Incentive compensation plans motivate and reward employee performance and are commonly used in sales and sales-adjacent fields. 

At its core, an incentive comp plan aims to motivate employees to achieve specific goals or objectives tied to company targets. 

That’s well-known and widely understood.

However, in our recent study, 97% of revenue leaders reported challenges during compensation plan design. Moreso, 100% admitted to struggling with the management and execution of their compensation strategy. 

At the design and management stages, common themes popped up throughout the report, such as unnecessarily complex plans, their compensation structure’s inability to motivate reps, and a lack of alignment at the leadership level and between comp plans and business goals. 

In our experience, the best incentive compensation plans align with the organization’s overall goals and motivate revenue teams to achieve those goals. They are fair, logical, easily understood, and, most importantly, equitable.

Read on to learn how to build compensation plans that motivate, align, and impact the results your organization seeks to achieve while rewarding employees.

Objectives of incentive plans

First, let’s start with the objectives of annual incentive plans. 

The primary objective of an incentive compensation plan is to motivate employees to achieve certain goals or objectives. These goals can be specific to the individual employee, the team, or the organization.

Some common goals that incentive compensation plans are designed to achieve include:

• Increasing sales
• Improving customer satisfaction
• Reducing costs
• Launching new products or services
• Expanding into new markets
• Improving employee engagement
• Rewarding overperformance
• Aligning and driving business goals
• Recruiting and retaining top sales talent 

Effective incentive plans: Key elements

Next, let’s review the key elements.

We’ve seen and supported thousands of compensation plans. The most effective structures include healthy quota to on-target-earnings (OTE) ratios, high team-wide attainment results, and commission rates that are high enough to drive selling behaviors but low enough to maintain appropriate effective rates. 

To measure your incentive program effectiveness, consider the following. 

Do your compensation plans align with your most important business metrics?

From this year’s compensation trends report, 39% of leaders said their comp plans do not align with their key metrics, like gross revenue retention, gross margin, and customer acquisition cost.

Some plans even contradict business goals.

For example, if your company focuses on increasing gross revenue retention, the comp plans should drive GRR. To do that, you might add accelerated commission rates on multi-year deals (comp plan template) or when a customer signs from a segment that data shows has the highest retention rates or your ideal customer profile.

Will your company hit this quarter’s targets?

Look into how close or far your team is from hitting this quarter’s goal. 

If it’s far off, you’ll need to change something, but it might not be at the comp plan level. For instance, you may need to reconfigure business goals and financial projections first and then adjust your compensation plan to help get there.  

What percentage of your team has or is on pace to finish the quarter at goal?

80% of your team should hit their quotas. Our report found that 91% of companies are well below 80%.  

If that sounds familiar, look into the problem. Is it for lack of pipeline opportunity? Subpar closing abilities from your team? Reps aren’t motivated? 

Identify the problem first so that you can address it. Then, look into the compensation structure. How realistic are the quotas and OTEs? 

What data did your team collect to set these initially, and does that data match today’s market? If not, consider lowering quotas to avoid disgruntled reps who will eventually churn.

Does Sales Leadership offer coaching, training, and support?  

To succeed, your sales team should have access to continued coaching, support, and training. Give them your time, resources, and enablement to help them grow and do their jobs more efficiently. 

Take a look at the difference between your lowest-performing rep and your highest

Look into the gap between your highest and lowest-performing reps. Why is there such a difference? Is it territory-related? If so, you should adjust your plans or territories to make them more equitable. 

Is your effective rate too high? 

Your effective rates could indicate that you’re paying your team too much per sale, especially if they’re not hitting goals. 

If so, consider adding a commission floor or cliff so that reps must meet a minimum threshold before being eligible to earn commissions. But be careful with commission floors. If they too low, you probably shouldn’t have one. Reversely, if the cliff is too high, you’ll discourage reps who may start sandbagging.

Rep feedback

While numeric data is always helpful, you should also collect anecdotal data. Get rep feedback. Do they understand how they make commissions? Are they motivated by it? If not, find out what would. 

Designing incentive compensation: What works best?

In addition to comp plans that are logical, fair, and simple to understand, the best sales compensation plans often include an accelerator, pay earnings as close to the sale date as possible, and have no cap. 

