How many of you have worked for a sales organization without an account scoring model in place?

It’s a challenge, right?

Your reps chase deals according to their intuition versus data. Which, don’t get us wrong, intuition is important, but it’s subjective. This can lead to reps and leadership overlooking some of the best accounts and spending too much time on the worst ones. 

That’s where account scoring comes in. 

Account scoring provides an objective view of accounts least and highest likely to close. This helps revenue teams focus their efforts and resources on accounts with the highest chance of success and avoid wasting time on those unlikely to. 

If you’re serious about improving your sales results, it’s important to develop a sound account scoring model. To learn how to build one from scratch or improve your existing one, we turn to a leader who is proficient in account scoring, Gradient Works Head of Growth Lily Youn Jaroszewski.

What is the account scoring system? 

First, let’s define account scoring. Account scoring is a sales methodology that assigns a numerical value to each potential customer, based on their likelihood of becoming a paying customer. 

The score combines account data, such as industry, size, and business model, as well as sales insights. It fluctuates according to the quality of the account as well as the engagement activity between the rep and prospect. 

The closer the prospect is to meeting ideal customer profile (ICP) attributes, the higher the score. 

Similarly, the more engagement between a rep and contacts and documented next steps, the greater the score.  

Benefits of account scoring

When you adopt an account scoring system, you’re giving your reps a map as to where to spend their time. This is especially helpful when approaching the end of a quarter when leadership expects a final push to bring any lingering deals in. 

Other benefits include:

• Increased revenue: By targeting the right accounts, sales teams can increase the amount of revenue they generate.
• Improved sales productivity: When focused on the accounts that are most likely to close, sales teams can be more productive and close more deals.
• Better use of resources: Your team will allocate resources to the accounts that are most likely to close so that they can make better use of their time and money.
• Increased customer satisfaction: By focusing on the accounts that are most valuable to your company, you can improve customer satisfaction and loyalty since they are the most likely to find value in your offering. 

How to build account scoring models

If you’re building an account scoring model right now, or looking to revise your existing system, Lily, who built out Gradient Works’ model and helps their customers do so, has some advice.

First, map out a hypothesis.

“This is especially helpful if you don’t have any data yet,” Lily said. “For the few clients you have, what are the common themes? Do they break down by technographic? Data? Are they using specific tools that would be a good indicator that they’re a good fit for us?”

Look at company size. Would your solution actually fit? 

What size companies would see the most value? Is it early-stage through Series D companies or does your solution primarily benefit enterprise organizations? 

And, most importantly, host a leadership discussion between Sales, Marketing, and RevOps to address these questions. 

Second, assign your score scale. 

Once you have your “best fit” accounts or “ideal customer profile” (ICP), then you can begin tagging and scoring accounts appropriately in your CRM.

“I’ve done it before where we had a score method of zero to 100,” said Lily, whose scale at Gradient Works runs zero to 10. 

It doesn’t totally matter what scaling system you go with, just make sure your leadership team is in agreement. 

Then start attributing points. 

For instance, if you have several healthcare clients, give healthcare accounts a point. If the account has more than  100 employees, give them another point. Maybe they use the CRM you integrate with — that’s another point. 

“And then it just all adds up,” Lily said.

Third, evaluate.

To evaluate whether or not your account scoring model is successful, you can look at both the number of accounts returned for disqualification (more on that below) and the conversion rate of your scored accounts. 

“A good conversion rate for mid-market sized teams is probably a 1 closed/won opportunity for every 15 accounts,” said Lily. “If you’re running very transactional sales with a majority of deals closing within one day, a 1:10 ratio is more appropriate.” 

Account scoring best practices

Additionally, be sure to keep in mind Lily’s best practices for ongoing maintenance.

Distribute accounts as equitably as possible

“I think the most important part about looking into the validity of your account scoring model is to accurately track account distribution across your team,” Lily said. 

This will allow you to ensure you’re evenly distributing your highest accounts across your team. Because if you don’t, not only will you frustrate your reps, but if your top performer receives only “10” accounts, it will skew data. 

Give your reps the ability to mark accounts as “not qualified”

Moreover, you should give your reps the ability to mark certain accounts as “not a qualified account” while providing specifics. (You can use Gradient Works to do this directly in Salesforce). 

“When your rep can mark that the organization is no longer in business, or maybe they’re not an ICP fit, your report becomes even more powerful,” said Lily. 

For example, you distribute 100 accounts to the reps. Thirty accounts come back returned for disqualification because they aren’t an ICP fit due to company size. This will trigger your team to look into whether it’s a data issue or an issue with the original ICP hypotheses. 

Monthly maintenance

Lily suggests looking at overall accounts worked on a monthly basis.

“If you’re more SMB, high-velocity sales, you can probably check in on it more often, because your reps are working through deals and accounts more quickly,” said Lily.

That means you’ll have data faster to support or disprove the hypotheses that informed your scoring and can adjust accordingly. 

For those with larger teams and larger sales cycles, prioritize account scoring maintenance on a quarterly basis or before you head into the second half of the year. 

Remember, “The conversation to change account scoring usually comes up when discussions about the next year’s territories come up,” Lily said. 

Recognize that it’s not going to be right

“I think some people are so hung up on that your account scoring has to be right,” Lily said. “But there are so many factors that go into it. You just have to go with the data of who’s your current client and find clusters around common themes for each one to take an initial stab.”

Iterate multiple times on your account scoring system and keep track of everything.

“This is especially helpful when you launch into a new industry,” Lily said. “Run a test of the industry first with the existing score, then decide from there if you should increase the account score for the accounts within that industry.” 

Create a feedback loop

Lastly, “Your reps need to have a channel to provide their feedback to leadership,” said Lily.

Whether that’s Slack, within the CRM (see: Gradient Works in Salesforce), or elsewhere, have a formal system in place to host feedback and “return” accounts.

At QuotaPath, for instance, we have a dedicated #ask_RevOps channel for raising issues with duplicate accounts or revised scoring. 

***

Thank you, Lily, for your expertise in account scoring. To learn more about Gradient Works’ dynamic book management software, schedule time with their team.

And, experience QuotaPath’s sales comp software automation to run commissions for those accounts that convert to closed/won by signing up for a 30-day trial. 

This is a guest post by RevOpsCharlie. Charlie Cowan partners with CEOs and revenue leaders to accelerate profitable and scalable growth by aligning Marketing, Sales, and Customer Success.  

Revenue Operations is still a new function. As with any new term, whether that is cryptocurrency or ChatGPT, the early definitions are hard to change.

In my experience, RevOps has been seen as an internally focused role.

Important. Strategic even. But internally focused.

When I speak to revenue leaders I’ll often hear:

“Oh, I have a fantastic RevOps girl. She manages our Hubspot.”

“We have an amazing RevOps guy — he produces our forecast reports.”

It’s understandable as many RevOps teams have evolved from SalesOps teams while hopefully incorporating MarketingOps and CustomerOps.

But these original teams only tend to focus internally on:

• Systems
• Data
• Processes

That means a real opportunity exists for Revenue Operations to play a more strategic role by aligning Marketing, Sales, and Customer Success functions into a single revenue engine.

Strategic Revenue Operations

In the recently published “Revenue Operations” by Stephen Diorio and Chris Hummel, the authors describe two distinct components that make a successful RevOps model:

• Revenue Operations Management System
• Revenue Operations Operating System

The Operating System is what most often comes to mind with the role of RevOps, like systems, data, processes, content, and enablement.

But the Management System is a C-Level discussion. 

It asks questions such as:

• How do we structure our senior leadership?
• What do we sell, to whom, and via what channels?
• How do we price our products and services?

You likely have heard these topics referred to as “Growth” or “Go-To-Market” (GTM) strategies, but they really fit under the definition of strategic Revenue Operations.

How does the RevOps team elevate the conversation to be more strategic?

When leaders put their roles and responsibilities into a box, it can be a challenge to get out of it.

For instance, if your senior executives only think of you as the HubSpot administration, your thoughts on product-led growth versus sales-led motions might go unanswered. 

To help, let me introduce you to the Revenue Acceleration Flywheel which will help your discussions.

The flywheel is split into two halves.

The top half is where you can step into the strategic conversation. It describes the buyer’s experience from when they initially find out about your company, through their buying experience, onto onboarding and adoption, and onwards to upsell and renewal.

Meanwhile, the bottom half, what leaders typically think of when it comes to RevOps, describes the internal aspects of your revenue engine: the systems, the data, the people, the processes, and forecasting.

“Get out of the office”

In the startup world, there is a mantra, “get out of the office”.  

The saying encourages people to get out of the office and speak to real customers instead of sitting in the office (or at home) developing more features.

