A sales incentive program should motivate sales reps to meet or exceed their sales goals with cash and non-cash incentive rewards. This method gives salespeople rewards and recognition in addition to their sales compensation plan.

Sales incentives not only motivate sales reps to surpass their goals, but they also drive greater revenue, boost rep retention, and act as a competitive advantage to attract and recruit top talent.

Just how beneficial is a solid sales incentive program? Check out these study findings:

• Properly constructed incentive programs can increase performance by as much as 44 percent.
• After money, recognition is the second most important sales rep motivator according to Hubspot’s Sales Strategy & Trends Report.
• According to a survey conducted by the Society for Human Resource Management (SHRM), 68 percent of HR professionals agreed that employee recognition has a positive impact on retention.
• In the same SHRM survey, 56 percent of HR professionals said employee recognition programs also help with recruitment.
• An Incentive Research Foundation survey found that 60% of top-performing tech companies strongly agree incentive and recognition programs are effective recruitment tools, but only 25% of average-performing companies agreed.

Now that you know the value of well-designed sales incentive programs, let’s walk through some key elements you need to know to create your own effective strategy.

What are the types of incentive programs?

There are five types of sales incentives including role-specific, presales, split incentives, analytics-based, and omnichannel. The approaches you choose for your sales incentive program depend on your sales process and what behaviors you wish to motivate your sales reps to adopt. 

Let’s review these different types of sales incentives.

1. Role-specific sales incentives

Role-specific incentives are created based on individual roles and responsibilities. This approach enables you to acknowledge reps based on their job function.

For example, a sales manager has different duties than a business development rep (BDR) who prospects and identifies leads. You can reward a sales manager based on their results against the requirements of their position. And, the same is true for the BDR.

2. Presales incentives

Presales incentives reward salespeople at different stages of the sales process before closing a deal. 

For teams with longer sales cycles, more touchpoints, and buying committee members, this model keeps reps motivated throughout the process by rewarding them in the short term and at the close.

In lieu of offering only a larger incentive once the rep secures the deal, this approach keeps reps focused and motivated throughout the entire deal cycle. 

For example, you could give reps incentives after completing specific activities like scheduling meetings with prospects or running a sales demo, and upon contract signature. 

3. Split sales incentives

Adding split incentives to your sales incentive program is a great way to reward sales reps working together on the same deal or project. 

This approach allows you to split the incentive between the salespeople when the deal closes or the project ends. You can designate an even split between everyone involved or specify rules for split calculations.

For example, if two sales reps collaborate to close a large deal, you can reward them equally or based on their specific roles throughout the sales cycle. We see this model commonly implemented for sales engineers.

This model ensures all involved team members receive compensation for their work. Plus, it encourages communication and collaboration between teams by rewarding each party. 

One thing to note, when incorporating a shared commission structure into your sales incentive program, create the incentive structure and expectations to avoid misunderstandings when it’s time to distribute payouts.

4. Analytics-based sales incentives

All businesses analyze data to make accurate sales forecasts, set realistic goals, and create an ideal sales cycle. 

Analytics-based sales incentives reward reps based on their behaviors that align with the best practices gathered from data.

For example, if data from prior years indicate that achieving designated revenue goals requires a sales cycle length of a specific number of days, sales reps earn rewards or bonuses when they close deals within that timeframe.

5. Omnichannel sales incentives

Finally, the last type of program is omnichannel sales incentives. 

With buyers embracing a digital-first approach to the buying process, salespeople often interact with prospects online and over the phone before directly engaging with them. 

And, depending on the specific product or sales process, it’s possible for a prospect to sign up for a free trial or purchase online without a rep’s assistance.

Adding omnichannel sales incentives to your sales incentive program rewards reps for the support and value they provide to prospects–even if they aren’t directly involved when the buyer makes their purchase.

You can connect a closed deal to a rep by tracking who first contacted a lead via email or when a buyer made their purchase following a product demo.

Best sales incentive plans

Knowing the types of sales incentives is only one aspect of creating a sales incentive program. You must also understand what key elements will ensure your incentive program is successful.