This is according to data we gathered for our 2023 Sales Compensation Trends report.

An accelerator in sales pays reps a higher commission rate, usually 1.5x their commission rate, for achieving a quota attainment milestone or selling a more extended contract, for example. Similarly, decelerators pay less than the base commission rate until reaching a threshold. They work like cliffs, except the rep earns commissions at a lower rate versus no commissions. 

Although, keep in mind that you can’t go wrong with a single-rate commission plan for its simplicity. 

Additionally, your quota period or frequency should be tied to the length of your sales cycle. For those with shorter sales cycles, consider a monthly or quarterly period. For longer deals, an annual frequency will be more appropriate.

Some general principles to follow when designing incentive compensation plans:

The role of performance metrics in incentive plans

We use performance metrics to measure employee performance against the goals in the incentive compensation plan. The performance metrics used should be relevant to the goals of the plan and to the job that the employee is doing.

Some common performance metrics used in incentive compensation plans include:

• Sales revenue: The total money a company generates from selling its products or services. It is calculated by multiplying the quantity of products or services sold by the selling price
• Customer satisfaction: Measures how satisfied customers are with a company’s products or services, often through surveys or customer feedback forms
• Cost savings: The amount of money a company saves by reducing costs. Leaders often realize cost savings by increasing efficiency, reducing waste, or negotiating better prices with suppliers.
• New product launches: New product launches can be a way for companies to increase sales, grow market share, and differentiate themselves from their competitors
• Market share growth: The increase in the percentage of a market that a company controls. You can increase market share growth by increasing sales, attracting new customers, or acquiring competitors
• Employee engagement: The level of commitment and enthusiasm that employees have for their work

Other common performance metrics that may be used in incentive plans include:

• Profitability: Weighs how much a company is worth
• Efficiency: Measures how well a company uses its resources and is an important metric to track because it can help a company reduce costs and improve profitability
• Quality: Measures how well a company’s products or services meet customer expectations, which can help predict retention
• Innovation: The development of new products or services to stay ahead of the competition and grow market share

Balancing risk and reward

One of the challenges when it comes to designing an incentive compensation plan is balancing risk and reward.

On one hand, the plan should motivate employees to achieve their goals. Conversely, the plan should not create too much risk for the organization.

To balance risk and reward, use a tiered reward system. In a tiered reward system, employees earn rewards at different levels based on performance. For example, an employee might earn a 10% bonus for achieving 100% of their goal, an accelerator of 15% or achieving 110% of their goal, and a 20% bonus for achieving 120% of their goal.

You could also put in cliffs or decelerators to mitigate risk and add measures that guarantee a rep meets a certain performance level before earning higher commissions.

Check out this blog to learn how to test your comp plan for risks. 

Case Studies: Successful incentive compensation models

One of the most successful case studies we’ve seen from a company that underwent a comp plan makeover is EverView. 

Before implementing QuotaPath and leveraging our team’s expertise in comp plan guidance, Everview had 35 compensation plans for their 80 reps, with some plans having as many as 12 components or routes to earn commissions. 

Their sellers had no visibility into how they made commissions and went into paydays without knowing how much their checks would be.

Not only did this collection of comp plans create a headache for those who had to calculate and pay commissions, but the reps didn’t understand their comp plans.

EvervView partnered with team members to reduce comp plans from 35 to 8 and again to one plan. This simplification of the plan, paired with rep visibility into their earnings and forecasted commissions, led to record-breaking deals for the EverView sales org. 

“From the top down, we consistently communicated the comp plan, the area or vertical our team should be focused on and directed our sellers to review in QuotaPath what their earning potential could be,” said Ron Morgan, EverView’s Director of Commercial Operations.

“Our comp plan was easily measured and viewed by our sellers in QuotaPath, which drove positive selling behaviors.”

Aligning incentive plans with organizational goals

If you take nothing else from this blog, remember the importance of aligning your incentive plans with your company’s goals. 

You can ensure alignment by bringing Finance to your comp planning proposal discussions early to learn the main objectives. 

Then, follow these steps. 

First, do not start the comp plan design process until you clearly understand your business goals. Host meetings with the executive team, board, and whomever else involved in the planning to ensure you’re clear on this. 