Strategic Revenue Operations follow the same mantra.  

Get out of the office. Don’t keep looking internally at your systems, processes, and data.

Instead, get in front of customers and ask them how they do things today. What problems are they facing? How do they learn from their peers? How do they educate themselves on possible solutions?

Here are the steps you can follow as you travel around the top half of the flywheel:

Step 1. Conduct a buyer experience audit where you impersonate your ideal buyer. What do you find? What do you learn? Does this encourage you to learn more about the company?

Step 2. Speak to actual customers (and those that closed lost) to understand their buying experience and why they made the decisions they did.  Don’t just survey them. Go and see them, see the world from their eyes, and look in on your content, your sales teams, your business case tools, and your contracts with an external view.

Step 3. Speak to your partners. How do they integrate your products into their own? Do they create content and messaging around your own products beyond a basic partner listing? Who else do they work with? What do they do well that you can emulate?

Step 4. Take what you have learned and create recommendations for changes to your GTM model. Based on what you heard would you recommend different channels, different sales content, different analyst relationships, or contract terms?

Step 5. Present your prioritized recommendations to senior leaders in a forum outside of your normal RevOps meetings.

Your recommendations will carry a strategic value that will position you as a peer to the CRO — not the Hubspot lady.

To have Charlie help kick off your buyer experience audit, learn more here. 

Despite the noise on LinkedIn that “outbound sales” is dead, the practice remains very well alive in 2023.

In fact, according to a HubSpot study, 82% of buyers said they accept meetings with reps who reach out to them. What’s more, VPs and C-level buyers from tech said they actually prefer reps to reach out via phone versus email. 

Still not convinced outbound sales are necessary?

The same study found that 71% of buyers want to speak to sellers early on in the buying process. This means the market assumptions around buyers knowing what they want to purchase well ahead of connecting with a sales rep are incorrect. Rather, buyers expressed an interest in talking with reps early on, even before they have an understanding of what they looking for. 

So, how can you get buy-in from your team and reps to re-commit to outbound sales motions? Our suggestion: use sales compensation to reward outbound sourced deals, outbound activities, and more.

Check out the seven compensation tactics below.

Drive outbound sales with these 7 tactics:

7. Compensate a higher rate on outbound sales.

You can build into your sales compensation plan a higher commission rate on deals won that began as an outbound-sourced deal.

The key to remember here is that this does not mean paying a decelerator, or a lower rate than the base commission rate, on inbound deals. Instead, offer an accelerated rate for outbound opportunities that go on to close/won. 

Additionally, make sure to have clear definitions around what qualifies a deal as “outbound.” For instance, would you consider a former marketing lead that went dark 6 months ago but re-engaged after the rep reached out as an outbound-sourced opportunity? 

Have clear definitions and tight attribution in place and introduce these clearly to your team before rollout.

6. Offer a weekly prize for outbound sourced demos.

To have some fun and offer short-term rewards for outbound efforts, consider offering a weekly prize or raffle for demos scheduled via outbound.

Our team does this by rewarding a raffle ticket for every outbound demo set. We then draw a weekly ticket for the chance to roll two dice. The roller receives $10 for every point on the dice.

5.  Pay on outbound demos set.

Most account executives won’t love earning a bonus on demos set, but you could offer this.

In practice, this bonus structure would mirror the SDR comp plan example, Demos Completed Bonus. Except instead of demos completed, you’d pay a fixed bonus according to demos scheduled. Or, take it a step further by rewarding bonuses for a set of demos or activities, like the tactic below.

4. Bonus for outbound milestones.

Instead of paying on demos set, you could offer bonuses for reps who achieve specific outbound targets. These might include a certain number of outbound calls, emails, or meetings per/week or month. You could also set quarterly or annual goals for the number of outbound deals closed.

For a compensation plan template to model this structure off, check out the Milestone Bonus template. 

3. Tie the commission rate on deals closed to the number of outbound-sourced opportunities. 

This tactic will add complexity to your compensation plan. But, you could pay an accelerated rate on inbound deals when a rep sources a pre-determined target of outbound leads. 

As an example, if a rep secures three outbound demos this month, on any deal they close within the month, they earn an extra 3%. 

2. Set an outbound sales demo, and get an inbound demo.

If you distribute demos via round-robin, you could encourage outbound efforts by giving the rep an extra inbound demo for every outbound demo that they source. 

1. Team-based incentives

You can also encourage collaboration and teamwork by offering team-based incentives tied to outbound sales. For example, the entire team could earn a bonus or another reward if they collectively achieve a certain outbound target.

Provide a leaderboard visible to the entire team so that they can keep each other motivated and working toward the same goal. 

About QuotaPath

Curious to see how much these tactics will cost your business? Sign up for a free 30-day trial in QuotaPath to get CRM commission tracking. Integration HubSpot or Salesforce, build a compensation plan that includes one of the above tactics, then automate commission tracking and forecasting to see how it plays out.

You can also learn more by scheduling time to chat with our team. 

Forbes has dubbed RevOps the fastest-growing job in America, “because growing a business in 2023 is a digital, data-driven, and technology-enabled team sport.” 

A failure to unify and align the operations, systems, and data that support revenue teams can lead to poor customer experiences, high selling costs, leaky revenue forecasts, and untapped customer expansion potential.

That’s why 90% of organizations are actively changing the way they lead and align revenue teams. Plus, sales processes have moved from simple transactions to streams of consumable services and subscriptions.

This shift has created the need for RevOps which is now considered essential to business growth into the next decade. 

So, for those representing RevOps Teams of one, how do you know when it’s time to expand your team?

Indicators that your RevOps teams should grow

Although every business is different, these are some common signs of RevOps growing pains. When you see these symptoms, it’s time to expand your RevOps team. 

• Your company is growing rapidly. If your company is growing at a rapid pace, your RevOps team may not be able to keep up with the demand. This is a sign that you need to add more people to your team to handle the workload.
• Your team is struggling to meet its goals. If your RevOps team is consistently struggling to achieve its goals, this could indicate that you need to add more resources to the team through new hires or tools, or both.
• You’re facing new challenges. If your company is experiencing new challenges, such as entering a new market or launching a new product, your RevOps team may need to grow to meet the new demands.
• You’re looking to improve efficiency. If you’re striving to increase the efficiency of your RevOps team, you may need to add headcount. This will allow you to divide up tasks and create more specialized roles.

It’s important to note that there is no one-size-fits-all answer to this question. 

The best time to grow your RevOps team will vary depending on your specific situation. If you’re not sure whether or not it’s time to grow your team, it’s always a good idea to consult with an expert.

Rules of thumb from around the industry

We gathered the following rules of thumb for growing your RevOps team from across the industry. 

These include how to expand your RevOps team and when, plus insights into the ratio between Sales team size and RevOps to guide you. 

Kim Castlemain, Director of Marketing Operations at Vetster, said “I have heard the ‘10 reps to 1 RevOps professional ratio’ in a slightly different way. Instead of just Sales, the 10:1 applies to Support, Account Management, Marketing, and Sales.” 

DocStation’s Marketing Manager Amanda Chandler agreed that a 10:1 model for Sales, Account Management, and Marketing, is a good rule of thumb. 

“Then tailor as needed for your company,” she added. 

Jamie Carney, VP of RevOps at People.ai, said the 10:1 ratio depends on the maturity of the business. 

“If your business isn’t growing fast, or is stable, then 10:1 is too much,” Jamie said. 

However, the larger the revenue organization, the higher the ratio should be, like a 15 or 20: 1.

“There are two reasons why. First, the operations team should streamline operations once they get beyond 50 which will help prioritize work as resources will be scarce,” Jamie said. “Second, your company should want to save money with non-selling roles to hopefully invest in more sellers, which ultimately would increase RevOps people. If the RevOps person is so busy that they can’t see the forest from the trees, then they aren’t confident operators who say ‘no’ to doing ad hoc and haven’t reviewed the current heap of processes to streamline them.”

CEO and RevOps Consultant Eddie Reynolds presented a slightly different perspective on the topic when he said, “It’s a bit of an oversimplification but I think you grow your RevOps team when you have more than 40 hours of work that will drive revenue.”

Who should your second hire be?

Whether the ratio indicates you need more hires, or if it’s clear at your business that more RevOps are needed, who should your second RevOps hire be?

This will depend on your specific business and needs, but a RevOps Manager is a popular second RevOps team member.

The person hired for this role oversees the day-to-day operations of the RevOps team. So, it’s important that the RevOps manager be detail-oriented and possess strong problem-solving and communication skills.

Candidates for this role also should be adept at project management, data analysis, and technology integration.