The best sales incentive plans share the following common characteristics:

• Drive the right selling behaviors
• Motivate reps
• Reward overperformance
• Align with business goals and metrics for the quarter or the year

Keep these in mind when designing your sales incentive plans based on what you want to achieve as well as your sales reps’ preferences.

To get started, here are some of the best sales incentive plan ideas to inspire your sales team to greater achievements:

1. Monetary rewards

A popular and easy way to motivate sales reps is by offering cash incentives. These might include:

• Commissions: Give reps a percentage of each new sale in addition to their regular earnings.
• Bonuses: Reward salespeople with extra money as they meet or exceed quota to motivate them to reach higher.
• Pay raises: Periodic salary increases for your top performers are a way to display appreciation for their consistent overachievement. It’s also a way to show other team members that you reward success in your organization. Using sales leaderboards ensures transparency while rewarding sales leaders.

But one size does not fit all when it comes to incentives. Oftentimes, sales reps are motivated to work hard for other rewards and recognition.

So, what other sales incentive options are effective?

Additional reading: The psychology of compensation:  How to keep reps motivated

2. Physical items

Non-cash incentives can be more powerful motivators than cash prizes if the reward is appealing to your sales reps. So, you need to know your audience or get to know what they like so they’ll be motivated to work for the designated prize.

Physical items like tech gadgets, coffee brewers, or sporting goods can inspire your sales team members and drive them to meet or exceed their goals. At QuotaPath, we even have a WWE championship belt that gets passed around to the top seller.

Plus, physical rewards act as a future reminder of why they were rewarded and evoke positive memories of the winning experience.

3. Extra paid time off (PTO)

A popular non-cash sales incentive is additional vacation time. Sales is hard and can be very stressful. So, giving reps extra PTO to decompress promotes work-life balance, boosts mental health, and shows that your company cares.

Offering PTO as a sales incentive may inspire your reps to work harder, plus they’ll be rested when they return from their holiday.

4. Self or professional development courses

Access to upskilling is a sought-after employee benefit and a powerful employment attraction tool, according to a Gallup study. So, it makes sense to offer additional development opportunities as an incentive.

Providing these types of rewards in your sales incentive program helps reps advance their careers, improve skills and performance, and increase productivity.

Plus, you’re likely to boost sales rep retention by offering development courses as an incentive. According to a Talent LMS study, 76 percent of employees are more likely to stay with a company that provides continuous training, while 66 percent say it improves their company loyalty.

Professional development incentives you might offer include:

• Sessions with a professional sales coach
• Registration for an upcoming sales conference
• Advanced sales technique courses
• Workshops or guides to learn the best way to use sales tech to streamline work processes or to learn ways to improve their business writing skills

Also, some personal development options to consider as incentives are:

• Cooking classes
• Fitness memberships
• Art classes
• Online courses of the reward recipient’s choosing

5. Public recognition

Gallup research shows that recognition is a desirable reward that boosts employee well-being, engagement, and a sense of belonging while increasing productivity.

So acknowledging hard-working sales reps who consistently meet and exceed their sales targets is a win-win. The salesperson receives the reward and knows that they are appreciated. Plus, you increase the odds of retaining this top talent and inspiring them to continue their hard work.

Some examples of ways to offer public recognition as an incentive are:

• Inviting them to attend a special event with the company’s CEO
• Honoring them with an announcement on the company’s Slack channel
• Giving them bragging rights like salesperson of the month or year
• Acknowledging them in front of the entire team

6. Gift cards

Personalized gift cards can acknowledge sales reps and give them an opportunity to splurge on special items they’ve been wanting to buy.

This is why it’s essential to know your sales team members’ preferences so the reward you offer motivates them effectively.

Some gift card ideas to consider are a gift card for an exclusive restaurant, a subscription box, and a gaming certificate if you have gamers on your team.

7. Spinning the prize wheel

If you find pinpointing one reward challenging, consider putting a variety of options on a wheel so reps can spin to see what their reward is.

Spinning the wheel for your incentive adds an element of surprise and excitement to the experience. Plus, being the one who gets the opportunity to spin the wheel enhances the recognition element of the reward.

8. Activities and entertainment

Entertainment incentives are good motivators because they give your sales reps the things they’d love to do but aren’t necessarily willing to splurge on.

