Revenue leaders reported maintaining simplicity, getting team buy-in, and motivating reps as leading challenges when designing comp plans. That’s according to our report. But what problems pop up when it comes to sales compensation management?

After surveying more than 450 Finance, RevOps, and Sales leaders, 25% said alignment to business goals was where they needed the most improvement.

Simplifying the process (22%) and plan optimization (21%), or striking the right balance between cost efficiency and adequately incentivizing desired business outcomes, also ranked high.

Below, we explore improving sales incentive compensation management by addressing these key issues.

Aligning comp plans to business goals

Your sales compensation plan is one of the most essential tools to motivate and drive your sales team. It can help you achieve your goals faster and more efficiently when aligned with your key business objectives.

When done correctly, leaders:

• Improve sales performance: When sales reps are incentivized to achieve the most important goals of the business, you set the company and the rep up to be more successful. 
• Reduce sales costs: A well-aligned sales compensation plan can reduce sales costs by reducing or eliminating the need to pay commissions on deals not great for the business. 
• Increase employee satisfaction: Sales reps are more likely to be satisfied with their jobs when they feel like their work is valued and they are rewarded for achieving the most important goals of the business. This can lead to reduced turnover and a more motivated sales team.

In general, everyone understands the value of aligning comp plans. Yet, our report showed leaders struggle to do so. 

This can be due to a lack of understanding of the business’s key objectives. Is the person or team responsible for designing comp plans in the meetings where business objectives are defined? If they aren’t, the risk of misalignment increases.

Additionally, if the responsibility for creating the compensation structure falls to sales leaders, they may focus on short-term results, such as meeting quarterly goals. When that happens, your plans fail to include metrics that work toward annual targets.

Some examples of misaligned comp plans might include paying a higher commission rate on products that don’t generate as much revenue as others or not offering multi-year accelerators if a core metric focuses on retention. 

Simplify sales compensation management

In addition to misalignment, leaders noted overly complex plans as an area for improvement. 

Twenty-two percent said reps find their comp plans tricky to understand, hindering the execution of their sales compensation management process.

If your organization doesn’t support reps with a source of truth for their earnings, attainment, and upcoming commission payments, you’re likely experiencing this issue, too.

One way to address this is by adopting sales compensation management software with rep access.

This gives reps real-time visibility into forecasted earnings, commissions to date, and a breakdown of their compensation plans to foster understanding. Plus, with a tool like QuotaPath, reps can raise questions in-app for faster answers and fixes. And you’re simplifying compensation management by automating tracking and commission payments. 

You should also consider simplifying your commission plans. Leaders have a tendency to overcomplicate these as the proposals pass through leadership. Collaborate early on and try to limit your comp plans to three compensation components: a standard commission rate, an accelerator, and a milestone bonus, for example. The goal is to toe the line between keeping it simple and motivating your reps to overperform. 

Plan optimization

The third area leaders want to see improvements in is implementing comp plans that optimize cost efficiency and motivate sellers. 

This is challenging because your commission rates, bonuses, or SPIFs, have to be high enough to excite your reps but not too high where they break your financial model. 

To overcome this, work with your department heads. 

If Sales or RevOps is leading comp plan design, this would be an excellent time to bring Finance in. They can gauge whether or not your proposals would tank gross profit. It is better to find out early so you have plenty of time to re-work the plan components.

Rep feedback will also play a role because you must determine what motivates them. 

For instance, if you’re mulling over paying a higher commission rate for multi-year deals, will a 1% increase be enough to get them to ask for longer terms? The answer will vary according to your average sales price. You may have to sell your reps on it with examples of what previous deals would have paid out. 

To get their honest answers, talk about comp in regularly scheduled 1-on-1s, administer anonymous surveys, and include and communicate with them along the way. 

Visibility and automation

Lastly, leaders said they want to increase visibility (17%) and adopt automation (15%) into their sales compensation management process. 

In adopting a software sales compensation management platform like QuotaPath, you would address both, simplifying comp plan execution.

Sign up for a free trial to see our holistic views that serve up compensation tasks for managers and reps. Or schedule time with our team. Learn how QuotaPath can improve your approach, align, and execute sales compensation. 

In our 2024 Compensation Trends report, “Solving the biggest sales compensation challenges: Insights from 450+ Finance, RevOps, and Sales Leaders,” leaders identified “alignment to business goals” as the most needed improvement in the sales compensation management process.

This report is based on a global survey we conducted during the first half of 2023, which targeted directors, VPs, and C-level executives from RevOps, Finance, and Sales leaders

We asked leaders, “What area of your sales compensation management process needs the most improvement?” 

25% reported “alignment to business goals” as the top focus, followed by improving simplicity, optimization, visibility, and automation. 

Today, we’re focusing exclusively on alignment with business goals because it’s imperative in today’s economic environment. As companies continue to set their key business metrics based on driving efficiencies, the comp plans must account for these changes. 

Because if they don’t align, companies often end up with plans that drive the wrong selling behaviors or promote types of deals that jeopardize the organization’s strategic targets.

The rest of this blog will focus on what causes misalignment, how confidence over alignment varies by role, and 6 steps for ensuring alignment. 

Let’s get started.

What causes misalignment?

So, how does misalignment happen? Usually, it’s one or more of the following.

Creating the plan before finalizing goals: Organizational goals must come first, then you can design your comp plan with those in mind. Then, include targets and tactics specific to those goals.

Lack of communication: If sales compensation plans are created in silos, without collaboration from multiple departments, the chances of the plans not aligning with the overall goals of the business increase.

Short-term focus: If sales compensation plans focus exclusively on short-term goals, such as hitting sales quotas or generating new leads, reps tend to focus on activities that help them achieve their individual goals vs. company-wide goals.

Plan replication: Sometimes, new leaders bring compensation plans from their previous company. This risks misalignment because what worked elsewhere likely won’t work in a brand-new setting. Existing leaders who want to re-use last year’s plans instead of updating the terms can also lead to misalignment.

Varying levels of confidence between roles

In addition to misalignment, as the top area leaders wish to see improvements, a discrepancy of confidence between roles unfolded in the report. When we asked leaders to rank their confidence that their comp plans align with business goals, 39% admitted their plans are misaligned. 

Broken down between roles, nearly half of RevOps leaders (49%) disclosed that their comp plans are not fully aligned with their business goals. Whereas Finance leaders were the most confident, with 64% declaring alignment.

This may signify a worrisome inconsistency, particularly for RevOps, whose responsibility is to ensure alignment between comp plans and business goals.

“There’s usually a collaboration on the plans between Sales, RevOps, and Finance, with Finance having the final approval and installing their guard rails,” said QuotaPath VP of Finance Ryan Macia. “Since Finance typically has the final say, it makes sense that they are most confident, whereas Sales and RevOps may have asked for something that Finance felt wasn’t viable for the business.”

So what does this mean?

There’s an opportunity to partner with Finance earlier in the comp plan design process. In doing so, collaborative conversations can occur to align departments, ensure there are plan components that motivate reps and don’t break the plan model, and drive behaviors that push the core business goals. 

Overcome sales compensation misalignment in 5 steps

To help, bring Finance in earlier and follow these steps to ensure you align sales comp plans to business goals.

Step 1: Establish your business goals or objectives with your executives and Board. If you have leaders not present during these conversations who are responsible for building the compensation structures, host additional meetings to ensure they clearly understand these.

Step 2: Assemble a compensation plan design committee. Invite senior leadership from your revenue-generating teams (Sales, Customer Success, Marketing, Finance).

Step 3: Solicit feedback from reps to discern what they like and dislike about their past and present compensation plans.

Step 4: Collaborate with the plan design committee to incorporate compensation levers into all revenue team plans that bolster the objectives from Step 1.

For example, if your business focuses on gross revenue retention for the year, you might include the following elements in your various comp plans.

• Account executives: Greater commission rate on ideal customer profile (ICP) deals with greater potential to renew.
• Sales development reps: Higher bonus for every ICP-qualified lead.
• Account managers: SPIF on multi-year contract conversions and early renewals.
• Customer success: Bonus for each flawless net promoter score following onboarding.