The RevOps Manager’s responsibilities include:

• Managing the day-to-day activities of the RevOps team
• Creating and executing RevOps strategies
• Handling the RevOps budget
• Interpreting data to discover trends and opportunities
• Optimizing RevOps processes
• Conducting a sales compensation analysis
• Streamlining the tech stack to boost Sales and Marketing performance
• Interdepartmental communications
• Developing customer and partner relationships

The RevOps Manager is an essential member of the sales and marketing team. This role drives revenue growth and optimizes Sales and Marketing process efficiency.

But, one size does not fit all.

So we found a couple of real-world examples of second RevOps hires for your reference:

According to Brian Vass, VP of Revenue Operations at Paycor, “My first hires were a strong data analyst, strategy/planning leader, and tech leader.”

Matthew Volm, CEO of RevOps Co-op, shared that “the second person hired for the RevOps team was a generalist with systems experience. I needed help managing the tech stack and wanted someone who could easily take business requirements from our team and turn them into processes in our tools and systems, then as we grew and hired more, we went narrower on who we were hiring.”

Eddie’s approach to growing a RevOps team is to, “align the work in RevOps with the top priorities, or OKRs, of the Revenue Team.”

For example, if the top priority of this quarter is to generate more pipeline, what should RevOps prioritize to achieve that outcome?

“As you list all these initiatives and stack rank them by urgency and priority you can get better visibility into the resources you need on the RevOps team and whether it’s a generalist or a specialist you need to do that work,” Eddie said. 

RevOps hiring best practices

RevOps team growth is a journey. As you hire new team members, keep these best practices in mind to boost your experience and progress.

Clarify your needs. Have a clear understanding of your needs before you start looking for your second RevOps team member. Start by considering what you want to achieve so you know which skills and experiences to hire for.

Write a job description. Once you understand what you want to accomplish by growing your RevOps team, then you can create a job description to attract the right candidates.

Invest in training. RevOps is a relatively new field, so your second hire may need some training. Be prepared to provide new team members with training so they can hit the ground running.

Establish clear expectations. Clearly communicate your expectations for your second RevOps hire. It’s critical to their success that they know their goals, responsibilities, and reporting structure.

Provide support. Your second RevOps hire will have questions, need help troubleshooting problems, and require feedback. So be available to assist and guide them along the way.

Be tenacious. It takes time to build a successful RevOps team. Strive for progress, not perfection. RevOps evolve as you scale your team. Remain focused on your goals and you will achieve them.

Growing your RevOps team

As your organization grows, you’ll start to see indicators that it’s time to grow your RevOps team as well.

Keep the rules of thumb in mind as you add members to your RevOps team. Remember to clarify your needs and what you want to accomplish before hiring another team member.

Provide training, clear expectations, and support to your RevOps team as it grows. And remember it takes time for RevOps to evolve. So don’t give up as you grow your team.

QuotaPath supports RevOps professionals by automating sales commissions, providing visibility into compensation, and motivating reps through forecasted earnings.

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

Amid the business changes of 2023, sales compensation shifts have also been plentiful.

Through our sales compensation consulting and work with our customers, we’ve observed five key trends since the start of the year.

One of the more significant shifts we’ve noticed is an industry-wide move away from focusing supremely on net new business. Instead, organizations have prioritized other metrics that generate predictable revenue.

We’ve also seen an increase in the multipliers of commission rates for accelerators, which are rates higher than the base commission rate. Additionally, team-wide SPIFs and competitions have grown in popularity as have a push from SaaS companies toward multi-year deals. 

These are just a few of the sales compensation shifts and trends we’ve noticed since the start of the year. We expect to see even more changes in the coming months, as companies continue to adapt to the changing sales landscape.

Below, we explore 5 key trends with some additional insights from leaders across the industry.

5. The rise in multi-year deals

To follow in stride with the tech industry’s move toward profitability and revenue predictability (and away from the “grow at all costs” mindset), many companies have adjusted their compensation plans to pay higher rates on multi-year contracts.

We call this a multi-year accelerator, which pays reps higher percentages on deals with contracts above 12 months. 

So, if the average commission for technology sales is 10%, the rate for a deal above 12 months might be closer to 12 or 13%.

“Multi-year deals tend to be better for the company,” said Andrew de Geofroy, SVP, of Global Revenue Platform for Quantive. “With current economic conditions, predictable revenue growth is more important toward profitability.”

In practice, this may look like:

• 1-year contracts: 10%
• 2-year contracts: 12.5%
• 3-year contracts: 15%

As a result of implementing higher rates, companies tend to see an influx in multi-year deals. 

However, one thing to note is that in order for your reps to pitch longer contracts, your commission rate has to be competitive enough for them to care. Meaning, you wouldn’t increase the commission rate by 1% if it only gives the rep an extra $50. 

For comp plan templates that include multi-year commission structures, visit Compensation Hub.

• Single Rate Commission with Contract Term Multiplier 
• Commission with Multi-Year Accelerators plans. 

4. CAC, LTV, Gross Margin, etc. replace Net New Biz

As part of the move from the “grow at all costs” mentality, we’ve also seen companies re-direct their focus toward business metrics that showcase a clear path to profitability vs. high-growth mode.

“Up funnel metrics, like customer acquisition cost (CAC), customer lifetime value (LTV), and gross revenue retention (GRR), play a role to show healthy signals toward profitability,” our VP of Finance Ryan Macia said.

To support these new metrics, leaders have built compensation structures that align accordingly.

“Show me the incentive and I’ll show you the outcome,” said Colin Spector, VP of Sales, Orum. 

 “Incentives drive behavior. If Finance says we want more cash flow upfront, then let’s put a kicker on annual payments. Let’s put an accelerator on deals that close within the first month of the quarter.”

Other compensation levers to pull include:

Solving for Retention

• Offer SPIFs on multi-year deals to test if it should become a permanent mechanic on your comp plan.
• Use higher rates for customer segments with higher retention rates (Ideal customer profiles vs Not)

Addressing Gross Margin

• Bonuses for full-price deals
• Lower commission rates, or decelerators, for lower-margin deals

Promoting Cash Flow

• Implement an accelerator or bonus for deals that include Net 30-60-90 day payment terms
• Adjust the time of commissions payouts from the day of the contract to when you receive the customer’s first invoice payment

3. Job postings and seekers’ behaviors

We’ve also seen two changes around job postings and the needs of job seekers. The first involves how forthcoming organizations are today with their on-target earnings (OTE) in job postings. The second entails a rise in job seekers’ requests for practical benefits over higher earnings. 

Postings: For instance, we recently looked up account executive job openings throughout our headquarters city of Austin. Out of the first five openings, three included info from their sales compensation policy, such as base and commission earnings information:

• Role 1: Base + commission $100k Year 1 OTE and $150k+ Year 2 OTE
• Role 2: Salary Range: $65,000 – $75,000 USD Annually
• Role 3: The hiring base pay range for this position is between $90,900 and $130,000

This is a vast change from even a year ago when most companies would shy away from sharing earnings numbers on their job descriptions. And, frankly, we love to see it. 

Push for practical benefits: As for what job seekers want, Bett’s Recruiting released a compensation report that showed they want practical benefits just as much (if not more) than higher compensation packages. 

Practical benefits include: 

• 100% health insurance
• Unlimited PTO
• Remote work/hybrid model
• Commuter benefits
• Increased 401K matching
• HSA
• Gym stipend
• Learning stipend

2. Team competitions hold just as much importance as SPIFs

Our next trend involves a sales rep motivation principle. While SPIFs continue to drive immediate results and inspire short-term selling behaviors and quick wins, team competitions hold just as much importance.

For example, Mallorie Maranda, VP of Sales at WorkRamp, recently shared on a webinar with us that she found out via a companywide HR survey that her team said they’re most motivated by team competition and collaboration. 

“I’ve been naive in the past that all sales reps are motivated by money,” said Mallorie. “That’s not always the case.”

So, upon finding this out, Mallorie implemented a team-wide SPIF.

“It was all or nothing. Everyone hits it they get it,” Mallorie said. “This created team bonding. We sent out the leaderboard each week, and if a teammate was pacing behind, they’d meet with someone who is over exceeding that metric and help them.”

Colin shared that he too implemented a team-wide competition to motivate and inspire his reps to make a push for Q2. 

1. Accelerators multipliers have increased

Normally accelerators payout at a rate that is 1.5x the base commission rate. However, this year, we’re seeing multipliers closer to 2x that of the base rate. 

Why?