You don’t have to break the incentive budget to offer these rewards. They can range in value depending on how much you want to spend. For example, some higher-cost incentives might be front-row concert tickets, a romantic dinner for two, or tickets to the big game. And some other options include:

• Rock climbing
• Movie passes
• Bungee jumping
• Zipline
• Escape rooms
• Travel incentives

9. Office upgrades

Boost rep productivity by offering upgrades to their office as part of your sales incentive plan.

This is especially popular with the rise in remote and hybrid sales teams where each person has set up their own home office, possibly on a shoestring budget.

Examples of office upgrade incentives include:

• High-quality office chair
• Dual-monitor system
• Lighting or other office accessories
• Standing workstation
• Noise-canceling headphones

10. Allow reps to select their own reward

If your sales team consists of various types of personalities with diverse tastes, hobbies, preferences, and needs, it may be easier to allow them to choose their own incentives.

In this case, you can designate a budgetary limit for the reward that motivates each individual rep. Then encourage your reps to envision what they would select if they won at the beginning of the incentive period to motivate them to work harder.

Sales incentive structuring

Now for actually structuring your sales incentive packages.

Follow these tips as you create your incentive program to increase its effectiveness at the business and rep levels. 

1. Include all comp plan stakeholders from the beginning

Streamline the creation of your sales incentive program by involving all affected departments as you initiate the planning process. These vary based on your organization’s structure and include functions such as:

• Human Resources (HR)
• Sales Compensation Analysts and Admins
• Finance
• Sales Operations
• Senior Sales Leadership
• Legal

2. Review historical sales data for possibilities

Analyzing previous years’ sales data reveals seasonal sales trends. Once identified, commonly slow periods are candidates for incentives like SPIFs to help remedy these shortfalls. If you don’t have previous historical data, use conservative numbers and leverage any research you can find in your market and industry. 

3. Include non-monetary incentives

Although everyone needs money, it very rarely is the sole motivator.  Average and lower-performing sales reps may be more motivated to improve by non-cash incentives. 

4. Create role-based incentives

Customization is essential to the success of your overall comp plan, so it makes sense to incorporate role-based incentives. This enables you to drive specific role-specific behaviors to further boost sales and revenue results to meet business goals.

Your customer journey and sales process will help you determine which behaviors contribute the most value to customers while improving sales.

5. Allocate funds for short-term incentives

Historical data can reveal consistent trends, but short of having a crystal ball, it’s nearly impossible to anticipate all challenging sales periods. That’s why it’s advisable to reserve at least 3-5% of your total incentives budget for SPIFs, short-term bonuses, and accelerators to help close the gap during those times.

Additional reading: How to set up a successful sales SPIF

6. Incorporate some team incentives

Including team incentives or competitions can be fun, increase collaboration across the sales team and create healthy internal competition while boosting goal achievement. Competitive options include pitting territories, verticals, or small groups against one another to grow sales.

Group incentives encourage cross-departmental relationships and teamwork. They are especially effective when combined with SPIFs to hit goals.

7. Add fun incentives

The addition of fun or unexpected incentives injects some excitement into your plan and can be quite motivating. Some examples of fun sales incentives are raffles, randomly selected lottery numbers, or grab-bag-style prize giveaways. These can be very budget-friendly while energizing reps to participate.

Other fun bonuses include group team-building activities like golf, paintball, and dinner or happy hour after work.

8. Rank your incentive plan against the industry average

Make sure your sales incentive plan is realistic and attainable to ensure the likelihood that it will motivate your sales reps.  Gauging its appeal against your industry’s average incentive plan and then exceeding it as cost-efficiently as possible is advisable. This helps boost rep retention and gives you a competitive hiring advantage.

Resource: 2023 Compensation Guide (Betts Recruiting)

9. Complete a compensation risk analysis

Sales compensation is complex, so you can’t be too careful when creating a sales incentive program. Proactively review the practices and rules relating to your program to identify any potential risks to the organization before implementing it.

10. Get sales rep input

Most sales reps want a personalized incentive plan. Although this may sound like an impossible task for large organizations, it’s important to make the effort by requesting rep feedback. This helps involve reps in the process and will improve rep buy-in. 