Step 5: Pressure test the proposed plan against the prior year’s performance and the upcoming year’s objectives to gauge financial viability.

Align sales comp with business goals

From our report, revenue leaders identified “alignment” as their most needed area of improvement for comp planning.  

To ensure alignment, remember to establish business goals first. Assemble a comp plan design committee after objectives are finalized.

Then, solicit rep feedback and collaborate to include compensation methods to drive behaviors that support objectives. Test for financial viability and gain final approval.

Looking for more help with compensation? Download the full report or chat with our sales team on sales compensation management improvements using QuotaPath.

Sales compensation plans have historically been intended to motivate sales reps to sell new revenue. However, market volatility has led many SaaS companies to shift their focus from growth at all costs to efficiency.

Our conversations with industry professionals have shown us that comp plan design and optimization lag behind this shift, revealing a disconnect at the leadership level.

This inspired us to survey more than 450 Finance, RevOps, and Sales professionals from the technology sector to investigate the effects of misaligned and poorly executed compensation plans.

The objectives of the resulting report are to:

• Identify where the disconnect between Finance, RevOps, and Sales Leadership occurs
• Explore the challenges faced by organizations during the compensation plan design process
• Uncover the biggest holes when managing commissions
• Offer guidance to set up for success in 2024

We gathered these insights by conducting a global survey during the first half of 2023 targeting directors, VPs, and C-level executives within SaaS and tech companies with over 100 employees. Survey participants included RevOps, Finance, and Sales leaders from the United States and the United Kingdom.

The overall survey results revealed four themes. 1.) 100% of Revenue leaders agree that sales comp plans need improvement. 2.) There’s a disconnect between how RevOps, Finance, and Sales view the efficacy of comp plans. 3.) Most sales reps find their comp plans difficult to understand. And 4.) 91% of organizations have less than 80% of their sales reps hitting quota.

We started the survey by asking revenue leaders, “What is the biggest challenge with your sales compensation plan?” since many of the compensation challenges begin with the plan itself. 

The insights were stunning, with 97% reporting challenges.

The 5 most common challenges included unrealistic expectations (19%), failure to motivate reps (19%), too complex to execute well (18%), too complicated to understand (17%), and failure to drive customer acquisition cost efficiency (CAC) (14%).

This blog explores each challenge, with solutions on how to overcome them.

Unrealistic expectations

First, let’s look at unrealistic expectations.

Setting excessively high quotas and on-target earnings (OTEs) that reps can’t hit sets your team up for failure and can lead to sales rep turnover. No matter how tempted you are to move the goalposts on your reps, only do so when it’s actually attainable. 

To confirm that your plans’ quotas and OTEs are realistic, create plans from documented data and use financial models to align and inspire comp plans. Then, use a free resource like our Quota:OTE ratio calculator to measure the health of your targets against your team’s historical performance and see if they’re too easily attainable.

Failure to motivate reps

Next is the challenge of motivating reps.

Comp plans should drive sales rep behaviors that help you achieve organizational goals. 

But some comp plan elements, like a cliff, backfire and demotivate or frustrate reps instead. This compensation tactic requires reps to meet a threshold before earning a commission. On paper, it’s a good idea. But what usually happens it that reps pursue fewer, large deals instead of high-velocity smaller deals. Sandbagging, when a rep intentionally stalls a deal, is also a common side effect of cliffs.  

Another issue that impacts rep motivation is their understanding of their compensation plans and progress. 

If reps are unclear on how they earn commissions or cannot track where they are with targets and milestones, even the most attractive compensation plan won’t motivate your reps.

To overcome this challenge, confirm your reps understand their comp plan and how they earn commissions by routinely eliciting feedback from reps. You should also provide a tool or system so that reps can see how they’re progressing toward goals in attainment and commissions. 

Hard to execute/time-consuming

Our next challenge is one we know well: Overly complex compensation plans that make it hard for leaders to execute well and maintain over time. 

When this happens, managing the comp plans becomes a labor-intensive time suck for accounting personnel that can lead to payment processing errors, finger-pointing, and unhappy reps.

To avoid this situation, include no more than three compensation levers per comp plan.

For example, an account executive plan may start at 8% commissions for deals up to 80% of quota. Then, add accelerators from 80 to 100% of attainment and for over 100% of quota. 

Find the right balance between offering your reps multiple ways to earn commissions without overdoing it.

Then, when it comes to simplifying the execution and maintenance of your comp plans, automate it with software like QuotaPath. This eliminates the time-consuming manual effort of monthly tracking, scheduling payouts, and making plan adjustments while providing reps easy access to current, past, and future commissions.

Too complicated to understand

While overly complex plans make it difficult for plan administrations to maintain, think about your reps under the plans. 

The more complex the plan is, the more likely you are to risk rep understanding. When that happens, you overwhelm and confuse your reps, leaving them uncertain about where to focus their efforts.

The solution is to start by collecting rep feedback to shape plans. This helps you determine the source of rep confusion and address it.

Then, leverage a strong communication plan for introducing a new comp plan, including sufficient opportunities for managers and reps to present their questions. Add more clarity by giving all stakeholders visibility into breakdowns of plans as well as progress toward goals and earnings information with software like QuotaPath.

Fails to drive customer acquisition cost efficiency

The last challenge our leaders noted is CAC. 

Optimizing your plans to drive CAC effectively involves many elements that influence the efficiency of your growth engine, including sales capacity, marketing spend, and management overlay.

To improve CAC, start by assessing your Quota:OTE ratio.

Ideally, this ratio should be 5x for SaaS companies, where sales reps carry quotas that are five times their earnings if they hit 100% of their quotas.

Consider removing or adding a sales rep if your plans fall below this threshold. Remember though, that if your business relies on marketing-driven inbound leads, adding a rep may reduce overall attainment with more reps reliant on the same lead source.

By contrast, removing reps may increase overall attainment since fewer reps use the same lead source. This may result in leaner operations and greater Quota:OTE ratios in your comp plans. 

However, it’s essential to consider whether reducing team size would reduce bandwidth such that it hampers your team’s ability to manage effective sales cycles.

Find the right balance, then investigate bottlenecks to determine opportunities for further improvement.

Other ways to optimize CAC include minimizing management overhead and incentivizing short deal cycles.

Solve your top comp plan challenges

Looking for more ways to solve your compensation challenges? Download the full report or chat with our sales team about sales compensation management improvements using QuotaPath.

In 2020, staffing firm Randstad US released a report that showed 60% of women never negotiated with an employer over pay. That’s a number far less than their male counterparts, which varies per year (and by publication) but seemingly floats around 40%.

Newer data, however, begs to differ.

Fortune published an article this summer that showed women negotiate their salaries more than men. 

In Sales specifically, those numbers shifted a bit.

A 2023 report from Lucidchart showed that 58% of women negotiated salary compared to 65% of men in sales, with 35% having success doing so versus 45%, respectively. 

Furthermore, 32% of women and 37% of men in sales attempted to negotiate better commissions, with 19% of women and 21% of men negotiating variable pay successfully. 

This fresher data suggests that while women have gained the confidence to raise negotiation conversations more frequently than in previous years, a gap (and opportunity to get better) still exists.

One of those areas for improvement falls under negotiating parts of the job that may fall outside of the salary plus variable pay conversations.

In collaboration with Women in Sales, which we’re a proud partner of, we asked 5 leaders to share their most underrated negotiation tactic and what they’ve successfully secured outside their comp plans. 

(Think role titles, delayed start dates, and exit packages.)

Corrina Owens, Chief Evangelist, purple cork

Corrina Owens, purple cork’s Chief Evangelist and an advisor to several tech companies, highlighted the importance of setting and agreeing upon clear milestones and dates.

Underrated negotiation tactic: Key milestones and dates to support professional development

“Regarding personal development, agreeing on key milestones and dates to align on professional development before signing the offer letter helps set the stage for successful career growth within any organization,” said Corrina. “Especially in startup environments, there can often be a need for formal growth development plans in place. Starting these conversations early helps avoid any assumed presumptions you might have early on while setting you up for future success down the line.”