“It allows you to hang on to your top-performing reps,” said QuotaPath’s Chief of Staff Graham Collins. “Your top performers tend to overperform, so by unlocking higher accelerators, you’re able to ensure they get paid more which means they’re more likely to stick around at your organization.”

These are especially important in situations where you might not be able to increase base salaries or offer promotions. By increasing accelerators, you’re finding a workaround. 

For help tracking accelerators, use this free sales commission accelerator calculator.

*** 

What have you done to meet these sales compensation shifts and stay ahead of the curve? 

About QuotaPath

For support, sales compensation consulting, and automated commission tracking software, try our free 30-day trial experience. The trial invites you to sync your CRM, like HubSpot or Salesforce, invite team members, and even run commission payments ahead of your next cycle. 

Dive in, or schedule a time with our team to learn more. 

Accounting for sales commissions involves many complexities. 

This is especially true for those who have a multi-tiered sales team and overly complicated commission structures determined by elements like product type, rates, and services. In addition to navigating elaborate commission calculations, you also need to track costs incurred while obtaining and fulfilling customer contracts.

Recording all these intricacies correctly to be ASC 606 compliant can be enough to make your head spin. 

So, if you’re feeling a bit overwhelmed, we’re here to shed some light on accounting for sales commissions.

In this blog, we provide:

• An overview of the basics of commissions accounting
• The different types of sales commissions
• How to calculate sales commissions
• How to record sales commissions in your accounting system

Let’s get started!

Basics of accounting for sales commissions

Accounting for sales commissions includes several basic elements. You should familiarize yourself with these elements prior to getting started to simplify the accounting process. This will allow you to make key decisions and gather essential information. 

Here’s a brief overview of the basics of accounting for sales commissions to help you prepare.

Defining the sales commission structure. This step involves determining the type of commission, such as straight commission, base salary plus commission, or tiered commission. Then you can identify the commission rate and the sales volume that triggers a commission.

Tracking sales data. Record sales made by each sales representative, the type of product or service sold, and the terms of the sale.

Calculating sales commissions. Determine the amount a sales representative earns for each deal based on factors such as commission structure, sales volume, product or service type, and terms of the sale.

Recording sales commissions in the accounting system. Create a journal entry to document the sales commissions expense and the liability for the commissions that have not yet been paid.

Timing of sales commission payments. Set when sales reps will receive sales commission payments, such as following the deal closure or invoice payment. In fact, many companies have shifted the timing of sales commissions payments recently due to economic challenges and other variables.

Now that we’ve reviewed the basics of accounting for sales commissions, let’s take a closer look at some essential elements.

Different types of commissions

Before you can track sales commissions, you must determine which type of commission structure to use. Let’s review the basics of sales commissions to help you get started in your selection.

Sales compensation typically consists of base salary, commissions, and bonuses. 

Different types of commission structures include:

1. Straight commission

Also known as 100% commission, straight commission structures are where teams are paid entirely based on sales earnings with no base salary or guaranteed pay.

2. Base salary + commission

The most common type of commission structure across SaaS consists of a base salary plus a commission plan. We recommend a 50/50 split, where reps earn 50% of their pay from their base salary with the other half based on sales earnings. A 60/40 ratio is another popular ratio we’ve seen organizations adopt, where base salary is 60% of the rep’s on-target-earnings (OTE), and the remaining 40% consists of variable pay.

3. Tiered sales commission

A tiered sales commission structure is an excellent choice for organizations wishing to motivate top performers. In this structure, reps are rewarded with higher commission rates as they hit specific deal thresholds or revenue benchmarks. This structure is also known as multiple rate, accelerators, escalators, or multipliers. Check out our guide for examples of how to configure this structure.

4. Single-rate sales commission

Also known as flat-rate commissions, fixed-rate commissions, or commissions, a single-rate sales commission is variable pay earned off a fixed percentage of every closed deal. This structure is easy to understand and commonly adopted for its simplicity.

5. Gross-margin commission

A gross-margin commission structure is similar to single-rate plans. What makes gross margin commission different, though, is that the business’s profits from the deal are factored into these commission calculations. So, the rep earns commissions from the gross revenue collected instead of accruing commissions based on the contract value or annual recurring revenue (ARR).

These are some of the most selected commission structures.

Calculating sales commissions

Another key element of sales commission accounting is how to calculate sales commission. Commission is typically calculated based on the following factors:

• The type of sales commission structure: As mentioned above, there are two main types of sales commissions: straight commission and base salary plus commission.
• The sales volume generated by the sales representative: Usually, the higher the sales volume, the higher the sales commission.
• The type of product or service sold: The commission rate may vary depending on the type of product or service sold.
• The terms of the sale: The commission rate may also vary based on the terms of the sale, such as whether the sale is monthly, annually, or multi-year. 

Explore your sales commission calculation options

There are various ways of calculating sales commissions. Some people do these calculations manually while others run commissions through an Excel spreadsheet or use a commission calculator The smarter organizations, however,  use CRM commission tracking with QuotaPath to automate it.

Running commissions manually can be very error-prone and time-consuming. For small businesses with simple commission structures, Excel spreadsheets can do the job. But if your business is scaling its sales organization or adding new or complex compensation plans, automation may be the best course of action.

Recording sales commissions in your accounting system

Once you’ve made the necessary decisions and gathered key information, it’s time to record sales commissions in your accounting system.

How to record

When you record sales commissions in your accounting system, you will need to account for the following:

• The amount of sales commissions earned: This is the amount of money that the sales representative is entitled to receive.
• The date the sales commissions were earned: This is the date on which the sales were made.
• The expense account to which the sales commissions should be charged: This is typically the sales expense account.
• The liability account to which the sales commissions should be accrued: This is typically the accounts payable account.

Why you must record carefully

For ASC 606, subtopic 340 compliance, it’s essential you document specific information. 

What is ASC 606? It is a financial standard that requires finance and accounting teams to account for and recognize revenue from contracts with customers plus related incremental costs like commissions and bonuses. Any company with recurring costs must pay close attention to this rule because failure to adhere can result in hefty fines and a surprise auditor visit.

Subtopic ASC 340-40 calls for continuous record keeping and reporting of costs related to customer contract attainment or fulfillment including things like travel, advertising, and sales commissions. Plus, it mandates that these costs be capitalized as an asset and amortized over time to match the timing of the revenue recognition.

Since ASC requires every deal and earnings to be tracked annually, this information must be readily available and accessible to auditors. So, carefully consider how you record sales commissions in your accounting system.

Have peace of mind during sales commissions accounting

Sales commissions accounting involves many complexities. Complicated or multiple commission structures within an organization combined with the intricacies of ASC 606 compliance further confuse matters.

Carefully consider how you record sales commissions in your accounting system to avoid costly fines and surprise audits.

See how QuotaPath helps by automating sales commission recording for ASC 606 compliance. Schedule time with a QuotaPath teammate today.

Your account managers are your 2023 company MVPs. 

The responsibility of customer retention, renewals, upsells, and expansions fall mostly on their shoulders. And, during a market downturn, retention, renewals, and expansions are your key to predictable revenue. 

As such, your AM team, who is working diligently to build and maintain relationships with those in power to commit or quell your renewals, should be compensated fairly and equitably to keep them motivated. 

Account manager commission plan best practices

Account manager compensation plans are tricky to design because they need to balance the needs of the company with the needs of the individual account managers. To design effective account manager compensation plans, consider the following: 

Make sure the plan is aligned with your company’s overall sales strategy. What are your top priorities? Are you focused on growing your business, retaining your existing customers, or both? Your compensation plan should be designed to support your sales strategy.

Consider the size and complexity of your accounts. You should compensate account managers who manage large, complex accounts differently than those who manage smaller, less complex accounts.

Take into account the level of experience of your account managers. If you have more experienced account managers with “senior” or “level II” titles, compensate them more than those who are new to the role.

Be competitive. Make sure your account manager commission plan is competitive with other companies in your industry.

Communicate the plan clearly to your account managers. Ensure your team understands how the plan works and how they can earn more money.

Consider seasonality. If the amount of renewals is heavier during certain months or quarters and lackluster during others, create a plan that accommodates for seasonal dips. 

Review and update the plan regularly. Your sales strategy and your account managers’ needs may change over time, so it’s important to review and update your compensation plan regularly.

What metric to tie your AM comp plans to — GRR vs. NRR

Net revenue retention, gross revenue retention, or a mixture of both?

What business metric you attach to your account management commission plan will depend entirely on your company goals.

For instance, if you want your account managers to focus solely on renewing existing customers, we recommend a compensation plan that rewards the highest for doing so. One example of such a plan is the Gross Revenue Retention (GRR) model which includes a cliff. In this plan, the rep is unable to renew past 100%.