11. Confirm that your selected incentives will promote the right behavior

The goal of any sales incentive program is to encourage behaviors to achieve business goals such as more leads, revenue, or profits. So, it’s essential to ensure that you are choosing incentives that will motivate your sales reps appropriately.

12. Fine-tune your sales incentive plan

Creating a sales incentive plan is not a set-it-and-forget-it process. It’s likely you won’t get it 100% right on the first try.

It’s best to get started, then analyze your results, adjust accordingly, and test different elements to see what is most effective.

Some variables to experiment with include:

• Payment amounts or multipliers
• Payout triggers
• Points awarded per sales dollar
• Timing of reward (Each time? Quarterly? Yearly? At milestones?)
• Form of reward (points, cash, trip, etc)
• Segmentation methods such as by vertical, product, or territory
• Team-based goals
• How much you pay
• Activity or behavior-motivated elements
• Long-term activities and behaviors vs. payouts only for transactional sales

Additional reading: How to assess your comp plan’s success

13. Clearly communicate the sales incentive plan

It’s essential to clearly explain your sales incentive plan to sales leadership and the sales team. 

Otherwise, you’ve wasted valuable time and effort designing your plan.

No matter how wonderful the plan might be, it won’t motivate sales reps if they don’t understand the sales incentive plan.

It’s essential that salespeople understand how they can earn more or win rewards on the new plan. So present the comp plan effectively to inspire your desired behaviors and hit your targets.

Sales incentive program management

Next, you need to think about how you will operationalize sales incentive program management.

Sales incentive program management is the use of supplemental rewards in addition to the standard compensation structure to drive better business outcomes. This strategy accomplishes this by more closely aligning sales rep behavior with the company’s goals.

Incentives include things like:

• SPIFs: Short-term incentives designed to motivate sales reps to focus on specific activities, like selling a particular product or service or targeting a designated customer segment.
• Bonuses: Monetary rewards in addition to commissions, often awarded for meeting certain goals, such as attaining a sales quota or booking a deal with a new customer.
• Commissions: The most common type of sales incentive program, paying salespeople a percentage of the sales they make based on the specific compensation plan.
• Prizes: Gifts awarded for completing specific activities or exceeding a designated target. These include things like gift cards, dinner for two, and movie tickets.
• Awards: A trip or other major reward given to top-performing salespeople who meet specific criteria.
• Recognition: Public acknowledgment of sales reps exceeding expectations. Recognition can be given in ways such as leaderboards, awarding a trophy, or a simple announcement in front of the team or a broader audience.

A properly managed sales incentive program motivates sales reps to exceed their goals, boosts revenue, increases sales rep retention, and provides your organization with a competitive hiring advantage.

Sales incentive software

When it comes to calculating sales incentives, many companies still calculate commission in Excel. This may be effective if your organization employs less than 5 salespeople.

But as teams increase in size, and add layers of commission tiers and streams, a spreadsheet can become cumbersome to manage. Not only can the use of a spreadsheet become a major time suck, but it can also be a particularly error-prone process that can lead to an incorrect commission payout.

So, why not automate it with a sales incentive compensation platform like QuotaPath? Our commission tracker app  gives you and your organization:

• Transparency so sales reps understand their compensation plan and can track and forecast progress toward goal attainment.
• Source of truth for earnings to minimize earnings disagreements and discrepancies
• Helps Finance predict future revenue and retention performance by having historical data on how compensation plans impacted past performance
• Enables reps to see how they’re tracking toward their goal and enables them to translate their sales pipeline to actual forecasted earnings
• Operationalizes sales compensation

Ready to see what it’s like to automate your sales incentive plan calculations? Start a free trial or schedule time with a QuotaPath team member.

FAQ:

What are the best practices to sales incentive planning?

Align incentives with company goals. Sales incentives should be designed to motivate salespeople to achieve the company’s overall goals. For example, if the company’s goal is to increase revenue, then the incentive plan should reward salespeople for selling more products or services.

Make incentives fair and equitable. Salespeople should be rewarded fairly for their efforts. The incentive plan should be designed to reward all salespeople, regardless of their experience or territory.