Next, create a compensation plan design committee that includes cross-collaboration from Finance, Sales, your C-Suite, and even Marketing and HR.

Schedule time to collect feedback from your reps face-to-face or over a survey. This will help you create a plan that aligns with your targets and motivates your reps. 

You’re ready to work with your comp plan design group to create compensation components that directly push this year’s metrics. 

Then, you test it. Use last year’s numbers to see what the plan would pay out. Run some edge cases and plug in the earnings numbers using next year’s projections to see how viable the plan is. 

Pitfalls to avoid

We’ve listed pitfalls to avoid throughout, but to double down, stay away from:

• Overcomplicating by providing too many streams or boundaries to earn commissions
• Building plans that don’t have your critical metrics in mind
• Quotas that are too easily obtained, or reversely, unrealistic quotas and OTEs
• Not providing reps visibility into progress and their compensation plans

About QuotaPath

You should feel well-equipped to build an effective comp plan. However, we are still here to help.

Connect with our team to learn comp plan best practices and how to run and manage sales compensation more efficiently through accurate commission tracking. 

Most would agree that a sales rep who spends time threading deals packed with growing relationships should make more than reps who follow a transactional sales motion.

That’s why enterprise sales reps are some of the highest-paid sellers in the tech world. 

This difference in selling motions highlights one of the most significant factors affecting sales compensation plans, especially on-target earnings (OTE),  but there’s more. Below, we’ve pulled together five of the most important ones to consider when designing sales compensation plans for reps. 

Selling motion (consultative vs. solution vs. transactional)

The first factor to consider is the selling motion, which can significantly impact the compensation reps earn. 

That’s because consultative sellers, solution sellers, and transactional sellers all have different compensation structures that reflect the different types of sales they make.

Consultative sellers typically have the highest OTEs, as they are responsible for selling complex solutions to high-value customers. These deals typically involve a longer sales cycle and a more complex negotiation process. As a result, consultative sellers need to have a deep understanding of their customer’s needs and be able to develop custom solutions that meet those needs. Both of which come at the cost of a more experienced salesperson — and higher compensation. 

Solution sellers normally have OTEs lower than consultative but higher than transactional sellers. Solution sellers are responsible for selling pre-defined solutions to customers that involve a shorter sales cycle and less complex negotiations. However, solution sellers still need to have a good understanding of their customer’s needs and be able to explain how their solution can help them achieve their goals.

Lastly, transactional sellers often have the lowest OTEs since they sell low-value products or services with less room for negotiation and tighter sales cycles. Additionally, transactional sellers do not need to have as deep of an understanding of their customer’s needs like a consultative sellers, but they do need to be able to close deals quickly and efficiently.

Complexity of sale (# of decision makers, sales cycle lengths)

Similar to the selling motion, the complexity of the sale should also dictate your compensation packages for your sellers.

More complex sales, such as those with multiple decision-makers and long sales cycles, typically involve more work and require a higher level of skill and expertise. As a result, sales representatives who sell complex solutions are typically compensated more than those who sell more straightforward solutions and have higher OTEs.

• Number of decision-makers: Sales with multiple decision-makers can be more difficult to close, as each decision-maker may have different needs and priorities. Sellers must build relationships with all decision-makers and develop a solution that meets everyone’s needs. Easier said than done, as this can be a time-consuming and challenging process.
• Sales cycle lengths: Long sales cycles also add to the complexity of a sale. Sellers must maintain long-term relationships with their prospects and keep the sales process moving forward. This can be difficult, especially if the customer is unsure when they are ready to decide.

Complex sales require more work and skill and are accommodated accordingly compared to less-intensive sales.

Role & responsibility (new biz, new biz + expansion, new biz + renewal + expansion)

The role and responsibility of your reps will also dictate their compensation packages.

In previous years, sales representatives responsible for new business typically earned the highest commissions as they brought in new revenue. Meanwhile, reps in charge of new business and expansion or those responsible for new business, renewal, and expansions have historically earned lower commissions.

But that’s starting to change as roles evolve and retention and predictable revenue grow more critical. 

Now, we’re seeing commission rates increase for those responsible for renewals, upsells, and, as a result, OTEs. Other trends we’ve picked up on include increased multipliers on multi-year renewals and bonuses for early renewals. 

