and Overall Target Earnings (OTE).
   
   Consider questions like: What’s the breakdown between base salary and variable pay? How much control do reps have over their commissions?

2. Plan for Leave Management: Develop a clear strategy for handling reps’ deals and leads while they’re on parental leave.
   
   This includes assigning ownership of ongoing deals and outlining a plan to keep existing leads warm and engaged.

3. Choose Your Leave Policy Approach: Determine the level of support you want to offer during parental leave.
   
   Options range from a conservative approach of paying base salary only to a more progressive approach of continuing full OTE payments. 

4. Facilitate a Smooth Re-entry: Implement strategies to maintain deal pipelines and prospect engagement while reps are on leave.
   
   The goal is to ensure reps don’t return feeling overwhelmed or behind upon re-entering the workforce.
   
   Consider offering ramp-up plans to help them regain momentum and achieve their OTE goals for the year.
   
5. Communicate Clearly and Transparently: Effectively communicate your compensation plan’s parental leave policies to your sales team.
   
   Explain the rationale behind your chosen approach and provide clear details on how leave impacts compensation. Openly sharing the “whys” and calculations fosters trust and understanding within the team.

Need additional help with your sales compensation plan design and management? Schedule time with our team to learn how QuotaPath can optimize your compensation plan’s performance and run payouts more efficiently. 

Sales commission expense recognition involves many complexities. In this guide we show you how to achieve accurate recording and documentation of these costs by streamlining accounting, ensuring ASC 606 compliance, and creating revenue alignment with commissions.

Let’s get started.

Demystifying Sales Commission Expense Recognition

Sales commission expense recognition is the ongoing recording and reporting of commission costs associated with obtaining or fulfilling a customer contract amortized over time in alignment with the corresponding revenue recognition.

Some businesses prefer to use the Matching Principle, recognizing commission expenses when revenue is earned, whereas others prefer Cash-Basis accounting, recognizing expenses when cash is paid.

The two most common sales commission expense recognition methods are ‘earned when earned’ (EWE) and ‘paid when paid’ (PWP). The EWE method recognizes commission expense proportionally as the associated sales progress through the sales cycle. The PWP method, on the other hand, recognizes the entire commission expense when the commission is paid to the rep.

The chosen recognition method can affect a company’s financial statements regarding profitability and cash flow. For instance, EWE revenue and expenses are recognized when they occur instead of when payment is received.

This may not reflect actual revenue and expense timing, making short-term cash flow management more challenging. On the other hand, PWP can improve short-term cash flow by deferring expenses.

Likewise, profitability assessment accuracy can be more difficult when using PWP because revenue and expense activity is not recorded when it is experienced.

Other factors that might influence expense recognition’s complexity include clawback provisions or sales returns.

How to Scale Finance Operations

Building a solid finance infrastructure is imperative to an org. as it scales. These experts shared what to prioritize and when as your business grows.

Take Me to Blog

Key Principles Of Commission Expense Accounting

Proper sales compensation accounting necessitates tax regulation and ASC 606 compliance. Failure to adhere to regulations or keep accurate records can result in significant fines, penalties, and missed funding opportunities.

The following is an overview of the main points involved in commission expense accounting for easy reference:

Aligning Commission Recognition With Revenue Generation

Aligning commission recognition with revenue generation leads to more accurate financial reporting, better decision-making, a more motivated sales team, and improved overall efficiency within your organization.

The following best practices will help you achieve alignment with commission recognition and revenue generation.

Best practices

1. Matching Principle Alignment: Ensure your commission recognition method follows the matching principle. This means recognizing commission expenses in the same period in which the corresponding revenue is recognized. This fosters a more accurate representation of your company’s profitability and aligns costs with the benefits they generate.
2. Select the Right Recognition Method: The most appropriate method (Earned When Earned – EWE or Paid When Paid – PWP) is based on your sales cycle length and revenue recognition practices.
3. EWE: Ideal for longer sales cycles where revenue is recognized progressively. Commissions are recognized proportionally as the deal progresses.
4. Clear and Consistent Policy:  Develop a clear and well-documented commission policy that outlines the chosen recognition method and its application.  Ensure consistent application across all sales transactions for transparency and fairness among your sales team.
5. Leverage Automation:  Utilize accounting software or custom tools to automate commission calculations and pay sales commissions based on your chosen recognition method. This reduces manual effort, minimizes errors, and ensures timely and accurate expense recognition.
6. Transparency & Communication:  Regularly communicate your commission recognition policy to your sales team.  Explain the rationale behind the chosen method and how it impacts their earnings.  Open communication fosters trust and helps reps understand the connection between their sales efforts and financial rewards.

Leveraging Sales Compensation Software For Accurate Tracking

Navigating the complexities of sales commission expense recognition can be overwhelming. Add in lengthy customer contracts, early renewals or cancellations, and intricate compensation plans, and ASC 606 compliance starts to feel unachievable.

Sales compensation automation software streamlines commission expense recognition and ASC 606 compliance.

It consolidates all relevant information in one place for a single source of truth, making it easier to generate reports and provide real-time insights. The software ensures the accuracy of commission calculations and data across the organization.

Sales compensation software also provides transparency into the sales compensation process making it audit-friendly.

Best Practices For Commission Accounting Policies

Follow these guidelines for creating effective commission accounting policies. 

1. Clarity and Transparency: Clearly define the commission structure in writing, including details like commission rates, tiers, and bonuses. Outline the chosen commission recognition method, EWE or PWP, and its rationale. Explain how commissions are calculated and paid to sales reps, including information like frequency and thresholds.
2. Alignment with Revenue Recognition: Match commission expense recognition with the corresponding revenue recognition period. Ensure the chosen method reflects your sales cycle length and business model, such as EWE for longer cycles.
3. Use of Accounting Standards: Adhere to relevant accounting standards for commission expense recognition like ASC 606. Maintain proper documentation to support your chosen accounting practices, including policy documents and calculations.
4. Automation and Efficiency: Utilize sales compensation software to automate commission calculations and accruals. Reduce manual errors and streamline the commission accounting process.
5. Communication and Training: Regularly communicate the commission policy to your sales team by taking steps like training sessions and FAQs. Provide ongoing training on how to understand and interpret their commission statements. Encourage open communication with the sales team regarding any questions or concerns about the policy.

Integrate Your Tech Stack

Sync the key players from your sales tech stack with QuotaPath’s sales commission software.

Take Me to Integrations

Integrating Commission Expense Data Into Financial Systems

The power of automating with sales compensation software is through integrating it with your financial systems and data analytics and business intelligence. This eliminates errors and ensures accuracy.

QuotaPath integrates easily with sources across your tech stack, thanks to self-guided instructions and a stellar customer experience team. Our seamless integrations also refresh automatically, no manual intervention required.

Financial integration options include:

• Chargebee
• Excel
• Google BigQuery
• Google Looker
• JobAdder
• Keap
• Leaflink 
• Maxio (Chargity & SaaSOptics APIs)
• Netsuite
• Smartsheet 
• Snowflake
• Tableau
• And more (we’re always adding new ones)

Streamline Sales Commission Expense Recognition

Sales commission expense recognition is complex. However, accurately documenting commission cost amortization doesn’t need to be overwhelming when you streamline accounting, achieve ASC 606 compliance, and align commissions with revenue.

Remember to select the right recognition method, develop a clear and well-documented commission policy, and regularly communicate your commission recognition policy to your sales team. Leveraging software to automatically calculate and pay sales commissions saves time, reduces errors, and boosts compliance.

Schedule time with our team to learn how QuotaPath can streamline the sales commission expense recognition process for Finance and Accounting teams.