Keep incentives simple. The incentive plan should be easy to understand and administer. Salespeople should be able to easily calculate their potential earnings under the plan.

Test the plans. Run last year’s numbers through this year’s proposal. What breaks? Are you overpaying or underpaying? You should also run this year’s financial model’s revenue assumptions on the highest commission rate as well as the lowers. Read this blog for additional ways to pressure test your compensation plan.

Introduce comp plans in a timely manner. That means communicating the plans to your sales teams at the start of the year, like at your annual sales kickoff. Any changes thereafter should also follow an example compensation communication plan so that reps and leadership fully understand the meaning behind the changes and how the company will help support them achieve their goals.

 Monitor the results of the incentive plan and make adjustments as needed. The incentive plan should be evaluated on a regular basis to ensure that it is meeting its goals. If the plan fails to meet its goals, then adjustments should be made.

How can you calculate incentives for sales?

There are a few different ways to calculate incentives for sales. The most common method involves applying a percentage of the sales. For example, if a salesperson sells $10,000 worth of product, they may receive a commission of 10%, or $1,000. Another method is to apply a single rate bonus or a flat fee. For example, a salesperson may receive compensation of $500 on every new deal they sell. This of course assumes that the effective rate of pay for the rep is within a reasonable range of the contract value.

You could also combine the two by offering both a commission percentage and a single-rate bonus. For example, a salesperson may receive a commission of 5% of their sales and a milestone bonus of a flat $1,000 after hitting a predetermined goal, such as selling $50,000 in new revenue.

As far as systems in place for calculating incentives in sales, most companies manually track and calculate seller earnings via spreadsheets. For smaller organizations with less than 5 reps, this works great. But as teams grow and add complexities to their compensation structures (monthly SPIFs, different commission rates for different products, and more), a spreadsheet will become tough to maintain. If that’s the case, consider automating commission tracking with QuotaPath.

 Skip a demo and try QuotaPath out for yourself over a free 30-day trial.

What are some of the most commonly used sales incentive programs?

There are many different types of sales incentive programs, but some of the most common include:

 Commissions: This is the most common type of sales incentive program. It works by paying salespeople a percentage of the sales they make. For examples of a sales incentive plan template, check out Single Rate Commission, Single Rate Commission with Contract Term Multiplier, and Commission with Multi-Year Accelerators.

 Bonuses: Bonuses are typically paid out in addition to commissions, and they are often given for meeting certain goals, such as hitting a sales quota or bringing in a new customer. For bonus-based compensation plan templates, check out Multiple Rate Bonus (Revenue), Milestone Bonus, and Single Rate Bonus (Revenue).

For activity-based bonus comp plans for biz development, use these SDR commission planning templates Qualified Opportunity Bonus and Demos Completed Bonus.

 SPIFs: Spiffs are short-term incentives that are designed to motivate salespeople to focus on specific activities, such as selling a new product or service or targeting a specific customer segment.

 Contests: Contests are a great way to create excitement and generate enthusiasm among salespeople. They can be based on individual performance, team performance, or even company-wide goals.

Other incentives: Other types of sales incentive programs include travel awards, merchandise, national park passes, and charitable donations. The best type of incentive program for your company will depend on your specific goals and objectives.

 When designing a sales incentive program, it is important to consider the following factors:

• Your company’s goals: What are you trying to achieve with your sales incentive program? Are you trying to increase sales, improve customer satisfaction, or boost employee morale?
• Your salespeople: What motivates your salespeople? What are their needs and wants?
•  Your budget: How much money are you willing to spend on your sales incentive program?

By considering these factors, you can design a sales incentive program that will be effective and affordable.

Which companies are implementing the best incentive programs?

An employee incentive program is a type of performance management tool that rewards employees for meeting or exceeding certain goals. Incentive programs can be used to motivate employees to improve their performance, increase productivity, or achieve specific business objectives.

 There are many different types of employee incentive programs, but some of the most common include:

Commissions: Commissions are a type of incentive program that pays employees a percentage of the sales they make.

Bonuses: Bonuses are a type of incentive program that pays employees a lump sum of money for meeting or exceeding certain goals.