What Corrina negotiated outside of compensation: Role titles

“I’ve successfully up-leveled the title of my position in my last three roles before in-depth interviews with the hiring manager by thoroughly researching the company and original job description and aligning it to my skill set and background,” said Corrina. “By aligning how the proposed title change aligns with the organization’s growth trajectory, I’ve successfully made the case for increased responsibility and leadership.”

Tiffany Morin, VP of Customer Success, 5×5 Co-Op

5×5 Co-Op VP of Customer Success Tiffany Morin shared tips on how to set yourself and the company you hope to work for up for success. 

Underrated negotiation tactic: Seek out what’s in the best interest of both parties

“Negotiations are about growing the proverbial ‘pie’ for both parties,” said Tiffany.  “Ask questions and understand what the other party values and needs while always finding ways to stick to your ‘target’ goal of the negotiations. If done right, both parties will end with more than they bargained for.”

What Tiffany negotiated outside of compensation: Exit packages

“I quit my first job a few months after I started it. I was overworked, underpaid, and had a horrible boss,” said Tiffany. “I met with the CEO to review my ‘exit package.’ Originally, it was what I was owed for vacation time I did not take. I negotiated more when I explained my reason for leaving and how much I worked ( 12+ hours days and long weekends). In retrospect, he could have likely solved my issues with my boss and made my life easier if he had known my issues earlier. This was a good lesson all around!”

Madeline Scannell, Recruiting Manager, SalesFirst Recruiting 

As a recruiter, Madeline Scannell discusses compensation negotiation frequently with hiring managers and job seekers. Below, Madeline called out why it’s imperative to consider the entire compensation package when negotiating, not just salary. 

Underrated negotiation tactic: Identify all areas of negotiation

“When negotiating your compensation, understand that the company may have parameters they need to hire by (budget for salary, fixed commission plan, etc.),” said Madeline. “If you choose to negotiate, look at the holistic compensation package to identify areas of negotiation. Can you negotiate a higher commission percentage? Or more stock options instead of a higher salary? In the same realm, be ready to walk away if they can’t meet your terms.”

What Madeline has negotiated outside of compensation: Sign-on bonuses, higher commission percentages, and better PTO packages.

Judy Smith, Lead Account Manager, RecruitGyan

It’s never too early to begin planting your expectations of what you want in your next role during the interview process. Find out why in Judy Smith’s tips below. 

Underrated negotiation tactic: Pre-negotiate

“Place hints throughout each step of the interview process and confirm that you both are in alignment. It’s like preclosing your compensation,” said Judy.

“If you wait until the end, things go missing. For example, they may think their perks are amazing and will compensate for a lower base or on-target earnings. But if they know that those items won’t excite you to make the move, then they can revisit their budget to see if they can accommodate you so you both aren’t wasting each other’s time.”

What Judy has negotiated outside of compensation: Schedule

“Being able to log in and out when needed and making my schedule more of what works best when I perform optimally is a big one for me,” said Judy.  “Of course, making the company goals remains a priority, but I match that with how I do my best work and can show up for the team and clients.”

Tara Ryan, CEO/Founder, InfiniDEI

Who here has thought of negotiating a delayed start date? Tara Ryan, CEO and Founder of InfiniDEI, explains how doing so sets the time to recharge before pressures loom when you begin your next role.

Underrated negotiation tactic: Provide context for your negotiations

“How you frame what you’re negotiating for matters,” said Tara. “Simply listing things doesn’t get you as far as providing context. For example, I negotiated a $5K career growth and development stipend by framing it as ‘Growth is something I’m constantly striving for. When I’m learning and growing, whether working with a coach, taking courses, or attending industry events, I can reach my full potential.”

“By investing in me this way, you will empower me to be the best employee possible.”

What Tara has negotiated outside of compensation: Delayed start date

“Taking at LEAST two weeks between jobs is critical,” said Tara. “This is the only time you have where you are truly free from e-mail, Slack messages, and potential requests. Even when you’re on PTO & truly offline, work thoughts still pass through your mind. In-between jobs is the only time you are truly free of that and can unplug. Negotiate to take as much time as you need before starting without feeling pressure to start before you’re recharged and ready!”

Free Sales Commission Calculator Template

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Negotiate outside of the (compensation) box

Thank you to our five contributors for sharing a few things they’ve learned throughout their careers. 

We hope you can borrow their approach and put it into practice during your next interviews.

To learn how QuotaPath breaks open the “black box” of sales compensation by providing teams with compensation strategy and automated commission tracking, schedule time with our team today. 

Significant market changes throughout 2023 caused many leaders to rethink their business strategies for the year.

For instance, the slowest quarter (Q1 2023) for capital raised and the lowest number of funding rounds since 2017 led to a drop in venture capital by 45%. Only in the third quarter did we see signs of a rebound with Arm, Instacart, and Klaviyo’s initial public offerings.

As a result of the first half of the year’s slog of a start, revenue teams revamped their go-to-market goals to focus on metrics that measure business efficiency, such as customer acquisition cost and gross revenue retention.

However, many leaders left their revenue team’s compensation plans untouched instead of re-directing them to match and drive these new metrics.

So, what happened?

Our newest report, Solving the Biggest Sales Compensation Challenges: Insights from 450+ Finance, RevOps, and Sales Leaders, uncovers where teams struggled the most this past year and how it impacted their performance and retention.

Report methodology

To shape our report, we collected 450+ responses during the first half of 2023 from RevOps, Finance, and Sales directors, VPs, and C-level executives. These leaders primarily work in SaaS and at tech-adjacent companies with over 100 employees from the United States and the United Kingdom.  

In conducting the survey, we collaborated with Global Surveyz, an independent survey company.

4 key themes revealed

Revenue leaders resoundingly agree that sales compensation plans need improvement

• 100% of revenue leaders want to see improvements in their sales compensation management process
• 97% of leaders have issues with their compensation plans
• 100% struggle with the compensation plan design process

Whether it is your first time building a comp plan or your 500th time, leaders agree that the compensation plan design and execution processes need work. 

A disconnect exists between how RevOps, Finance, and Sales view the success of compensation plans

• While 12% of Finance leaders felt confident that their comp plans aligned with their business metrics, only 1% of RevOps did. 

Most sales representatives find their compensation plans difficult to understand  

• It takes reps 3-6 months to understand their comp plans. 

This leads us to our last key takeaway — and the most striking. 

91% of organizations have less than 80% of their sales reps hitting quota

• 31% of leaders cited “unrealistic quotas” as the cause
• 35% cited misaligned sales activities 
• 32% attributed it to lack of motivation

Our report also unpacks the biggest challenges with sales compensation plans, top struggles during the design process, most needed areas of improvement in managing compensation, and how these impact rep performance and retention.

The best part?

Each section comes with tactical plays you can make to avoid these missteps in 2024.

Download the report now

About QuotaPath

QuotaPath partners with Finance, RevOps, and Sales teams to manage sales compensation more efficiently and accurately. With free resources to inform compensation plan design and strategy and an automated commission tracking and payment system, QuotaPath aligns teams, saves time, and increases revenue. 

To learn more, schedule time with our team today or start your free trial.

Revenue Operations (RevOps) ranks No. 1 on LinkedIn’s Jobs on the Rise list for 2023.

Still, despite its increasing popularity and massive impact driving revenue, some confusion exists around the role, particularly on how it differs from Sales Ops.

RevOps aims to combine and align all the operations, systems, and data that support revenue teams throughout the revenue cycle to achieve more consistent and scalable growth. However, businesses that wish to transition from the traditional siloed and disparate operations teams to a consolidated RevOps team are left to decipher the difference between RevOps and Sales Ops.

While Sales Ops optimizes the sales process and exclusively supports the sales teams in lead generation, lead qualification, and opportunity management, RevOps takes a more holistic approach to revenue generation and encompasses all aspects of the customer lifecycle, including marketing, sales, and customer success.

But there’s more to it than just that, and to help us understand the difference between Sales Ops and RevOps, we connected with Christian Freese who made the move to RevOps two years ago.