Location (remote vs. specific city/region)

The location of where the rep works used to affect their OTEs and base pay. But following COVID-19 and the necessity of a remote workforce, we’ve seen less of a region’s impact on compensation. 

Still, some disparities exist between a rep on the West Coast versus one working from Denver, which you can compare in Betts 2023 Compensation Guide. 

Pricing model (consumption/subscription)

Lastly, consider the pricing model of your organization when determining compensation.

A business’s pricing model can have a significant impact on a rep’s compensation. For instance, consumption-based pricing and subscription-based pricing models have very different implications for sales compensation.

Consumption-based pricing: Consumption-based (or usage-based) pricing models charge customers based on how much they use a product or service. This pricing model is often used for SaaS products, cloud computing services, and telecommunications services.

In a consumption-based pricing model, sales reps earn incentive pay based on the revenue they generate from their customers, which aligns the rep’s incentives with the company’s goals of increasing customer usage and revenue.

• Example: A sales rep for a SaaS company earns a commission on all of the revenue that their customers generate from using their product. This incentivizes the sales rep to focus on selling to customers who are likely to use the product heavily, which would increase the company’s revenue.

Subscription-based pricing: Subscription-based pricing models charge customers a recurring fee to access a product or service used for software products, streaming services, and fitness clubs.

In a subscription-based pricing model, sales reps earn according to the number of new subscriptions they sell.

• Example:  A streaming service rep earns a commission on each new subscription that they sell. This would incentivize the sales rep to focus on finding new customers who are interested in subscribing to the streaming service.

The main difference between the two compensation structures is that consumption-based pricing models incentivize sales reps to focus on increasing customer usage and revenue, while subscription-based pricing models incentivize sales reps to focus on acquiring new customers.

OTEs will typically be similar, but the commission rates and payout schedules may vary. 

Conclusion

In addition to these five factors, several others can impact sales compensation. However, these five pull the heaviest weight when structuring your sales compensation models.  

By understanding these factors, you can design a sales compensation plan that is fair and equitable and that motivates your reps to achieve their goals.

For additional guidance on how to build comp plans and automate your sales compensation process, talk with QuotaPath today. Better yet, build a customized comp plan from one of our trusted templates and see your plan live on our platform by signing up for a free 30-day trial. 

In our 2024 Compensation Trends report, “Solving the biggest sales compensation challenges: Insights from 450+ Finance, RevOps, and Sales Leaders,” we asked leaders to think about how often reps quit over commission disputes.

This report discloses compensation management challenges shared by directors, VPs, and C-level executives from Sales, Finance, and RevOps in the United States and the United Kingdom surveyed during the first half of 2023.

This report aimed to understand the root cause of leadership disconnects, understand common compensation challenges, reveal gaps, and offer comp plan preparation guidance.

The survey findings highlighted that 100% of Revenue leaders agree that sales comp plans need improvement and that 78% of revenue leaders admitted that their sales reps find their compensation plans difficult to understand.

Thus far, we have dug deeper into areas of the survey in articles like:

– Leaders share 5 biggest challenges with sales compensation plans

– “Alignment” is most needed area of improvement in sales compensation management

– Why 91% of sales teams missed quota this year

This blog focuses exclusively on the impact of poor compensation management on rep exits and discusses the problem, why it is rampant, and how to avoid it.

What is the long-term impact of poor compensation management?

The answer: reps quit over it.

Leaders shared that 22% of reps have at least one dispute a year, and survey findings showed that 9% of reps eventually quit over commission errors or disputes.

Failure to address this costly issue can greatly impact revenue and business goal attainment.

Why reps quit and how compensation plays a role

Sales rep churn has historically been significantly higher than in other departments, hovering around 35% per year, according to Hubspot. That’s a significant amount, considering that organizations typically experience about 10% turnover yearly. So, why do reps quit, and what role does compensation play in this trend?

Lack of development and advancement opportunities

Sellers are demotivated when they don’t receive skill development or opportunities for advancement. This alone can lead sellers to display symptoms of “quiet quitting,” such as demotivation and minimal performance, according to Gartner. This makes them 35% less likely to attain quota and 51% more likely to be actively job-seeking. The Association of Talent Development (ATD) also found that 41% of people quit their jobs due to a lack of career development and advancement opportunities.