Stock options: Stock options are a type of incentive program that gives employees the right to buy shares of the company’s stock at a discounted price.

Tuition reimbursement: Tuition reimbursement is a type of incentive program that pays employees for taking classes to improve their skills.

Flexible work arrangements: Flexible work arrangements are a type of incentive program that allows employees to work from home, set their own hours, or take breaks throughout the day.

In today’s working environment, more companies than not offer employee incentive programs. Notable ones that have been widely praised include:

 Zappos: Zappos is an online retailer that offers a variety of employee incentive programs, including commissions, bonuses, and tuition reimbursement.

 Salesforce: Salesforce is a cloud-based software company that offers a variety of employee incentive programs, including commissions, bonuses, and stock options.

 Netflix: Netflix is a streaming media company that offers a variety of employee incentive programs, including bonuses, stock options, and flexible work arrangements.

Employee incentive programs can be a valuable tool for businesses of all sizes. By designing a program that is tailored to their specific goals and objectives, businesses can motivate their employees to achieve great things.

Your business development team might be the most entry-level folks on your team. 

Yet, they set the first impressions of your organization to prospects while tasked with building out your pipeline with quality leads. These responsibilities, driven by your business development incentive structure, are crucial to the growth and success of your go-to-market strategy. 

That’s why you have to carefully set your business development commission structure to ensure your reps focus on the right accounts, exercise quality control, and are competitive with industry and regional compensation packages.

In this blog, we’ll review the basics of business development compensation, how to build your first plan or modify an existing one, and offer plan templates to inform your next comp design. 

Business development compensation: The basics

First, what is business development?

Business development involves the sales process of identifying, qualifying, and closing new business opportunities. It plays a critical function for any organization that wants to grow and succeed. The roles and responsibilities may change depending on the size and stage of the organization.

For instance, a person in business development at a startup or early-stage company might be an experienced leader. This was the case at Katy Stover’s talent development startup, HigherPeople. Her first sales hire, a Head of Business Development, came to her with a decade of experience to build a sales motion and GTM strategy while actively prospecting and closing deals himself. We wrote a blog that included aspects of his business development incentive structure. 

Meanwhile, here at QuotaPath, our business development representative joined us with a year of selling experience in his first software-as-a-service (SaaS) role. His responsibilities include outbound prospecting, following up on inbound leads, and qualifying opportunities before handing them off to our account executives (AE). His commission structure, as a result, varies quite a bit from the business development seller at HigherPeople. 

So, what is a business development representative? A business development representative (BDR) is a sales professional responsible for generating new business opportunities for a company. We often interchange BDR with sales development representatives (SDR) and market development representatives (MDR). 

BDRs typically work by identifying potential customers, qualifying their interests, and then setting up meetings with sales representatives. They may also be responsible for building relationships with potential customers and providing them with information about the company’s products or services.

When should you add a BDR team?

Not every company has a team of business development reps. 

For instance, smaller companies may not have the resources to support a dedicated BDR team. If that’s the case, the responsibilities usually tied to BDRs fall under Sales and Marketing. 

The industry also plays a role. Some industries are more competitive than others, and companies in these industries may need a dedicated business development team to compete effectively. Companies in the technology industry, for instance, often have dedicated business development teams to help them find new customers and partners.

A company’s strategy also may impact whether or not to have a BDR team. For example, a company that is focused on organic growth may not need a dedicated business development team.

So, how do you know when to start a BDR team?

Our Director of Demand Generation Bret Lehnhof suggests looking at:

• The time it takes for a sales rep to respond to an inbound inquiry
• How many demos a rep has per day or week

“Don’t wait too late to build a BDR team,” said Bret. “Look at lead response times and your reps’ calendars. If their schedules are full, then hesitating to move forward with BDRs can ultimately affect the company’s revenue.” 

Business development commission structure: Getting started

So, if the time is now to add your first BDR team, here’s what you need to know to get started with your business development commission structure.

Set main responsibilities

You’ll want to begin by setting the main goals and responsibilities that you want your BDRs focused on.

Are they following up on inbound leads, or are they responsible for cold outbound as well? What is their primary goal, to run demos or set demos? Convert free users to paid users? All of the above? 