Below, check out our Q&A and learn how Christian prepared for the role change and advice for those looking to do the same.

RevOps vs Sales Op: Q&A

What is your background in SalesOps and RevOps?

Christian: I started in sales operations at the beginning of my career. I was hired as a sales admin at the first tech company I worked for while attending college and saw an opportunity for improvement from the start.

As a sales admin, I checked boxes: we shipped the PO, made sure it went to the right address, and moved it over to CS. As I did this, I noticed many inefficiencies between the go-to-market (GTM) team handoffs, like marketing, sales, customer success, and partnerships. So, I jumped in and started interfacing with the GTM leaders and fixing the systems.

I found a passion for it, and after about two and a half years, I got laid off. Then, I became an analyst on the deal desk side for Aerohive Networks, where I gained good exposure. Although technically a Sales Operations analyst, I sat on the deal desk and reported directly to the senior director, who reported to the CRO. That enabled a ton of visibility for me, and I started to see the benefits of not having siloed sales ops.

That’s how I ended up in RevOps at a company called Contentful.

After Contentful, I was ready to head my first RevOps team. So, I jumped over to a company called Tapcart, where I was hired as their first RevOps hire, Director of Revenue Operations. This was a series A company fresh off funding, and I built a team from one to four people before my departure.

What inspired your shift to RevOps?

Christian: I was ready to contribute to the bigger picture. I wanted to get into RevOps because things tend to get lost in transition when you have so many people across different GTM teams handling them.

My initial interest in RevOps sparked from my desire to get better across the entire funnel — not just the top.

“I wanted to work with a VP of Marketing on campaigns and messaging, a Customer Success leader on retention and customer satisfaction, and a Sales leader to drive revenue by coming up with strategic outbound plays. But I also wanted to drive revenue.”

Christian Freese

What are the key differences between RevOps and Sales Ops?

Christian: In Sales Operations, you’re more top-of-funnel focused. You’re typically under the VP of Sales, which is your focus. When you have a sales operations org, that generally means you have other siloed GTM teams like Marketing Operations or Customer Success Operations, all of which hold a piece of the pie.

By contrast, RevOps oversees everything that drives revenue: customer success, marketing, sales, and partnerships.

How did your responsibilities change?

Christian: When you move from SalesOps to RevOps you go from worrying about one department to the organization as a whole. Your level of responsibility is so much greater with RevOps because of its holistic overview of the company, not just a singular focus.

What challenges did you face in moving to RevOps?

Christian: In Sales Ops, I only had to get close to the VP of Sales. That was my job. I needed to gain his trust, build these metrics, and alert him if the pipeline was down. But, in RevOps, you need to do that for four, five, or six individuals — plus the board.

You’re also dealing with a lot of different personalities.

You might have the most amazing VP of Customer Success who is open, you provide visibility, and a VP of Sales who might be a bit more standoffish. So, you need maturity to know how to approach these situations and gain their trust. Because if you don’t trust one GTM leader, then everything you’re doing is all for not.

Then, there’s this common misconception that RevOps is just someone who should be Salesforce certified and take orders. This may be true of RevOps managers while they’re still learning the ropes to become leaders. But, a RevOps leader should look two miles ahead and let you know if there’s anything coming.

The challenge is ensuring they understand I’m not just some back-office guy building your Salesforce instance. I’m here to alert you when the pipeline is dangerously low. I’m looking at the business bank account, understanding that we have one or two years of runway.

I overcame these by developing organization and communication skills to stay on top of all the details and build trusted relationships.

What other opportunities did you see in shifting to RevOps?

Christian: RevOps sometimes morphs, at least in the B2B startup world, into business operations. Because I’m checking in with the CEO every week, we’re going over the runway, we’re talking spend, and we’re talking about where we can cut costs to avoid these layoffs.

Is it common for organizations to have both SalesOps and RevOps teams?

Christian: That would be very odd to have a revenue operations team, a sales ops team, and a marketing ops team.

You might see this at a business in transition with a siloed sales ops team trying to bring operations together by hiring a well-established revenue leader. Otherwise, it is not common.

What’s surprised you about the role of RevOps, or what have you learned since moving to RevOps?

Christian: The downplay of the importance of the role. It’s common to hear RevOps professionals feeling left out and not getting a seat at the table, even when you provide that guidance to the company.

This is where it goes back to building that trust, those relationships, communicating, and ensuring that you don’t fall into the system admin type of thing. But I was surprised at just having to do that. Someone hired me and paid me a generous salary with all these shares and perks. Yet, it’s like, “What do you RevOps guys do?”

At first, I thought it was me. So, I started networking with other revenue operations pros with three times as much experience as I do. And it was the same story across the board.

The key is bringing alignment across the different organizations.

The problem is that many companies hire someone as the Director or Head of RevOps who doesn’t have leadership experience. So, you’re setting people up to fail unless they’re naturally just good at figuring out how to get a seat at the table.

Lastly, what advice would you offer someone looking to make the same move? 

Christian: I would spend the time you’re in sales ops to learn and build those relationships internally with your current company. If you’re not working for somebody, join RevOps Slack groups and get some mentors.

Start understanding the full funnel view of a company, from the inception of a lead to an opportunity, a deal, the handover to CS, and through to an upsell or cross-sell. Understand the responsibilities of every GTM function. You don’t have to be an expert in each one because a good RevOps person, in my opinion, is a generalist.

“Anyone who learns each role will be one of the best in this business. That’s the secret sauce.”

Christian Freese

They know a little bit about everything and have the leadership ability to build a team that can really build out what you’re planning.

Also, get familiar with what OKRs are and how companies plan their OKRs.  Then, learn how you can start aligning all the teams to drive that one OKR metric that drives the company forward.

***

Christian added his closing thoughts: The RevOps space is one of the best communities I could have ever asked to be a part of. Rev Genius channels, RevOps Co-Op, or Remote POC, or whatever it is, are filled with people willing to help. I would reach out. They are all great communities!

Thanks for sharing your thoughts on the differences between RevOps and SalesOps, Christian!

About QuotaPath

QuotaPath supports RevOps professionals with resources and solutions that help them grow into their roles, automate sales commissions, provide visibility into compensation, and motivate reps through forecasted earnings.

To learn more, chat with our team or try QuotaPath for yourself with a free 30-day trial.

More than 70% of SaaS companies offer both monthly and annual subscriptions. 

That’s according to data sourced by Recurly, a subscription billing provider. 

Despite this widespread practice, we’ve found many companies get stuck over how to compensate their sales reps for monthly versus annual contracts. 

To help, we compiled some suggestions below.

Commissions on annual agreements

In a traditional SaaS model, the customer signs an annual agreement that the business bills annually, quarterly, or monthly. This contract legally binds the customer to a 12-month payment, regardless of when it’s collected.

When the customer signs an annual contract, companies honor commissions in several ways.

One way they might pay commissions is by rewarding the entire earnings amount upon receiving the customer invoice for the total annual amount. 

For context, we found that just 20% of companies paid commissions at the time of invoice, while 64% paid when the deal closed. However, in our conversations with customers and leaders from our communities (RevOps Co-op, Pavilion, Women in Sales) this past year, we expect these numbers to swap as cash flow needs have increased.

“In an early-stage startup, where free cash flow might be limited, and the product is more transactional, paying on collection makes sense,” said Carl Ferreira, Director of Sales at Refine Labs, in our blog, When should you set your sales commission payment terms for?

Alternatively, if your organization offers billing options, you could incentivize your reps to push for an annual payment upfront by paying a higher commission rate.

“I’ve seen companies pay 10% commissions for an annual payment upfront, then 9% if they agree to pay the amount in quarterly installments, and 8% on monthly payments,” said QuotaPath Chief of Staff Graham Collins. “Then you issue a clawback if the customer doesn’t fulfill the 12 months.” 

Commissions on monthly subscriptions

Meanwhile, companies offering true monthly subscriptions have a few options to consider when honoring commissions.

They could pay the rep monthly, similar to a usage-based compensation plan, for the first 12 months. If the customer churns after 8 months, the rep stops earning commissions but does not have to pay back any previously earned commissions. 