Lack of tools and technology

Tools and technology to boost efficiency and effectiveness used to be nice to-haves and are now expected. The Sales Happiness Index revealed that 33% of those who want to leave their roles cited a lack of access to the best tools and technology to be successful.

Unrealistic targets

Pushing reps to achieve seemingly unattainable goals leaves reps feeling burned out. Gartner’s survey showed that 89% of sellers feel burned out, and 54% are actively job-seeking.

So, it’s not surprising that Gartner also found that 67% of reps surveyed felt that leadership is overly optimistic and disconnected from the reality of sales today.

Unmotivated

Gartner found that 59% of sellers don’t believe management can motivate them. This creates what they call “high levels of seller drag, or a demotivation away from work,” a symptom experienced by 83% of sellers and most often associated with lower quota attainment and higher intent to leave.

Benefits, bonuses, and pay

According to the Sales Happiness Index, 43% of salespeople who want to leave their current job cited a lack of benefits, 31% a lack of bonuses, and 51% indicated they would leave for higher pay. During challenging economic times with limited deals, commission-only reps may be inspired to jump ship for employers that offer a base salary, especially since many sales pros got into sales because of the high earnings potential.

Commission mismanagement

Lastly, our research revealed that an average of 22% of sales reps have at least one commission dispute yearly, and 9% of reps quit over commission mismanagement. That’s nearly one-tenth of rep churn.

As you can see, compensation plays a major role in rep turnover in various ways. Understanding these contributors to rep attrition enables you to recognize and address them.

What causes commission disputes and incorrect checks?

Sales commission disputes contribute to rep turnover and arise more frequently than expected. These disputes and incorrect checks have several causes, including:

• Lack of understanding: Our data showed that 60% of reps take 3 to 6 months to fully understand how they earn variable pay from their comp plans. Reps are then unclear about how much to expect in their checks and when. This may cause them to question the earnings in their checks.
• Overly complex comp plans: 17% of leaders in our survey noted that plans too complicated for reps to understand were a compensation obstacle for them. Excessively complicated plans make it difficult for reps to understand how they are paid and what to expect in their commission checks. This may lead them to believe their pay is incorrect when it doesn’t match their expectations.  Plus, too complex plans require additional effort to calculate, track, and pay, increasing the odds of errors.
• Manual entry errors: Human errors in Excel spreadsheets are common. All it takes is an additional zero or a misplaced decimal point to throw off calculations. Inaccuracies accumulate as spreadsheets pass between teams. Then, plan changes further increase the number of errors.
• Lack of transparency: An inability for reps to easily track and view their earnings makes it more difficult to catch errors in commission calculations to head off disputes.

The cost of poor compensation management

Poor compensation management costs add up. It all starts with the costs of filling empty seats on the sales floor when reps quit.

“The cost of hiring a new salesperson isn’t terribly expensive, but the most expensive seat on the sales floor is an empty seat,” said QuotaPath Chief of Staff Graham Collins.

For instance, if a leader takes an average of 30 days to find and hire a new salesperson, add 90 days of ramp time before they can start selling deals.

“That’s four months of sales lost,” said Graham. “So, if your rep’s quota is 5x that of their on-target earnings, the company is losing 1.66x the salesperson’s OTE, or 3x their salary.”

Therefore, a rep who earns a $50K base salary costs the company $150K.

That’s $150K that could be avoided with better compensation management.

Then, going beyond the cost of replacing reps who quit, there’s lost selling time, sales rep demotivation, and time invested in addressing disputes and errors.

Disputes and incorrect commission checks damage trust and often cause reps to track and calculate their earnings manually. This further detracts from selling time.

How to avoid poor compensation management using QuotaPath

You can overcome compensation management issues and avoid commission disputes with QuotaPath.

• Gives reps visibility into compensation plans, real-time earnings, and commission calculations.
• Enables reps to catch and flag discrepancies before commissions are paid.
• Facilitates communication between reps and commission managers concerning errors and disputes, then tracks their resolution in the app.
• Prioritizes pressing tasks in a complete dashboard to hasten resolution.
• Organizes commission data and insights to look up deal specifics easily.
• Provides your reps with an accessible view of current, forecasted, paid, and upcoming commission information to promote compensation accountability and motivation.