Start here so that your comp structure can follow. 

Establish pay mix

Now you’re ready to set your pay mix. In Compensation Hub, our pay mixes for SDR comp plan templates follow a 68:32 split. That means 68% of the plan consists of base pay and the remaining 32% is tied to commissions.

We see this split most often because BDR roles are frequently considered entry-level sales roles which tend to have a greater percentage of guaranteed income. 

However, 50/50 pay mixes are also fairly common at this sales level. 

Additional reading: What is pay mix? 

Define Quota and OTE

Once you have your pay mix set, you’re ready to determine your quota and on-target earnings (OTE). 

Your OTE is the expected amount of total income the BDR makes if they hit 100% goal. It includes both the base pay and the variable compensation.

In 2023, Betts Recruiting reported the following average OTEs for BDRs:

• BDR (Recent Grad)
  • $50K salary | $70K OTE
• BDR (6+ months experience)
  • $60K base | $80K OTE

Now that you have some average salary business development rep numbers to consider, you should be ready to define your quota. 

The quota represents the numerical goal that individual sellers and teams must reach by the end of a specific period. In our experience, about 45% of the plans on QuotaPath fall under a quarterly quota frequency. Meanwhile, 25% of the plans follow annual quotas, and another 25% 

follow monthly quota cycles.

Your quota should be 5x to 8x the size of your BDR’s OTE.

How to set a quota

The formula we adopt is as follows:

Activity x conversion rate = Opportunities x close rate
= # of Closed/Won deals x average contract value = Revenue

 Backward, this looks like this: 

Revenue / average contract value = # Closed/Won deals / close rate
= Opportunities / conversion rate = Activity 

Example: 
SDR OTE: $72,000
Quota (5x OTE): $360,000
Monthly quota: $30,000
Average contract value: $15,000
Close rate: 10%
Conversion rate: 2.5%

$30,000 / $15,000 = 2 closed/won opportunities / 10% close rate = 20 opportunities / 2.5% conversion rate = 800 activities per month (or 40 activities per day)

Another way to look at quotas is to determine how much of your new business your BDR team will be responsible for. Operatix, for example, reported that BDR teams at SaaS companies are responsible for producing between 30 to 45% of the sales pipeline. 

If you follow that logic, take your annual number of new revenue. What is 30% to 45% of that number? That’s your BDR team’s quota, which you can then divide based on the number of reps you have. 

The last step involves defining what sales activities you want to pay your BDRs on, which we unpack below. 

Business development compensation plans to consider

Next is determining what events trigger a commission or bonus for your BDRs. You can pay on activities, closed/won deals, or a mixture of both — which we see most commonly. 

Activity-based BDR compensation plan: 

• Demos Completed Bonus: This sales compensation plan rewards your team for scheduling demos that actually occur which aims to keep no-shows at bay. Anytime a demo runs that the BDR schedules, the rep earns $160.
  
• Qualified Opportunity Bonus: The Qualified Opportunity Bonus example pays a bonus on every opportunity the BDR sources and hands off to the account executives. The quarterly quota here (before adjusting) calls for 30 qualified opportunities per quarter that pay $200 an opp.
  

Closed-won commission plan:

• Closed Won Commission: Use this compensation structure when you want to give your BDRs a piece of the deal that they helped generated. This compensation template includes a 4% commission rate that’s applicable to every deal that comes from a BDR.

Mix of outcome + activity-based plans: 

• Qualified Opportunity Bonus & Closed Won Commission: We love this combination because it promotes quality leads and gives the BDR a taste for the commissions they could earn when they become an account executive. Before adjusting the inputs in this template, the rep would earn $100 for every opportunity generated and 2% off every closed/won deal.
  
• Opps Created & Demos Completed Bonuses, & Closed Won Commissions: This model blends two activities with closed-won commissions. The Demos Completed Bonus, which pays $25 per demo, accounts for 25% of the total variable while opportunities created account for 50% and pay $100 generated opportunity. And, since the rep is earning variable pay from three sources, the commission rate on closed-won deals drops to 1%. 