In this scenario, you’ll follow standard commission rates and pay it over the year. 

“The downside with this model is that the new biz rep becomes an account manager,” said Graham. “The other issue is that reps can rest on their laurels if they secure a monthly deal that meets or exceeds their monthly quota.” 

Another option entails paying the annualized value at a reduced rate, or half the commission rate, upfront. Then, if they don’t pay 6 months of it, you claw back the commissions.

If you go this route, set the rate by looking at the average length customers “stick around.” For instance, if most customers stay on for 9 months, then you’d pay ¾ the commission rate because, on average, they exit after three quarters. 

Free Sales Commission Calculator Template

A free spreadsheet to simplify the commission tracking process. Track what you or your team have earned in 4 inputs.

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Questions? 

For additional support, we’re here to help. Contact our team to learn how QuotaPath partners with organizations on their sales compensation strategies, including compensation plan design, commission management, and payments. 

Or, skip the chat and head straight to experiencing our platform in a free trial of QuotaPath.

Sales compensation reporting refers to tracking and analyzing sales compensation data. 

Companies might manually create their compensation dashboards, enlist the help of compensation reporting tools like QuotaPath, or conduct it manually in a spreadsheet. But the biggest thing to remember is that sales commission reports must comply with state laws and regulations regarding security, tax processes, and anti-discrimination legislation. 

Below, we dive into how to create or write an effective compensation analysis, design a reporting system, tips for driving performance, and more. 

Writing a sales compensation report

Ready to begin writing or revising your sales compensation reports? Start here. 

The tables below show who should be involved, what data should be included, and then steps to execute it. 

Remember, the data in your report will depend entirely on your compensation plan. But the most common elements are:

• Deal name
• Rep name (owner)
• Close date
• Amount
• Payment date (if applicable)
• Deal type (if applicable)
• Contract length (if applicable)
• Payment terms (if applicable)
• Products sold (if applicable

This report should include a collaborative effort from people across your organization. We recommend ensuring the following have a seat at the table:

Once you have data and your reporting council set, it’s time to write the report. Follow these steps. 

Step 1: Identify the purpose of the report.

What do you want to achieve by writing this report? Do you want to track sales performance, identify trends, or make informed decisions about sales compensation plans? Setting clear goals ahead of time will help you determine what data to include and how to present it.

Step 2: Gather your data. 

This will depend on the purpose of the report. For example, you will need data on sales volume, revenue generated, and commission expenses incurred to track sales performance.

Step 3: Clean and analyze the data.

Check for sales compensation accuracy and completeness, and identify trends or patterns at the rep, team, territory, and/or product level. Look for holes. What data are you missing to tell the full story?

Step 4: Write the report.

The report should be clear, concise, and easy to understand using data visualization and copy to add insights and clarity. It should also be tailored to the audience who will read it.

Step 5: Distribute/present the report to explain the data.

Distribute to the appropriate stakeholders and set a time to guide your audience through the numbers. If you don’t want to hold a dedicated meeting, you could record a video that allows you to speak over your digital report. 

As for how long to spend writing will depend on your company’s size and complexity, the report’s purpose, and the data needed. Take your time and avoid shortcuts. A well-crafted report should be accurate, informative, and easy to read. 

Designing a successful sales compensation reporting system

Whether you go the manual route of piecing together sales compensation insights or implementing a reporting system, ensure the reporting framework is consistent and visible.

Other best practices: 

• The system should be accurate and reliable with real-time or up-to-date data
• Your reporting system should be user-friendly for all stakeholders and easily accessible
• Distribute reports timely and when your stakeholders expect it. Set up weekly, bi-weekly, monthly, or quarterly cadences to run and present reports.
• Choose a system that is flexible enough to meet the changing needs of the business
• Use a secure system that protects the data from unauthorized access

Challenges and pitfalls

Report processes often include challenges and pitfalls. The biggest challenges with sales compensation reporting are maintaining the analyses to ensure data accuracy and timeliness, creating reports people can understand, and drawing actionable insights from them. 

Let’s look into each issue below. 

Gathering accurate data: Sales compensation data can be complex and difficult because it often comes from various sources, such as sales contracts, CRM systems, and payroll records. The more you integrate the systems, the easier it is to keep track of and maintain accuracy.  

Creating clear and concise reports: Sales compensation reports can be lengthy and complex. Create clear, concise, and easy to understand by tailoring the reports to the needs of the stakeholders who will be using them. Remember, the report fit for reps will likely look different than a report for a Finance audience. Lastly, make sure that you explain the value of the data. 

Making informed decisions: These reports can provide a wealth of information about sales performance and compensation. However, using this information to make informed decisions about sales compensation is important. This may involve adjusting the sales compensation plan or identifying areas where sales performance can be improved.

Staying compliant with regulations: Sales compensation plans must comply with various regulations, including the Fair Labor Standards Act (FLSA) and the Equal Pay Act (EPA). Staying current on these regulations and ensuring compliance with sales compensation plans is important.

By understanding the challenges of sales compensation reporting, companies can take steps to overcome them and create a successful sales compensation reporting system.

How to drive performance with reporting

Once your reports are finalized, you can leverage them to drive performance and revenue. 

We recommend using reports to:

• Prioritize coaching efforts
• Identify gaps in the sales process 
• Find reps’ strengths to replicate across the team
• Track and adjust low-performing sales tactics
• Measure the success of SPIFs, multi-year accelerators, and other compensation components
• Give your reps sales compensation visibility and how they’re performing to goal
• Increase competition using team leaderboards
• Gamify performance to increase morale
• Get a pulse on sales pipeline health
• Translate pipeline opportunities to potential earnings to motivate reps

The power of data visualization

We mentioned data visualization a couple of times so far.

Data visualization is the process of transforming data into visual representations that help to communicate insights and information. It can be a powerful tool for sales compensation reporting, as it can help to make complex data more understandable and easier to analyze.

There are many different ways to use data visualization for sales compensation reporting. Here are a few examples:

• Create charts and graphs: Charts and graphs are a great way to visualize data and track trends. They can show sales performance, compensation, and other metrics. Team leaderboards to ignite competition are especially useful.
  
• Use color coding: Color coding can make data more visually appealing and easier to distinguish. It can be used to highlight different data points or to group related data together.
  
• Designate icons: Icons can represent different data points or metrics. They can be used to make data more visually appealing and easier to understand.
  
• Add text labels: Text labels can provide additional information about the data. They can be used to explain what the data is showing or to provide context for the data.

Sales managers and RevOps leaders can use data visualization to create more informative and easier-to-understand reports. This can help them to make better decisions about sales compensation and to drive sales performance.

Aligning sales compensation reporting with business goals

To get the best outcomes possible (revenue and reps hitting the targets) from your sales compensation plans, you should tie your plans and sales performance metrics directly to your business goals.

You can start by collaborating with your leadership team to decide on the key business metrics for the quarter or year. 

“Then ask, can any of those priorities be reinforced with sales compensation design?” said Mark Roberge, Managing Director at Stage 2 Capital.

These include customer acquisition costs (CAC), gross revenue retention (GRR), net revenue retention (NRR), customer lifetime value (LTV), and sales cycle length and velocity. 

For examples of how to tie this to your comp plan reporting, see a few in the table below.

FAQs

Are there any compliance and legal considerations in sales compensation reporting?

Some states, such as California and New York, require employers to issue sales compensation policies (or commission agreements) that any employee paid under variable pay structures must sign. These laws also require the employer to sign off and are part of a greater effort to provide pay transparency to give workers more leverage to negotiate their earnings and close gaps in wages.

QuotaPath hosts this process in-app, via Plan Verification, to distribute new policies or updates and collect and track signatures. 

About QuotaPath

QuotaPath automates commission tracking and streamlines sales compensation management to help revenue leaders run payouts more accurately and efficiently. Schedule time with our team today to drive revenue and earnings transparency, or start a free trial.

People often ask us about commission rates. What should the commission rate be for a CS? What about an AE? How does this change with the compensation plan? Our goal with this article is to address these questions.