Looking for additional ways to address poor compensation management issues? Download the full report or chat with our sales team on sales compensation management improvements using QuotaPath.

According to our 2024 sales compensation report, Solving the Biggest Sales Compensation Challenges, more than 450 Finance, RevOps, and Sales leaders reported “failure to motivate reps” as their most challenging issue with comp plans. 

Another 30% admitted their plans don’t motivate reps when asked directly if they do. 

In today’s market, which is only recently showing signs of rebounding with initial public offerings and valuations steadily rising, we understand that the stress on Sales is exceptionally high. Their teams, plus the teams they’re selling to, have downsized. This has made motivating teams facing so much economic opposition more difficult.

We can’t control the market. 

But one thing we can control is the levers to promote desirable selling behaviors, which can be done through intentional, direct, and tactful compensation design.

The core function of a sales compensation plan is to inspire reps to sell deals that earn them and the business the biggest bucks in the long term. When the plan fails to do that, your reps are more inclined to sell what is easiest for them, which is typically not the best deal for your organization (high probability of churn, lower lifetime value). 

Below, learn how to motivate sales teams using compensation and other tactics.

How to motivate your sales team

First and foremost, before you put anything into place, you need to understand what motivates your team.

Is it money? Recognition? Team collaboration?

Our previous blog explores the psychology behind motivation and outlines the differences between extrinsic and intrinsic elements. Extrinsically motivated individuals value outside influences like a higher commission rate or avoidance of a negative outcome, such as a decelerator. 

Meanwhile, intrinsic motivation ties to personal interest or accomplishment. 

Salespeople often are a mix of both.

To find out what motivates them, this may seem obvious, but you must ask them directly.

You can do this through surveys, one-on-one meetings, or focus groups. Ask open-ended questions that allow your team members to share their honest thoughts and feelings.

Secondly, pay attention to their behavior. What are your team members doing that gets them excited and motivated? What are they not doing? Pay attention to their behavior and try to identify patterns. For example, do they seem more motivated when working on complex deals or competing against each other?

Last, look at your company culture. Your company culture can greatly impact what motivates your sales team. For example, if your company culture is very competitive, your team members may be more motivated by financial incentives. If your company culture is more collaborative, your team members may be more motivated by recognition and rewards.

Once you better understand what motivates your sales team, you can tailor your management approach accordingly. For example, if you know that your team members are motivated by competition, create sales contests or other competitive initiatives. If you know that your team members are motivated by recognition, recognize and reward them for their achievements.

How to motivate sales team outside of commissions

More often than not, compensation is not the only motivator. 

Before we get into sales compensation, let’s look at how to motivate your Sales team without money. 

Here are four ways to incentivize behaviors outside of commissions. 

Additionally, you can encourage outbound efforts by following these tips. 

How to motivate sales team with compensation

There are several compensation components you can implement to drive performance.

Accelerators, which take the shape of a higher commission rate, bonus, or multiplier, reward over-performance or incentivize reps to surpass an attainment threshold. This is one of the most widely adopted components of sales compensation plans, according to our 2023 Trends Report.

Similarly, you could put decelerators in place or lower commission rates or bonuses to deter your reps from selling certain deals (unfavorable payment terms, a customer outside your ideal customer profile, monthly contracts, etc). Pairing accelerators with decelerators is one of our most-used compensation plan templates. 

Next, play with SPIFs throughout the year when you need to encourage a short-term burst, launch a new product or service, enter a new market, test a potential permanent comp plan, change, or more. 

Some of our favorite SPIFs include “fast close” SPIFs when a rep earns a flat bonus for securing several deals within the first month of the quarter, and team-wide SPIFs that apply to every rep if they hit their team goal. But the best ones target specific business-wide metrics, like:

• Cash flow: SPIF on deals under Net 30-60-90 day payment terms
• Gross profit: SPIF for deals more profitable to the business long-term
• Retention/renewals: Reward a SPIF when customers commit to early renewals

Check out our Learning Center article, Do SPIFs work? to learn how to run these successfully.