Which one should you use? That’ll depend on your business model and how much you’re willing to pay your BDRs. The more “paths” they have to earn incentive pay, then the more complex the plan grows. However, that shouldn’t deter you from adopting a plan that promotes quality leads and rewards the BDRs for sending hot opportunities to the AEs.

Plus, when you adopt automated sales and commission tracking software, we’ll keep everything up-to-date and calculated correctly for you.

Examples of business development compensation models

Qualified Opportunity Bonus

This model only pays a bonus when they send their account executive a qualified opportunity.

Activity Breakdown: 

Qualified Opportunity Bonus & Closed Won Commission

A compensation plan template that pays the BDR a qualified opportunity bonus and a percentage of the closed/won deal upon the AE converting the lead to customer.

Activity Breakdown: 

Business Development Manager Compensation Structure

For a business development manager compensation plan, structures will mirror the reps’ plans with a leadership twist. 

For example, if your reps are responsible for completing 180 meetings per month, and your team consists of 6 reps (equals 30 meetings per month/rep), then the manager would earn a fixed bonus for each meeting held. Additionally, a buffer will likely be in place so that the manager earns 100% of their incentive pay if the team hits 90% to the goal. 

Example:

If your BDR team earns commissions from meetings held as well as a commission percentage from closed/won deals, your business development manager compensation structure might look as follows:

Example:

Note: 

• If your BDR plan relies on the number of cold calls or the number of activities completed, your managers are typically not held to that. 
• Additionally, the split on the structure for the manager weighs heavily toward revenue. For example, if a rep is paid 50/50 between the number of demos and revenue, the manager might earn 30% from the number of demos and 70% from the revenue generated by the team. That’s because the manager of the team has more long-term control over the success of the team versus the individual rep. 

Bonus structure for business development: compensation policy

Congratulations. You should now feel confident building out your business development incentive structure. 

Your final step involves drafting a compensation policy template for you and your reps to sign off on. 

Download Form

This document ensures understanding from both parties and can be referenced if a commission dispute arises. We recommend issuing a new commission agreement every time you make a change to an existing compensation plan or roll out a new one. 

It should highlight your commission and bonus rates, payment terms, performance metrics, and clawback clauses (if applicable). 

Feel free to download our SDR compensation policy template to help guide yours. Note: this plan defaults to the Qualified Opportunity Bonus & Closed Won Commission SDR comp plan example. 

Then use QuotaPath to automate the distribution and collection of signatures using our Plan Verification feature. 

FAQs:

Why is business development compensation important?

Business development compensation is important because it helps to attract, motivate, and retain top talent.

More importantly, your business development commission structure can help steer your BDRs toward potential leads that are the highest in quality and most likely to close. That’s especially necessary in a job function that typically compensates on quantity not quality. 

But, with the right business development compensation models and corresponding business development manager compensation structure, you can put comp mechanics in place that improve the leads and pay your SDRs/BDRs/or MDRs for doing so.

There are a few key things to keep in mind when designing a business development compensation plan:

• Set clear goals. What do you want your business development team to achieve? Do you want them focused on ideal customer profile (ICP) leads or a specific industry? Design a comp plan that pushes them in that direction. Once you know your goals, you can create a plan that will help them reach them.
  
• Make sure your plan is fair, logical, and competitive. Your business development team should be able to understand how they can earn money and how their compensation is calculated. Additionally, the plans need to make sense logically and include competitive on-target earnings (OTE) based on region, experience, and size of the company.
  
• Evaluate twice a year. Your business development compensation plan may need to be adjusted as your business grows and changes. Keep a pulse on rep feedback, total earnings, and effective rates to see how successful your plans are. 

By following these tips, you can create a business development compensation plan that will help you achieve your business goals.

How do business development incentives affect general sales team incentives?

Business development incentives affect general sales team incentives based on the selling behaviors you’re motivating. For instance, if your compensation model motivates BDRs to generate and nurture quality leads with the highest chances of closing, then your sales team is more likely to achieve quota and meet or exceed their OTEs. 

Reversely, if your business development commission structures focus solely on quantity, such as the Demos Completed Bonus, your BDRs might drop their quality checks and send dozens of poor leads to your AE team. Then, while your BDRs consistently hit their demos completed number, your AEs continue to miss their goals. 

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.