The common SaaS sales compensation plan consists of:

• Base salary that’s 50% of on-target earnings (OTE)
• Quarterly quota period
• Quota based on ARP and 4-7x OTE
• Accelerators and decelerators as key components

Source: Sales compensation trends to know in 2023

Although the standard commission rate for SaaS sales is historically 10%, this rate varies by role and has been adjusted for specific roles over the last year due to market conditions.

For many companies, retention is now more or equally important than a new business, so commission rates for account managers and customer success managers (CS) teams have increased accordingly.

Below, we’ll go through how to set commission rates and rates by role.

How to set commission rates

How do you determine commission rates? It’s a straightforward calculation once you’ve established your on-target earnings (OTE) and quota.

For example, consider a 10% single-rate commission for an OTE of $120K, divided into a $60K base salary and $60K commission, plus a $50K/month quota. That works out to $60,000 annual commission / 12 months = $5,000 OTE per month. Then, $5,000 OTE per month / $50,000 quota per month = 10% commission.

Another way to approach the same scenario is to reward overperformance by offering an accelerator for reps exceeding 100% of their quota. We recommend accelerators that apply to monthly sales as an additional incentive. For example, your reps can earn 10% of their sales up to quota and 12% for all their sales when they meet or exceed quota. You can include multiple earnings tiers when implementing this option, but we recommend limiting it to no more than four tiers.

A milestone bonus for attaining a monthly quota is another possibility. This encourages consistent sales performance month after month. One way to implement this is by offering a $1,000 bonus for reps that hit their monthly quota and decreasing the commission rate to 8% while keeping OTE the same.

Ultimately, you must fiddle with the numbers until you determine what works best for your organization.

And, if you need a simple and effective first compensation plan, you might consider this plan by our CEO, AJ Bruno.

Commission rates by role

Commission rates vary by role, with sales reps typically earning the highest percentage from their sales and account managers, sales development reps, and sales directors receiving less. But, as we mentioned previously, this has changed a bit over the last year due to economic and market conditions.

Let’s review some commission rates by role.

Account executive: The typical commission rate on sales for an AE is usually 10%. Most sales incentive plans include accelerators to encourage and reward overperformance. This AE comp plan example and template depicts this scenario.

Sales development rep: SDR commission rates commonly fall between 2% and 5% if they earn a percentage from deals that close from leads the SDR generated. This arrangement is called the Closed Won Commission model.

Account manager: It used to be that an AM typically earned a commission rate of 5% on upsells, but they’ve risen to as much as 10%. Organizations shifting from a “grow at all costs” mentality to a “predictable revenue model” has influenced this change. Here are 3 commission pay examples for Account Management & Customer Success and account manager compensation plan templates.

Sales Director: Sales directors typically earn a commission for every deal their team members close. Commission rates paid to sales directors tend to be between 3% and 5%. Check out this blog for sales manager and sales director compensation plan examples.

Set commission rates to achieve business goals

The SaaS sales commission rate is typically 10% and varies by role as well as market conditions to incentivize sales rep behaviors that help the business achieve its goals.

Although a simple calculation can determine commission rates once you have set OTE and quota, there are multiple ways to approach this process. So, it’s advantageous to experiment with the figures to find the best method for your specific business.

For additional support in setting commission rates, use the following free resources:

• Sales Compensation Calculator
• Compensation Hub
• Quota:OTE Calculator

Then, sign up for a free trial to automate commission tracking and calculation.

On-target earnings, commonly called OTE, represents the dollar amount a sales rep can expect to earn if they hit their sales quota. This figure helps commission-based sales reps gauge earning potential for each position they consider when seeking a new role.

Companies often advertise attractive OTEs to secure great reps on their sales teams. However, it’s false advertising if the OTEs aren’t attainable or realistic. Getting it right is essential, or you risk losing top talent.

What is the average OTE of a sales rep?

In this post, we’ll examine this question in more detail by defining OTE, factors that affect it, how to set it, average OTEs by role, interview questions, what else reps can negotiate, and share our free OTE calculator.

What is OTE?

OTE is defined as a salesperson’s potential total income, including annual base salary plus commissions when they attain quota.

OTE is calculated by adding the annual base salary plus the annual commission earned at 100% of the quota.

Do you require assistance calculating OTE, setting commission rate, or managing sales quota? QuotaPath offers a free sales compensation calculator to simplify the process.

Sales Compensation Calculator

Calculate OTEs, sales quotas, and commission rates to design your sales compensation plans.

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Factors that affect OTE

To set an OTE that balances enticement with reality, consider these key factors.

How to set your OTE

In addition to the factors that can affect OTE, you must remember that your OTE should be unique to your business model.

Christina Brady, SVP of Sales at Spekit, said, “Standardizing comp plans and OTEs is meant to drive equity and fairness, but the denominator is often not the same. You often can’t look at overall metrics and averages in an industry because what goes into that?”

To tailor your OTE to your specific business, evaluate the following elements:

• Years of experience: More years of experience often yield a higher OTE
• Average deal cycle: Shorter sales cycles often mean more deals closed in a given period and lower OTEs.
• Average sales price: A higher average sales price often equals a longer deal cycle and higher OTEs.
• Region: OTE varies by region. For example, OTE is often higher in San Francisco than in Charlotte.
• Size of quota: Quota impacts OTE and is usually tied directly to company size. For example, larger companies typically set larger quotas compared to OTE.
• Revenue retention rates: If most deals are one-time sales, you’ll typically see higher OTEs.

“Many companies don’t understand the nuance of building a fair and equitable plan. Do the work and don’t look into only what’s fair in general,” said Christina.

Average OTE for Sales Reps

We agree with Christina, but having a starting point to ensure your OTE is at least in the ballpark is helpful. Below, we pulled data on average OTEs for sales reps across industries and how they vary by role and region.  

Average OTEs for account executives (AEs) in different industries include:

• Tech: $160,000
• Biotech & Pharma: $165,000
• Financial Services: $137,000
• Health Services: $112,000
• Manufacturing: $141,000

OTE is influenced by how much experience the rep has. 

For example, an entry-level AE with 0-3 years of experience receives $140,000 – $200,000 versus a senior-level AE with 3-5 years of experience earns $160,000 – $250,000 OTE.

OTE also varies based on geographic location. An entry-level tech AE averages $150,000 in central and mountain time zones compared to $170,000 or more in New York City or San Francisco.

OTE questions reps should ask in the interview process

OTE comparison is only useful if the OTE is realistic and attainable. Asking these questions during the interview helps reps delve deeper into compensation to decide whether the role, pay and employer match their needs.

1. What percentage of your team is achieving their OTEs?

2. What type of coaching do you offer?

3. What is the path to promotion, and what are those OTEs?

4. Can I speak to one of the reps who performed at OTE or higher?

5. What resources are available to help reps hit OTE?

What else can you negotiate in addition to base/variable comp?

You’ll find that some SaaS companies have non-negotiable OTEs and compensation packages to standardize it by role. However, that doesn’t indicate you should accept the offer.

“Companies expect you to negotiate,” according to Alexine Mudawar, CEO of Women in Sales, “If you get an offer, pause and show gratitude, and ask to review the information more closely after the call. Then review the list and see where you can sweeten the deal.”

Here’s a list of items often up for negotiation to consider:

• Equity
• Base Salary
• Variable Comp
• PTO
• Education Budget
• Severance
• Title
• Territory/Account List
• Sign-on Bonus
• Moving Expenses
• Remote Work

“After 10+ years in tech sales,” Alexine shared, “I have yet to hear a single story of anyone losing a job offer due to trying to negotiate.”

QuotaPath’s Quota:OTE Calculator

Do you need to check the health of your OTEs? Use our free resource, the Quota:OTE Calculator.

It’s easy to use (there’s even a quick tutorial video to review how it works), and this free tool helps you determine things like:

• Are your OTEs realistic?
• Are they too high or maybe too low based on the historical performance of your company?
• Are your reps paying their way?

Realistic and attainable OTEs

Businesses need to set realistic and attainable OTEs. Deceiving sales reps by advertising inflated OTEs that none of your current reps achieve will backfire when they discover the truth.