Whatever components you include, it is imperative to communicate with your reps the “why” behind the comp plan and how their performance directly moves the business forward. Their understanding of optimizing their comp plan is paramount; without it, your efforts to motivate them will fall flat. 

How to check if your comp plans are motivating

Once you find what motivates your team, you must check in throughout the year to ensure your strategies still work.

Here are 10 ways to evaluate your sales motivation tactics:

1. Host 1:1 with your reps to learn about what motivates them
2.  Incorporate their feedback in your comp plan design process
3.  Incentivize different behaviors
4. Test future changes with SPIFs first before implementing in plan
5.  Reward overperformance
6. Avoid demotivating levers if you can (commission floors or cliffs, decelerators, lack of accelerators)
7. Use historical and industry data to ensure quotas and OTEs are fair
8. Communicate plans, changes, and policies (clawback clauses, compensation agreements)
9. Provide visibility into commissions and compensation plans (Try QuotaPath for free)
10. Remove risks of inequities by standardizing comp plans and building fair territories and account scoring models 
that evenly distribute opportunity.

Conclusion

Our report uncovered that motivating reps posed the most significant challenge for revenue leaders regarding their comp plans.

That tells us we can do a better job finding out exactly what motivates our reps while blending non-compensation incentives with comp-related ones. 

About QuotaPath

Founded in 2018, QuotaPath’s sales compensation management and commission tracking software rallies Sales, Finance, and RevOps around their financial goals by providing a source of truth for commissions, attainment, and forecasted earnings. Calculate and pay commissions more accurately with QuotaPath. Learn more by scheduling time with our team today.

In our 2024 Compensation Trends report, “Solving the Biggest Sales Compensation Challenges: Insights from 450+ Finance, RevOps, and Sales Leaders,” leaders reported that 91% of them are failing to hit sales quota expectations this year.

This report reveals insights from a survey of over 450 RevOps, Finance, and Sales Leaders from the United Kingdom and the United States. Participants included directors, VPs, and C-level executives at tech-adjacent and SaaS companies. The survey was conducted during the first half of 2023 to investigate the impact of misaligned and poorly executed compensation plans.

In this report, we set out to:

• Determine where the disconnect between Finance, Sales, and RevOps Leaders originates.
• Understand issues encountered by organizations throughout the compensation plan design process.
• Expose the largest gaps in commission management.
• Provide advice on how to prepare for comp plan success in 2024.

The survey exposed common compensation issues, including a lack of confidence in comp plan performance, sales reps not understanding how they earn commissions, and 100% of revenue leaders admitting to the need for comp plan improvements.

Every challenge leaders referenced previously in the report — misalignment to business goals and between teams, complexities of plans, failure to drive rep motivation — often results in missed quotas and targets.

Our survey found that 91% of companies fail to achieve 80% or more of their quota targets.

Below, we share what leaders credited these misses to.

Market conditions

Failure to adjust comp plans as your strategies change in response to the market influences your sales team’s ability to achieve targets.

Market volatility in 2023 caused SaaS businesses to shift from a “grow at all costs” mentality toward business efficiencies.

It started with the first quarter of 2023, when deal count and raised capital dropped 45%, marking the slowest period since 2017.

Then, organizations changed the key performance indicators (KPIs) they were tracking to show investors a healthy business model. They started monitoring metrics currently of greater importance to investors because they offer a more direct path to profitability. These KPIs include customer lifetime value, customer acquisition costs, and gross revenue retention.

However, tracking the right metrics alone doesn’t do the job. These companies failed to boost predictable retention without adjusting their sales compensation plans to reflect their new focus. The simple inclusion of compensation levers to promote the right activities is all they need.

Lack of experience or skill

Another cause of missed quotas is a lack of experience designing plans (24%), the third biggest challenge cited by survey participants.

This can lead to common sales compensation errors like overly complex plans, failure to align plans with business objectives, using outdated data, and duplicating another company’s plan.

Our survey revealed overcomplicated plans as a common issue, making aligning teams and gaining adoption harder.

Avoiding too much complexity is essential; otherwise, you risk sales rep confusion and demotivation, which is the opposite of what your plan should accomplish.