The AM earns a fixed bonus amount for every percentage gained toward reaching 100% of their book of renewals. 

Now, for net revenue retention (NRR), consider a compensation plan that promotes upsells and retention together. This model enables upsells and expansions to make up for the loss of churned customers. Additionally, NRR provides a more holistic pulse on your business by factoring in the revenue generated from existing customers vs. just GRR. Plus, the AM has the ability to earn above 100% target and gets a higher bonus once doing so. 

You could also combine the two by paying on Gross & Net Revenue Retention. If you go this route, you’ll split the total business between GRR and NRR so that the number doesn’t alter quarter-over-quarter. 

How to adjust for downsells and churn 

If you pay AMs according to NRR targets tied to annual recurring revenue (ARR) and wonder how to account for commissions for downsells and churns, consider the following.

Members from RevOps Co-op, a professional Slack community for RevOps folks, shared this: 

“The way I handle this is through several fields: 

1. Commissionable ARR: This is always positive except in clawbacks. We leverage this to calculate any hurdles/Conversion opps.
2. Amount up for renewal: Total amount that should be renewed
3. ARR change: the difference in upsell or downsell from the original renewal 
4. ARR: The total ARR from the opportunity 

You can then run a report using these fields to determine net new ARR from what is upsold, downsold, or churned leveraging these fields and their close dates.”

If net new ARR is negative due to a large churn within the quota period, the AM would not earn any commissions if the comp plan is solely tied to net new ARR.

However, if you split an AM comp plan between net retention and upsell opportunities 50/50, with a sliding scale for over-attainment or underperformance, then your AM could still earn a commission from upsell dollars. 

Comp plans for account managers

Your account manager’s commission plan could be the most critical part of your compensation strategy this year.

For help with your compensation strategy, we’ve got a team of experts ready to help. Or, sign up for a free 30-day trial in QuotaPath. Over your trial, you can map and test potential revisions to your AM comp plans based on your CRM data.  

Need a hand with your sales compensation plans for AEs and SDRs? We’ve got 20 adjustable templates in Compensation Hub, ready for you to play with and customize. Check it out, build a plan, and pump into QuotaPath to launch a free trial our commission tracking software. 

Whether you’re a startup looking to hire your first official salesperson or a seasoned commission-based business reconsidering your current commission structure, how to set up sales commissions aligned with your business model is crucial.

There are several structures to consider, and we’ll highlight the most commonly used ones below. 

But as you think about which one to move forward with, remember to ask yourself, “Would I be incentivized by this structure?” Because if the answer is anything but a resounding “yes” then the likelihood of it being successful is slim to none.  

Read on for steps to create a sales commission structure, best practices, commission structure examples, how to write a commission proposal, and getting your sales commission system off the ground. 

How to set up a sales commission structure

To begin setting up sales commission structures, you should start with defining the commission rate, determining the sales goals, establishing the commission formula, and communicating the plan clearly to your sales team.

The first question to address is your business’s North Star metric. What is most important in the coming year? Is net new business? Low customer acquisition cost (CAC)? Annual recurring revenue?

“Every revenue organization chases a North Star metric,” said Able VP of Sales Jeff Kirchick. “And everyone aligns around it and understands it. For us, we’re looking at a metric largely because we don’t know much about our churn right now and we don’t want to make any assumptions that’s key to our lifetime-to-value calculation.” 

From there, pick a commission structure that drives the metric while considering:

• Product or service: The type of product or service you sell will have a big impact on your commission structure. For example, if you sell a high-ticket item, you may want to have a lower commission rate but a higher base salary. If you sell a low-ticket item, you may want to have a higher commission rate but a lower base salary.
  
• Target market: The type of customer you’re targeting will also have an impact on your commission structure. For example, if you’re targeting businesses, you may want to have a different commission structure than if you’re targeting consumers.
  
• Sales process: How you sell your product or service affects your commission structure. Longer sales cycles, for instance, typically follow a different commission structure than short sales cycles.
  
• Budget: Think about your quota to OTE ratios and CAC costs. If a rep hits quota, do they pay for how much it costs to have the rep on your team? What is the profit margin on your average deal size and commission cut to your revenue team?
  
• Sales goals: What are your sales goals for the year? Your commission structure should mathematically get your company to its financial goals.
  
• Sales pipeline: How many potential customers are in your sales pipeline? This will help you determine how much commission you can afford to pay.
  
• Team performance: How have your salespeople performed in the past? Even if your founder was the sole seller previously, look at the history of the deals. What was the average deal size? How long did it take? What would the founder have earned from variable compensation based on the deals the founder brought in?
  
• Industry benchmarks: What are other companies in your industry doing? This can give you a starting point for setting your own commission structure.

So, find a starting point and be prepared to iterate over time as you add more personnel to the organization. Evaluate and plan ahead as much as you can, while leveraging market data and industry trends. 

Types of sales commission structures

100% Commission

A 100% commission structure pays salespeople solely based on their sales performance. This means that they do not receive a base salary, and their earnings depend entirely on the number of sales they make.

This type of structure can be very motivating for salespeople, as they know that they can earn more money by selling more products or services. However, they can also be risky for businesses, as salespeople may be more likely to take on risky or unethical sales practices in order to make a sale.

Check out Asher Mathew’s interaction Commission Only with Accelerators compensation example. 

“100% commission is the fastest way to learn sales, customer success, and marketing. Small companies and startups are doing this. You get a lot of exposure,” Asher said. 

Base Salary + Commission

The most common structure in SaaS is the base salary + commission structure that pays salespeople a base salary plus a commission tied to sales performance. This type of structure is more common than a 100% commission structure, as it provides salespeople with some financial security while still motivating them to sell more.

The amount of base salary and commission that salespeople receive will vary from company to company. Some companies may offer a 50/50 split, while others may offer a 60/40 or 70/30 split. The amount of commission that salespeople earn will also vary depending on the type of product or service they sell, the size of the sale, and their sales performance.

To find an OTE ratio that works best with the amount of revenue your team generates and your average team attainment, use our free Quota:OTE Ratio Calculator.

Tiered Commission

A tiered sales commission structure, also one we see frequently utilized, incentivizes top performers. 

Under this model, sellers earn increases in commission rates as they pass a pre-determined number of deals or revenue benchmarks.

Also known as “multiple rate,” accelerators, escalators, or multipliers, this structure might pay 10% on deals up to $50K in booking, then increase to 12% after passing $75K. 

Check out our guide on multiple rate structures for more examples, or input your own numbers in the following Compensation Hub templates:

• Commission with Accelerators
• Commission with Accelerators & Decelerators
• Commission with Multi-Year Accelerators
  

Single-Rate Commission

A single-rate commission structure is one in which salespeople earn the same commission rate on all sales. This type of structure is the simplest to understand and administer and is perfect for a first-time compensation plan at a startup.

We’ve got this template to experiment and test your numbers with Single Rate Commission.

Gross-Margin Commission

A gross-margin commission structure is one in which salespeople earn a commission on the gross profit from a sale. This type of structure can be a way to motivate salespeople to sell products or services that are more profitable for the company.

You could also incentivize reps to sell more profitable services or products over other ones by paying higher rates over those less profitable. 

Commission Draw

A commission draw is a type of loan that is given to salespeople against their future commissions. This type of loan can be helpful for new salespeople who are not yet generating enough commissions to cover their expenses.

Residual Commission

A residual commission is a type of commission that is paid to salespeople on a continuing basis for sales that they have made in the past. This type of commission can be a way to reward salespeople for maintaining long-term relationships with their customers.

Territory Volume Commission or Team Commission Structure

A territory volume commission, or a team commission structure, pays salespeople based on the performance of their team within a specific territory versus individual performance. This type of structure can be a great way to motivate salespeople to work together and help each other succeed.

How to structure commission for sales: best practices

Once you have chosen a commission structure, it is time to tailor it to your business and build out a compensation plan. Here are some best practices to follow:

• Don’t do it alone. The best commission structures and compensation plans are the results of a team effort. Involve your revenue operations, finance, and senior sales representatives in the conversation. This will help to build alignment and ensure that the plan rewards reps and is aligned with your business goals.
• Keep it simple. If you can’t explain your commission structure to a colleague or friend, it’s too complicated. Your reps will likely struggle even more to understand it. Aim for simplicity so that leaders can easily reiterate what reps should be selling and reps can understand what the outcome of their efforts will be.
• Make sure it’s logical. Align it with the company’s overall goals and objectives and make sure it incentivizes the right behaviors. Meaning, you wouldn’t have a higher commission rate on a product you’re looking to sunset within the next 6 months. 
• Ensure that it’s equitable and fair. This can be done by standardizing your sales compensation plans for every person who shares the same title and making your territory distribution equitable. You can do this by giving every rep an equal size book of business (and the right book of business for their role) to make it easy for new hires to join the team and be successful early on.
• Communicate effectively. Outline your compensation program, make sure everyone has a copy, and review it with your team in a designated meeting. This is especially important if you are making mid-year changes to your commission structure or plan. Make sure reps understand the changes, the reasons for the changes, and how the company will support them under the new plan.
• Test it. Pull up historical compensation data and run it through your proposed commission structure. If you don’t have historical data, use random or expected data. Then, run extreme scenarios, such as what would happen if a rep achieved a 400% quota. Pressure testing will help you avoid a situation where you have to pay a rep more than 100% of their annual recurring revenue.