Properly set OTEs based on key factors and the specific attributes of your company to help attract and retain top sales talent. Use our Quota:OTE Calculator to check the health of yours or when you’re planning to make changes.

Reps need to remember that OTEs vary by industry, experience, and geography when comparing OTEs between sales roles they are considering, then ask the right questions to deepen their understanding of the reality of the specific role. Once they have an offer, they can negotiate the details to sweeten the deal—it’s expected.

Ready to automate commission calculations and quota attainment? Start a free trial with QuotaPath to automate compensation structure design, tracking, and management.

Setting up sales team structures at startups is tricky.

“Going from (a sales team of) 1-100 is really hard,” according to David Baga, CRO of Lyft. “The struggle is constant and rewarding.”

It’s not as simple as hiring top sales talent and having them sell your product. There is much more involved than that.

You’re still establishing product/market fit, who your ideal audience is, and the best ways to reach them. You need to run experiments to identify what works regarding demand generation, outreach messaging, rep types, and sales team structure.

Further complicating matters, things continuously shift and evolve, making it necessary to adjust based on what you are learning in real time.

Your startup’s sales structure selection affects all aspects of sales, including lead generation, conversion rate, and speed to close. And as conditions change along the way, it’s important to recognize when to adjust your sales organization. Otherwise, you risk sales stagnation and customer dissatisfaction.

So, if you’re trying to figure out the best sales team structure for your startup, we’ve got you covered.

Factors that impact sales team structures at startups

There is no one-size-fits-all sales team structure. Consider the following factors to build the best sales organization for your business:

Stage of growth

Your stage of growth influences your needs and requirements. Early on you’re still working through product/market fit and determining the best way to reach your ideal customer. Where you are on your journey can dictate available resources, staffing requirements, and your need for flexibility.

Product/service

The complexity and variety of your products or services influence your sales team structure and team member selection.

More complex or diverse products may require highly specialized sellers to ensure a greater understanding of what they are selling.

Sales motion

The length of your sales cycle and how you sell your product affect your sales team structure. A transactional sale involving only one buyer requires a different type of sales organization than a more complex sale to a buyer team that necessitates collaboration and communication for success.

Account sizes

Selling to enterprise accounts is different than selling to small businesses. So, it’s common to structure sales teams based on account size. This enables reps to better understand the needs, challenges, and concerns of their specific prospects and sell more effectively to them.

Geography/market/territory

Consider the geographic distribution of your customers and how you plan to designate territories. Sometimes, it makes sense to group customers by geography if in-person engagement is needed to sell your product. However, you can divide territories based on geography, company size, industry, or alphabetically.

The market you are in may influence the sales team structure as well. You may want to look at successful competitors to see what’s working for them. You don’t necessarily want to duplicate what they are doing, but you can use it to reduce the experimentation needed as you get started. Then, you can adjust it to suit your needs.

Budget

Budgetary considerations are a key factor. Sales team costs include salaries, commissions, training, and sales tech. And a bigger sales team isn’t necessarily better. Sometimes a lean, scrappy, cost-effective team allows you to evolve and scale your sales team more effectively.

Common sales team structures for startups

Now for some popular sales structures to consider:

The island

This sales structure, commonly used in traditional sales operations like real estate or financial services, gives sales reps minimal supervision. This sort of sales team includes a team of individual sales reps reporting to a sales manager. Sellers in this model are responsible for the entire sales process from lead generation to the close.

This structure is best suited for simple sales processes for products requiring one or two calls to close the deal. This structure has the potential to work in various industries but limits brand messaging control due to the inherent rep independence.

The assembly line

An assembly line sales structure got its name by imitating manufacturing. As the name would indicate, each rep on a team specializes in one aspect of the sales process and the team members report to the sales manager.

A team of this sort might include:

• Qualifiers, a.k.a. Sales Development Reps (SDRs)
• Closers, a.k.a Account Executives (AEs)
• Farmers, a.k.a. Customer Success Managers (CSMs)

As a lead advances through the sales process, the prospect is handed off to the next sales rep on the “line.”

This structure creates a predictable business flow, makes identifying issues and adjusting accordingly easier, and is efficient. As you’re getting started, the biggest challenge here is initially having an insufficient number of reps. To overcome this challenge, break up the sales cycle differently across the reps until you can expand your team.

The Pod

The Pod sales team structure is like the “assembly line” structure, but the entire team works collaboratively and communicates continuously instead of individual team members working in isolation. These pods are tight-knit groups that are customer-centric. 

So, instead of SDRs competing within your organization, teamwork is developed within each pod, and individual pods compete with one another as your salesforce grows.

Pods tend to develop stronger customer relationships, and each pod can focus on a different customer type, product line, or geography. Plus, pods tend to be more flexible and adaptable as conditions evolve.

Team variations

The island, assembly line, and pod sales team structures can be further adapted to your specific requirements as follows:

Geography/Territory

This focus allows individual sales reps or teams to learn the nuances of their specific geographic area or territory. They develop stronger relationships with those in their area and gain a deeper knowledge of competitors in their assigned region.

Assessing rep performance based on the potential of their market can be easier in a geography/territory structure but can be isolating for individual reps functioning in an “island” type team structure.

Product/Service Line

A sales team structure based on product or service lines makes sense when diverse offerings exist. This structure enables reps to develop a deep knowledge and expertise in their specific products, allowing them to communicate the value and use cases more effectively to potential clients to close more business.

Customer/Account Size

Setting up sales teams based on customer account size is a popular approach. This simplifies processes like hiring, training, and compensation.

Selling to SMBs is vastly different than selling to enterprise accounts because these businesses are organized differently and have different goals, buying processes, and budgets.

Industry/Vertical

Like many of these variations, an industry/vertical structure enables reps on these teams to become more deeply knowledgeable of their area of focus. These sellers are better equipped to position your offering meaningfully to prospects and have a deeper understanding of potential use cases.

Best practices to keep in mind when structuring

As you implement your selected sales team structure, remember these best practices to boost your success.

Principle 1: Understand the company’s goals and objectives.

The sales team structure should be aligned with the company’s overall goals and objectives. This structure acts as the roadmap for achieving them.

For example, if the company aims to grow revenue quickly, the sales team structure should focus on generating leads and qualifying prospects.

Principle 2: Consider the company’s product or service.

The sales team structure should be tailored to the company’s product or service.

For example, if the company’s product or service is complex, the sales team structure should include technical sales reps who can understand the needs of their target customers.

Principle 3: Be flexible.

The sales team structure may need to be adjusted as the company grows and changes.

For example, if the company starts to sell to a wider range of customers, the sales team structure may need to be expanded to include more specialized sales reps.

Principle 4: Invest in training and coaching.

Sales reps are the face of the company, so it is important to invest in their training.

Make sure they have the knowledge and skills they need to be successful. Research by CSO Insights shows that reps who receive sales training and consistent coaching achieve 32% higher win rates and 27.9% improvement in quota attainment. And these results help you hit your growth numbers.

Principle 5: Create a comp plan fit for a startup and provide visibility into sales, attainment, and commission progress.

As your business scales, you don’t want to adjust your comp plans continually at every stage. So, keep your plans as simple as possible.

The key is to optimize to drive desired sales behaviors, but don’t change the plan every time you hire a new sales team member. Save the changes for major growth milestones, like when you have a salesforce of 50 sellers.

Sales reps are happiest when they know how much to expect in their paycheck. Keep reps motivated by giving them the visibility to track their attainment of personal and company goals.

Choose your sales team structure

Selecting the best sales team structure for startups is essential but tricky. Start by considering your growth stage, offering, sales motion, account sizes, and budget. Then, leverage them to guide your choice of sales team structure. As you’re implementing your new sales organization, remember to remember our best practices to increase your success.

Need help creating your first comp plan fit for a startup? Check out this resource.

Then, see how QuotaPath can help you save time by automating commission tracking and payouts of sales compensation. Sign up for a free 30-day trial with QuotaPath, or schedule a chat with a team member.