Signs that your comp plan is too complex include reps’ confusion about how they earn commissions, a continual need to add SPIFs to drive behaviors, and taking longer than 1 minute to explain it.

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Misaligned sales activities

A properly designed compensation plan drives sales activities that align with and drive business objectives.

“You have to eliminate any disconnect between the business’s performance and your team’s performance,” said QuotaPath Sr. Director of RevOps Ryan Milligan.

The following misaligned sales activities hinder your team’s ability to hit their goals and should be avoided:

• Reps push a product they’re used to selling vs. a newer one with a better product market fit.
• Outbound efforts target industries, company sizes, and existing tech stacks that slow down sales cycles and are harder to sell.
• Reps chase unqualified leads because the potential deal size is larger.
• The team focuses on the wrong metrics, trying to push ARR at a grow-at-all-costs measure vs. taking a strategic approach to winning ICP deals (ideal customer profile) with shorter sales cycles and more likely to close/win.

Sales activities thwart efforts to boost desirable business KPIs by decreasing the odds of customer retention, shortening customer lifetime value, and increasing customer acquisition costs.

Poor time management:

Another key factor preventing reps from hitting their numbers is poor time management practices like:

• Spending too much time researching prospects
• Failing to set time for outbound prospecting.
• Neglecting CRM updates
• Not conducting follow-ups
• Investing too much time on poor-fit prospects who don’t fit your ICP.

Practicing effective time management boosts rep productivity and results.

New hire ramp-up periods

New hires need time to reach total productivity and aren’t yet equipped to hit the quota of more established reps on the team. Failure to adjust the quota for these reps makes them fall short.

Sales reps who lack experience or skills aren’t as productive as their fully onboarded and experienced counterparts. So, when you add new reps to your sales team, the hiring and ramp process significantly decreases productivity.

A leader takes an average of 30 days to find and hire a new salesperson, and it takes an additional 90 days of ramp time before they can start selling deals. Then, according to Rain Group, it takes an additional nine months for reps to be fully productive and 15 months to become top performers.

To offset this, add management by objectives (MBOs) in your new hire ramp plan that promote behaviors that will help them be successful faster and give them a fair shot at achieving OTE. For instance, you could reduce quota, keep commission rates intact, and provide other ways for the new reps to hit OTE, such as completing training or a prospecting goal.

Unstructured sales process

A sales process that lacks structure is a huge obstacle to reps hitting quota.

A structured sales process delineates what needs to be done at each sale stage and includes clearly defined steps and milestones. It guides reps as they advance the sale from prospecting to presenting to offer to close, increasing the odds of success by preventing deals from slipping through the cracks.

Failing to set up a sales process hurts productivity and gives sales reps a huge disadvantage. Asking them to work in an unstructured sales process like this leaves them constantly trying to figure out what to do next. Some of your reps may find their way, but you’re setting most of them up to fall short of targets.

Lack of motivation

Motivating your sales team is one of the core key elements of a sales compensation plan, and when that’s not happening, this indicates a flawed compensation strategy.

Address lack of motivation by confirming your reps understand their comp plan and how they are paid. You can achieve this by leveraging a survey or providing your reps multiple opportunities to ask questions about their incentives. These are also great ways to gather feedback on their incentives and learn how they are motivated.

Another way to cultivate motivation is by giving your sales reps easy access to views into their earnings. They can translate their pipeline into potential commissions using a tool like QuotaPath to display forecasted earnings and attainment through Team Leaderboards.

Unrealistic quota or sales goals

Company objectives typically change with market and financial shifts. Comp plans must be adjusted and aligned with business goals to promote sales behaviors that drive these new objectives.

As market conditions shifted in early 2023, we didn’t see companies adapting their sales compensation plans to align with evolving business objectives. This has resulted in reps at many companies falling short of sales goals.

Unrealistic quotas and sales goals, especially on-target earnings, can be challenging to set and adjust. Use our free Quota:OTE ratio calculator to take the guesswork out of this process. It measures the health of your targets against your team’s historical performance while determining if they are too easily attainable.

Address comp plan challenges

Compensation plans can be used to address these common reasons for sales teams missing quotas. This is especially true regarding sales activity alignment, motivating reps, ramp-up periods, and structured sales processes.

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

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!”

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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.