These tips may seem obvious, but you’d be surprised how often teams skip them. By following these best practices, you can create a commission structure that will motivate your reps and help you achieve your business goals.

Sample sales commission structure

Sales commission system

Now that you have a proposed structure in place, you’re ready to roll it out to your team. To ensure a smooth rollout and adoption from your sellers, make sure to have communication in place that provides plenty of opportunities for reps to ask questions.

This plan should include: 

• Sales-leader-driven workshops: These workshops should be led by sales leaders who are familiar with the sales commission plan and the company’s goals. The workshops should be an opportunity for sales reps to ask questions, learn about the changes to the plan, and provide feedback.
  
• Clear explanations of “the why” behind the changes and the math: Your leaders should be able to articulate why the changes are being made and how they benefit the company and the sales team. They should also be able to explain the math so that reps can see how you arrived at the numbers behind the plan.
  
• How the company will support the team with the new objectives: Share how the company will support the sales team in achieving the new objectives. This could include providing training, resources, or other forms of enablement, such as technology.
  
• A place of reference: Reps should have access to their commission structures, documentation, and resources to help them sell. Even better if there’s a virtual space for them to leave feedback or ask questions.

By following these tips, sales leaders can help to ensure that the sales commission plan is effective and that the sales team is supportive of the changes.

FAQ:

What is a sales commission schedule?

A sales commission schedule is a plan that outlines how and when sales representatives will be compensated for their sales. It typically includes the following information:

• The type of commission structure (flat rate, tiered, or quota-based)
• The commission rate
• The sales goals
• The payment terms (ie: does the rep become eligible for commissions at the time of the contract or upon the first invoice payment)
• The commission tracking and reporting process

What are sales commission tiers?

Sales commission tiers are a type of commission structure that pays sellers a different commission rate based on how much they sell.

For instance, a compensation plan might include a decelerator as well as an accelerator, like this comp plan template. Both the decelerator, a lower commission rate that applies to deals closed before reaching a specific attainment target, and the accelerator, a higher commission rate after passing an attainment threshold, represent sales commission tiers. 

Sales commission tiers differ from single-rate commission structures that pay a fixed rate on every deal regardless of underperformance and overperformance. 

Companies most often implement commission tiers to motivate sellers to overperform and reward those who do. Sales commission tiers can help ensure that you compensate sales representatives fairly by paying more to those who sell more.

Remember to keep the tiers realistic. They shouldn’t be out of reach, but they also shouldn’t be so easy that reps wonder why tiers exist in the first place. Your commission rates per tier should also be competitive with standard rates and differentiated enough to motivate certain behaviors. Meaning, if the difference between one tier and the other is only 1%, is the payout enough for sellers to care? 

What percentage is considered a good commission rate for sales?

The standard commission rate for SaaS is 10%. That’s why you’ll see most commission calculators and compensation plan templates start with a base rate of 10%. 

This number comes from two rules. The first rule ties to the variable compensation and base salary split, which most frequently comes down to a 50/50 split. 

The second rule is based on the sales quota to on-target-earnings (OTE)  ratio. The most frequently-used ratio is a quota 5x that of the seller’s OTE, but you’ll see a spread between 4 and 6x.

If you put these two rules together, the 10% standard rate becomes more clear. 

For example, a rep’s OTE is $120,000, split between a $60,000 salary and expected earnings of $60,000 if they hit their quota. Their quota is $150,000 per quarter or $600,000 for the year. Their annual quota, $600,000, is 5x their OTE.

So, if hit their annual quota, they earn $60,000 in commissions, and the annual quota ($600,000) divided by their total earnings ($60,000) equals 10%. 

What is a team commission structure? 

A team commission structure is a compensation plan that rewards salespeople based on the performance of their team, rather than their individual performance. This type of structure can be a great way to motivate salespeople to collaborate and help each other succeed.

There are different ways to implement a team commission structure. One common approach is to set a team quota and then divide the commission evenly among all team members. Another approach is to set individual quotas and then award a bonus to the team if all members meet their quotas.

To pick which model is most appropriate for your team, think about the specific needs of your sales team. If your team is made up of experienced salespeople who are already motivated to succeed, a simple structure that divides the commission evenly may be all you need. However, if your team is new or inexperienced, you may want to consider a more complex structure that provides additional incentives for team members to work together. 

What are the steps to building a commission-based sales team?

To build a commission-based sales team, follow these steps.

Define your sales goals. What do you want to achieve with your sales team? Do you want to increase revenue, grow market share, or launch new products? Use historical data to align your goals. If no historical data is available, source industry-specific data and ask peers within your network to share their experiences. Then, once you know your goals, start developing a sales and compensation strategy that will help you achieve them.

Hire the right people. When hiring sales representatives, find people who are motivated, have a strong work ethic, and are good at closing deals. Consider the type of product or service you sell and the industry you’re in when making your hiring decisions.

Train your sales team. Once you’ve hired your sales team, train them on the sales process, culture, and value of your products or services. Have them research the industry, competitors, and more for a full picture. 

Set clear goals and expectations. Set clear goals, expectations, and responsibilities for your sales team. Document it and make this available to your team to access at any time.

Provide your sales team with the tools and resources they need. Your sales team needs the tools and resources they need to be successful. Create a sales tech stack with a CRM system, a lead generation system, commission tracking, and access to your products or services.

Motivate your sales team. Sales representatives need to be motivated in order to be successful. This can be done through a variety of means, such as providing them with incentives, celebrating their successes, and coaching.

Track your sales performance. To see how your sales team is doing and to make adjustments, track your sales team’s performance. Keep a tab on the number of sales leads, sales opportunities, sales closed, and commissions earned. 

Analyze your results. Once you’ve tracked your sales performance, it’s important to analyze your results. Then you can see what’s working and what’s not. Did you achieve your goals? What percentage of your team hit quota? What was the gap between your lowest performer and your highest performer? These questions can help you determine how effective your compensation structure, as well as your sales motion. 

Is commission typically based on sales or profit in a commission-based compensation structure?

Commission is typically based on sales, however, we also have seen it based on profit. 

Sales-based commission, the most common type of commission, is a percentage of the total sales price that the salesperson earns. It’s both easy to calculate and understand.

Profit-based commission, on the other hand, occurs when the seller earns a percentage of the profit. This type of commission is more complex to calculate, but it can be more motivating for salespeople to focus on selling high-margin products or services.

To help decide which compensation strategy is most suitable for your business, weigh the following: 

Sales-based commission models make it easier for your team to calculate earnings and understand how they are paid. It’s applicable to any type of product or service and encourages reps to sell as much as possible.

However, this compensation structure can lead to salespeople discounting products or services in order to make a sale. Nor does this structure rewards sellers for closing deals with high-margin products or services. 

Profit-based commission should motivate your sellers to pitch high-margin products and services over other offerings that aren’t as profitable. You’ll also likely see less discounting. 

The cons with this structure are that it’s hard to calculate and might not be appropriate for all your products and services. Reps unfamiliar with the company’s financials may also struggle to understand which item to sell to optimize their earnings. 

Ultimately, the best way to determine which type of commission is best for your company is to experiment and see what works best for your sales team.

This is a guest blog on sales data quality written by Lee Moskowitz, Director of Growth Marketing at SetSail.

Your sales data is the foundation for future growth. 

You use it to: 

• Coach your reps
• Improve your sales process
• Forecast your quarter 

But if you have incorrect, incomplete, or missing sales data, you have a problem. 

You don’t have the full picture of what your reps are doing. You can’t see the gaps in the prospect journey. Your forecasts are routinely off base. And you lack insight into why certain accounts close while other deals are lost.

How can you tell if your organization has a sales data quality problem? 

Here are eight questions to help diagnose signs of CRM quality issues: 

Question #1: Does your CRM update sales data automatically?

Think about all the tools your sales team uses on a daily basis. 

Is every action appropriately logged and tracked in the CRM? 