This is a guest post on aligning compensation plans with business objectives written by RevPartners, a management and consulting firm that designs and executes revenue engines to supercharge their customers’ growth with services such as HubSpot Onboarding, RevOps as a Service, and SEO/PPC. Through automation and tools, the RevPartners team orchestrates, optimizes, and reports on their client’s marketing, sales, and operations processes. RevPartners’ mission is to democratize revenue operations by making it accessible, consumable, and actionable in HubSpot.

It’s vital for companies to have harmony between their compensation plans and business objectives.  But this intricate and often complex task is not an overnight process. To do it right, companies need to take a holistic approach and blend strategic planning and execution. 

Let’s take a look at some of the most important objectives for a business and how compensation plans can align accordingly.

Customer Acquisition Cost 

One metric to consider is customer acquisition cost (CAC), which speaks volumes about a company’s health and efficiency. The lower the CAC, the more profitable the company is.

When calculating CAC, it’s important to consider all the expenses associated with acquiring new customers. This includes marketing costs, advertising campaigns, sales team salaries, and any other expenses directly related to customer acquisition. Companies can gain valuable insights into their overall financial performance by analyzing these costs.

Balancing CAC with employee compensation is essential. Pay structures that incentivize employees to drive down the cost of acquiring new customers can enhance a company’s profitability. However, ensuring that such incentives do not lead to compromised quality or customer experience is crucial.

Examples of how to align comp plans to CAC

Performance-based bonuses

Perhaps the most basic example is when companies offer bonuses based on the ability to bring in customers at a lower cost.   

Referral programs

Companies can create/introduce employee referral programs that reward employees for referring customers who are more likely to be acquired at a lower cost. 

Customer quality metrics

Companies can measure the quality of customers brought in by employees and align compensation with the long-term value of customers, ensuring that employees focus on acquiring customers who are likely to stay and spend more.

Long-term goals

When companies design compensation plans that consider the long-term impact of customer acquisition, employees could earn more if the customers they bring in have low acquisition costs and contribute to the company’s growth over time.

Gross revenue retention

Gross revenue retention (GRR) is another indicator of business health. A high GRR means that a business retains its revenue, irrespective of its growth. Ensuring that compensation plans encourage practices that enhance GRR is critical.

Examples of how to align comp plans to GRR

Renewal performance bonuses

When companies provide bonuses to sales teams for successfully renewing contracts with existing customers, it encourages them to focus on acquiring new customers and retaining the ones they already have.

Customer health metrics

When compensation plans are tied to customer health metrics (e.g., usage frequency, satisfaction scores, engagement levels), employees who contribute to improving these metrics can earn additional compensation.

Retention-linked bonuses

If companies design bonuses that are tied to specific retention targets, teams or individuals who meet or exceed these targets can earn extra compensation.

Reducing customer complaints

Companies can create compensation plans encouraging teams to promptly and effectively address customer complaints. Fewer complaints can lead to higher customer satisfaction and retention.

Predictive analytics bonuses

When employees use predictive analytics to identify customers at risk of churning and successfully intervene and prevent churn through targeted efforts, they can receive bonuses.

Net revenue retention

Distinct from GRR, net revenue retention (NRR) considers the revenue growth from existing customers. An ideal compensation plan should both safeguard existing revenues (GRR) and cultivate growth (NRR).

Regarding NRR, it’s important to understand the significance of nurturing and expanding relationships with existing customers. By focusing on retaining and growing revenue from these customers, businesses can establish a stable foundation for long-term success.

Examples of how to align comp plans to NRR

Expansion revenue incentives

Companies can design compensation plans that provide additional rewards to sales and account management teams when they successfully upsell or cross-sell additional products or services to existing customers.

Customer satisfaction metrics

When companies link compensation to customer satisfaction scores or feedback, teams that maintain high customer satisfaction levels are rewarded for their efforts to nurture positive relationships.

Customer education success

Companies can reward employees who effectively educate customers about the full range of offerings and how they can benefit from them. This can lead to customers using more services and products, increasing their value.

Customer feedback utilization

Companies can give bonuses to employees who actively gather and apply customer feedback to improve products, services, and overall customer experience. This showcases a dedication to nurturing relationships.

Customer success milestones

Companies can create compensation milestones based on the length and strength of customer relationships. The longer and more successful the relationship, the higher the compensation.

Customer lifetime value

Customer lifetime value (CLV) is a metric that businesses use to understand the net profit they can expect to generate from a customer over the entire duration of their relationship. Companies can make informed decisions about resource allocation, marketing strategies, and customer retention by analyzing CLV. The higher the CLV, the more beneficial it is for the company, as it indicates a greater return on investment.

Calculating CLV involves various factors, such as the average purchase value, purchase frequency, and customer lifespan. By considering these variables, businesses can gain insights into the potential value of each customer and make strategic decisions accordingly.

However, understanding CLV is important for financial forecasting and plays a significant role in shaping compensation design and employee motivation. 

Examples of how to align comp plans to CLV

Tiered commission structures

Companies can implement tiered commission structures that reward higher commissions for customers demonstrating greater CLV. This encourages employees to prioritize customers who are more likely to make repeat purchases and remain loyal over time.

Profit sharing

Companies might consider implementing profit-sharing plans that tie a portion of employees’ compensation to overall company profitability, which can be influenced by increased CLV. This fosters a sense of ownership and encourages employees to work collectively to enhance customer value.

Long-term focus

Companies can design compensation plans that emphasize long-term gains over short-term wins. This discourages quick, transactional behavior and encourages strategies that enhance CLV over time.

Sales cycle length and velocity

The sales cycle length and velocity significantly affect the rate of revenue generation and cash flow. A streamlined process usually indicates a more efficient team and organization.

Compensation plans that reward employees for shortening the sales cycle and increasing its velocity resonate with business growth. Incentives catering to these metrics ensure the business has a smooth cash flow and remains competitive.

The sales cycle length refers to the time it takes for a potential customer to move through the entire sales process, from initial contact to making a purchase. This can vary greatly depending on the industry, product complexity, and customer behavior.

A shorter sales cycle can have several advantages. First and foremost, it allows for a quicker revenue generation, as deals are closed faster. This can be particularly beneficial for businesses that rely on a steady cash flow to cover expenses and invest in growth initiatives.

Also, a shorter sales cycle can lead to increased customer satisfaction. Customers appreciate efficiency and promptness, and if they can make a purchase or get the desired solution without unnecessary delays, they are more likely to be satisfied with their overall experience.

Conversely, velocity refers to the speed at which deals move through the sales cycle. It measures how quickly prospects progress from one stage to the next, indicating the overall efficiency of the sales process.

A high velocity suggests that deals are progressing smoothly and efficiently, with minimal bottlenecks or delays. This can be achieved through effective lead nurturing, clear communication, and a well-defined sales process that eliminates unnecessary steps or redundancies.

Examples of how to align comp plans to sales cycle

Time-based incentives

Companies can introduce incentives that reward sales representatives for closing deals within a shorter time frame. This could be in the form of bonuses or commission multipliers for deals closed ahead of schedule.

Early progress bonuses

Companies can offer bonuses or rewards for hitting certain milestones early in the sales cycle. This approach encourages sales reps to maintain momentum and engagement throughout the process.

Win-win commission structures

Companies should design commission structures that balance sales cycle length with deal value. For example, higher commissions could be offered for shorter sales cycles, but also consider factoring in the overall revenue generated.

Lead scoring

Companies can introduce a lead scoring system that helps sales reps prioritize leads with higher potential to close quickly. Compensation can be tied to successful conversions of these high-priority leads.

Wrapping up

Creating a balance between business objectives and compensation plans involves continual monitoring and fine-tuning to determine what works best for the organization and its employees.

By focusing on the metrics identified above and aligning them with compensation plans, businesses can drive profitability, growth, and employee satisfaction concurrently.  When compensation plans are in tune with business objectives, they pave the path for a win-win situation.

Looking for the right company to help align your sales compensation plans to your business objectives?   Look no further than QuotaPath!

To learn more about RevPartners, visit revpartners.io.