If your tech stack isn’t synced to accurately write data to your CRM, you’re going to run into missing data problems. And it’s a major roadblock for sales rep productivity: almost half of sales professionals say their biggest challenge with selling is incomplete CRM data. 

Question #2: Do all your tools sync properly to your CRM?

If you answered “yes” to question one, that’s positive – but it doesn’t mean you’re in the clear. 

It’s essential to check to see if this automatic data writeback functionality is actually working the way it should. 

A common problem with automated sales activity tracking is duplicate data pumped into the CRM, which ends up being just as much of a problem as missing data. With too much clutter, it’s just as difficult to see what is actually happening and spot trends. 

Question #3: Do you have a standard process for filling out open fields? 

Are your sales reps allowed to write in their own shorthand in the CRM? That’s going to make life difficult for you. 

Side question: how many free-form fields do you have? How many do you need? Simplifying is step one. Documenting a clear process for the type of manual data you’re looking for is next. 

This process should provide clear direction on how to handle open fields, including rules and recommendations for how to collect and input data. Some fields may have their own requirements, so make sure to include specifications for each field as needed.

Question #4: Is your sales data regularly updated?

Let’s say you do have accurate, complete data in your CRM. It’s only going to stay accurate for so long.

How often is it updated? Stale data is another problem that creeps up on you week after week, month after month. 

In fact, Salesforce estimates that 70 percent of data deteriorates every year. 

Question #5: Is it easy to spin up an accurate report? 

When an executive asks you for a new report, do you have to send it over with a bunch of asterisks based on data inaccuracies? Do you spend an inordinate amount of time cleaning up the CRM before you feel comfortable presenting a read-out? Do you have to sift through multiple dashboards to try and find an answer?

Ensuring your data is clean, complete, and centralized makes it easier for measuring accurate reports to inform data-driven GTM strategies.

Question #6: Does everyone use the CRM?

One-quarter of sales reps said updating the CRM frequently takes time away from selling, and 95% said they’d be more likely to hit quota if they spent less time on non-revenue generating activities. 

A clear sign a CRM isn’t useful to your team: no one wants to spend any time entering data into it, because they don’t think it will be useful to them.   

Pro tip: tie commissions to your CRM by syncing QuotaPath to show reps how their pipeline translates to their earnings potential. You can sign up for a free 30-day trial to try it yourself.

Question #7: Are conversion rates trending up? 

Clean, complete CRM data means you have the information you need (as a holistic revenue team) to make an impact on the pipeline. 

If win rates are declining, it’s highly likely low-quality sales data could be part of the problem. 

Question #8: Is your forecasting usually accurate or close to accurate? 

An accurate forecast sets the entire revenue team up for success. 

Tired of a forecast that no one trusts? That’s another sign your CRM data quality needs a revamp. 

How to find and fix your worst CRM data challenges 

Did you answer “no” more often than “yes?” Chances are, your CRM data quality is suffering. 

But just how severe is the problem? Is it tied to clear actions you can take to fix it? 

SetSail built a free tool you can use to grade your Salesforce CRM and get answers. Try it here. 

About SetSail 

With SetSail, B2B revenue teams use their sales data to do what wins. SetSail centralizes, enriches, and interprets sales data across go-to-market teams and tools so leaders see what’s happening, know what’s effective, and drive winning behaviors. No more missing, duplicate, or incorrect Salesforce data – all sales activity is tracked and recorded accurately within the CRM. Complete visibility improves coaching, deal management, and rep performance.

At QuotaPath, we believe that automated sales compensation management should be efficient and drive toward your financial goals. You should be able to quickly see value and have a holistic view of your sales team’s attainment and commissions. That is why we have released two new features, Home and expanded self-serve integrations.

Our new Home experience offers clarity through a comprehensive view that provides performance insights into the most important compensation metrics. Home also surfaces high-priority tasks.

Upon logging in, you’ll see what deals await your approval or have flags or discrepancies. You can also view payouts that are owed. This allows you to efficiently manage and stay on top of your commission program.

Home is also where you can get a pulse on your team’s financial goals.

You can view your teams’ totals earnings, payouts and effective rates and identify trends by filtering by month, quarter or year.

To see value more quickly for customers setting up a trial with QuotaPath, Home will direct you through the steps to get a plan fully up and running in QuotaPath.  This includes how to build your first plan from scratch or from our library of free compensation plan templates, integrate your CRM and invite team members.

Additionally, Home features direct links to our resources, chat, and robust help site for further support.

For our second feature, we unlocked new data connections in app to your commission’s source of truth. Now, you can integrate with several new CRM sources, including Copper, Pipedrive, ZohoCRM, and Google Sheets, as well as invoicing systems such as Quickbooks and Stripe. That’s in addition to our existing integrations with HubSpot, Salesforce, Maxio, and more.

Plus, it will only take 3 steps to sync your CRM deal data and invoicing systems.

That’s right — 3 guided steps. 

About QuotaPath

QuotaPath rallies revenue organizations around their financial goals. Through expert guidance on compensation design and an intuitive platform that automates sales incentive management, QuotaPath is the smart solution for growing GTM teams looking to run commissions more effectively. Sign up for a free 30-day trial, sync your CRM, and invite your team members to see how you can uplevel and operationalize your sales com processes.

This is a guest post on how to keep reps motivated 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 Service, and SEO/PPC. The RevPartners team orchestrates, optimizes, and reports on their client’s marketing, sales, and operations processes through automation and tools. RevPartners’ mission is to democratize revenue operations by making it accessible, consumable, and actionable in HubSpot.

In the 2011 film Margin Call, a tense scene takes place toward the end when a high-ranking manager tells the traders “a decision has been made to unwind a considerable portion of the firm’s holdings in several key asset classes.”  

Get ready for a fire sale.

That particular day was going to be the last day of employment for all of the traders. On top of that, they were tasked with selling off as much as they could, at whatever price they could, to whomever they could. (The manager even mentioned their mothers as an option.)

If they could sell off 93% of the assets they were responsible for, they would receive a $1.4M bonus. If they couldn’t, they would miss their bonus and be blocklisted from getting another trading job anywhere for their participation in the selling of damaged assets with no swaps.  

Although this is an extreme example the likes of which 99.999% of salespeople will never experience, the scene captures how powerful of a tool motivation can play in the field of sales.  

With that, let’s dive into exactly what motivates salespeople, whether it be a title, money, or just to deliver a good product to other people, and how companies should respond.

Types of motivation

Two types of motivation exist across sales, sports, academics, and really anything else:  extrinsic and intrinsic.

Extrinsic

If a person is extrinsically motivated, then they primarily value external sources or outside influences.  When a salesperson works harder because they know the result is a higher commission rate, they take an action, in large part, because they want to achieve a particular outcome.  This also includes taking action to avoid negative outcomes.  

Intrinsic

As a counter, when someone is driven by inherent satisfaction, enjoyment, or personal interest, they are said to be intrinsically motivated. For example, when an athlete plays a sport simply because they love the game, they take action to fulfill an internal desire.  Any outside, tangible benefits that are received would simply be considered a bonus.

How to keep reps motivated in Sales

Extrinsic vs. intrinsic motivation

The world of sales is a great example of how both types of motivation often exist side-by-side and produce varying results depending on how they are handled.

Extrinsic

When salespeople are extrinsically motivated, they are motivated by external factors such as monetary rewards, commissions, bonuses, and recognition from peers or superiors. The upside of this is that it will usually lead to a focus on achieving sales targets and closing more deals, especially when you tie in accelerators in your compensation plan to reward overperformance.

On the flip side, although extrinsic motivation can be effective in driving short-term performance, it may not necessarily lead to long-term job satisfaction when the inevitable slow month or bad quarter arises.

Intrinsic

According to a survey, most salespeople are actually intrinsically motivated to succeed at work.  These are people who are driven by internal factors such as personal interest, passion for the product or service, and a sense of accomplishment from closing deals.  The upside here is that even when a certain commission threshold is not reached, the salesperson is still motivated to take on new challenges and continue improving.

Companies can best support these individuals by providing opportunities for skill development, recognition, and a positive work environment that promotes a sense of purpose and accomplishment.

The vast majority of salespeople are neither fully intrinsically nor extrinsically motivated, but rather some combination of the two.  Also, some salespeople also cite helping the customer at all costs, even putting them above company and personal interests, as their chief desire.  These people are said to be “altruistically motivated”.

Individual vs. team compensation

In the scene from Margin Call referenced earlier, the senior manager also states that beyond the individual goal of selling off 93% of the assets in their personal portfolios, if the team as a whole sold off 93%, then each trader would gain an additional $1.3M one-off bonus. This highlights the fact that in sales, there are both individual and team compensation plans.

Individual-based compensation systems

When an organization relies on individual-based compensation systems, salespeople have a high level of autonomy and control over their own performance and earnings, as their compensation is directly tied to their individual efforts and results. This can help foster healthy competition and drive team members to excel and outperform their peers.

The downside is that when this is taken too far it can lead to behaviors such as undermining colleagues and creating a toxic work environment.  Also, when compensation is solely based on individual performance, there will naturally be less collaboration (e.g. hoarding leads).

Team-based compensation systems

This commission structure tends to promote collaboration, knowledge sharing, and mutual support among sales team members as they work together and support each other in reaching targets.  

The downsides here are fairly obvious as some sales team members may rely on the efforts of others and not pull their weight, leading to free-riding behavior. Also, high-performing salespeople may feel demotivated if their efforts are not directly rewarded and recognized in a team-based compensation system, as their individual contributions may be diluted.

The role of perceived equity

In psychology, there is a concept known as the “equity theory” which suggests that individuals compare their inputs (e.g., effort, skills, experience) and outcomes (e.g., compensation, rewards) in relation to those of others to assess whether they are being treated fairly in the workplace.

If a salesperson’s perception is that their compensation is fair and equitable, it can positively impact their motivation, engagement, and job satisfaction, leading to increased performance and effort in their sales role.  On the other hand, if a salesperson perceives that their compensation is unfair or inequitable compared to their efforts and contributions, it can negatively impact their motivation, leading to decreased performance, job dissatisfaction, and potentially even turnover.

Companies can mitigate problems in this area by emphasizing transparent and clear communication about compensation plans, providing regular recognition and rewards to salespeople who meet or exceed performance expectations, and regularly evaluating and adjusting compensation plans to ensure they are perceived as fair and equitable.

Different types of compensation structures

One of the biggest motivational differentiators is sales compensation structures.

Commission-based compensation

This arrangement, in which compensation is directly tied to performance, provides high motivation for salespeople to maximize sales, and tends to attract and retain highly motivated salespeople who thrive on financial incentives, a sense of autonomy and control over earnings.

On the negative side, it can lead to a “feast or famine” mindset, resulting in salespeople focusing solely on high-commission products or customers.  It may also create a hyper-competitive environment, leading to potential conflicts and unhealthy competition.

Salary-based compensation

When salespeople receive a fixed salary regardless of their sales performance, it will often promote a more collaborative and team-oriented sales environment, as they are not solely focused on individual commissions.  It may also encourage a long-term perspective and relationship-building with customers, as salespeople are not solely driven by immediate sales results.

As for the bad, it will often lead to complacency or lack of motivation as there may be no financial incentives for exceeding performance expectations. 

Summing it up 

Everyone in the sales field wants to do a good job, just not always for the same reason…

• Some are motivated by money and some by an internal drive for daily improvement.
• Some enjoy competing against peers in a healthy way, and some would rather collaborate on everything.  
• Some are only willing to put forth effort if they feel everyone is being rewarded in the same exact proportion.  
• Some desire to be rewarded based solely on wins and losses, and some want a guaranteed income regardless.

In the end, companies need to structure their plans as fairly as possible (Hello, QuotaPath!) and  make every effort to adjust to the individual needs and motivational preferences of their team members if they want to achieve long-lasting success.  

To learn more about RevPartners, visit revpartners.io.

This blog includes the most commonly used software sales commission percentage with multiple compensation plan templates to explore for your own use.

The “Great Resignation,” a nickname for the millions of employees who voluntarily left their jobs in 2021 and 2022, has shifted. 

Now, we sit amid a “Great Restructuring,” as tech layoffs continue to mount. In March 2023, for instance, Layoffs.fyi tracked another 30,000 layoffs from 79 tech companies with four days left in the month.

As these layoffs have piled, so have chatters of lower on-target earnings for SaaS sales reps.

However, in our experience partnering with hundreds of growing SaaS companies, we haven’t noticed major changes to compensation packages or with the standard software sales commission percentage.

What is the standard software sales commission percentage?

We define the standard software commission percentage as the amount of money a software company pays its salespeople for each sale they make.

This percentage often varies depending on the type of software, product, size of the company, and role. But in general, the standard software commission percentage is 10% for account executives.

As such, that’s why you will see most of our commission calculators begin with a 10% rate, or a base rate of 10%. 

Below we look into some of the factors that can impact your software sales commission percentage.

The type of software and subscription

The type of software sold can affect the commission rate. For example, software that is sold on a monthly subscription basis, such as cloud-based software, typically has a lower commission rate than software that is sold on an annual basis.

This is because monthly subscriptions have a higher probability of churning since they aren’t committed to 12-month terms. As such, a company might pay a lower commission rate for monthly subs and a higher one on annual ones to encourage reps to sell the latter.

The size of the company

Additionally, the size of the company can also affect the commission rate. Larger companies typically have lower commission rates than smaller companies. That’s because larger companies have more resources going into the deal which increases the cost of the deal. Think marketing, research and development, sales engineering, and more. For smaller-stage companies, reps typically earn a higher rate because companies aren’t spending quite as much to win deals.

Role of salesperson

If your AE earns 10% on each deal they bring in, would you expect the sales development rep to earn the same once the deal closes? We hope not. Paying that much would impact your gross profit margin and effective rate. 

As such, SDRs typically have a lower commission rate than salespeople who are responsible for closing deals. For instance, our SDR compensation plan template that pays the SDR a percentage on Closed/Won deals that began as leads generated by the SDR pays 4%. 

Account managers also typically receive a lower commission rate on upsells and renewals, such as 5%.

However, early signs of an AM commission rate shift have begun unfolding in 2023, and with good reason.

Since the venture capital world has changed over the last 20 months, now investors are looking for risk-free companies. And one of the best business metrics that indicate a healthy company includes gross revenue retention (GRR). So if, you’re focused on GRR, consider increasing the software sales commission percentage on renewals and upsells. 

Product lines

The products sold can also affect the commission rate. Products that are high-value, such as enterprise software, typically have a higher commission rate than products that are low-value, such as consumer software. This is because high-value products are more likely to generate a significant amount of revenue for the company, which means that the company is willing to pay a higher commission rate to salespeople who are able to generate sales.

You might also see compensation plan examples that pay lower commission rates on products that do not generate as much revenue for the company, or products that the company plans on sunsetting. We recommend this tactic when looking to motivate your reps to sell more lucrative offerings. 

Highest commission rates and lowest

In general, the highest SaaS commission rates you’ll see are around 20%. That’s very high though, and we would only recommend this commission structure for companies that have low customer acquisition costs or on products and services with high gross margins. 

Benefits of a standard software sales commission percentage

A standard commission rate in SaaS can provide a number of benefits, including:

• Creates a more equitable sales environment. When all salespeople are making the same commission rate, it can help reduce competition and create a more collaborative sales environment. This is because salespeople are not competing against each other for higher commission rates but instead are focused on working together to close deals.
  
• Simplifies sales compensation. When you have a standard commission rate, you don’t need to worry about different commission rates for different salespeople or different products. This can make it easier to track sales commissions, communicate variable compensation to your team and gain buy-in from your team.
  
• Improve sales performance. When salespeople know that they are making a fair commission rate, they may be more motivated to close deals.
  
• Reduce sales costs. When you have a standard commission rate, you don’t need to worry about overpaying salespeople.

Overall, a standard commission rate can provide a number of benefits for both salespeople and companies. If you are looking to improve your sales team’s performance, a standard commission rate may be a good option to consider.

Drawbacks

One of the only drawbacks regarding standard commission rates is that they can deter top performers who exceed quota. 

Salespeople who are highly motivated and experienced may be looking for a commission rate that is higher than what you are offering. 

So, to absolve that concern, consider a compensation plan template that includes a base rate on all deals that close up to 100% of the quota and an accelerated rate for all deals thereafter. For inspiration, check out the Commission with Accelerators example. 

“When I worked in a public company and a private company, I never had accelerators less than 2x, and then I bumped to 3x,” said  Inside Partners Operating Partner, Sales & Customer Success Pablo Dominguez. “I love to pay those top 10% of reps a shitload.”

Sales compensation plan examples with 10%

For additional sales compensation plan examples that feature a 10% software sales commission percentage, check out:

• Single Rate Commission Plan
• Single Rate Commission with Contract Term Multiplier
• Commission with Accelerators & Decelerators

Interested in automating sales compensation management and commission tracking? Start a 30-day free trial with QuotaPath and sync your CRM to uncover the benefits of commission transparency and accuracy.