This blog unpacks the MBO meaning in sales and ties them to sales enablement.

According to Celeverism, some of the more successful companies that implemented management by objectives (MBOs) goal frameworks include Hewlett-Packard, Xerox, and Intel. 

Pretty impressive. 

Management by objectives (MBO) involves a process of assigning employee tasks based on company goals. 

Marketing departments, for example, typically adopt MBOs by aligning their goals with company objectives. 

In practice, say a marketing goal involves doubling its email list in one year. Following an MBO approach, employees gather performance data to determine how well the team can perform with current resources. Then they define everyone’s role in the marketing team and create a list of objectives for each team member to complete in order to reach the larger goal. 

Management then researches which step to take to double their email list, apply new information to each employee’s individual goals, and determine whether to hire more people to manage the workload. 

According to Hubspot, this approach gives employees an understanding of how their job functions relate and add to company success. 

The origin of MBO and who it’s best for

What are MBOs and where did they come from? Author, consultant, and educator Peter Drucker first introduced the MBO term in his 1954 book,  The Practice of Management by Peter Drucker. The concept grew in popularity throughout the 60s.  And, by the 80s and 90s, MBOs had become a regular practice in the workplace.  

Any business model could benefit from MBO goals, but for fast-paced work environments with quickly scaling benefits, MBOs are a must, according to Adobe.

Think SaaS sales teams. 

MBO meaning in sales doesn’t change too much from its original definition, only that it is directly tied to sales performance in revenue and enablement.

MBO meaning in sales revenue examples

• Expand sales abroad by 10%
• Achieve new bookings target of 50 per month
• Achieve an average deal size of $150,000

Sales enablement MBO examples

• Decrease sales cycle to three months
• Build teamwide quota attainment to 80%
• Provide sales asset management that saves sellers 90 minutes a week
• Train and ramp new sellers faster to competence following a defined set of criteria
• Increase win ratio by 10%
• Achieve a payback period of 1.5 years for new products

Now that you have a better idea as to how MBOs work for a company from a management and team member’s perspective, here are five ways to put MBOs into practice. 

1. Define objectives: First, determine objectives for the entire company. Once you determine those goals, then each department should come up with department goals and how each individual will help to achieve these.
2. Share objectives with employees: Use the SMART acronym when sharing with the team (specific, measurable, acceptable, realistic, time-bound) to define the objectives. 
3. Encourage employees to participate: Invite your employees to help determine the department and individual goals. This will motivate them beyond company achievements. 
4. Monitor progress: Consistently check on the progress of goals and share updates regularly with the team. Based on what’s achieved or not achieved, teams may need to redefine goals and objectives.  
5. Evaluate performance and reward achievements: This step requires honest feedback from upper management. Leaders should meet one-on-one with individuals, review their progress, achievements, or lack thereof toward their individual MBOs for those who hit their MBOs, and reward them accordingly. For those who didn’t, provide coaching, support, and possibly a new  MBO, or path, to achieve those goals. 

MBOs pros and cons

Just like everything else, there can be pros and cons. MBOs are no exception.

According to Investopedia, boosting employee participation and loyalty happens when MBOs align with company objectives. 

However, some critics say MBOs encourage employees to achieve goals by any means necessary, even at the cost of the company. 

Here are a few pros and cons to consider.  

Pros

1. Employees understand their goals and take pride in working toward them and accomplishing achievements. 
2. Creating one-on-one time with an employee to assign tailored goals will increase output and long-term happiness within the company. 
3.  One-on-ones increase communication between the manager and the employee.
4. Management creates goals that directly impact the success of the company.

Cons 

1. Although MBOs focus on company goals and output, they may create an environment solely focused on those targets. Other parts of a work environment can be just as important like having a healthy/work-life balance or areas of contribution, which MBO structures compromise. 
2. The risk of employee stress increases because deadlines have become more regimented in order to reach goals.
3. Employees may feel that they have to reach goals by any means necessary, which could mean cutting corners and compromising the quality of work. 
4. If management only relies on MBOs, then other responsibilities may fall off the radar if they don’t fit under the MBO. 

Measuring MBOs

All MBO goals can be measured using technology to monitor employee progress and track activity. This will allow managers to generate reports, track deal information and sales activities based on individuals, and set a specific timeline. 

QuotaPath’s commission tracking software can help. Our platform tracks revenue objectives so reps can easily see their quota attainment, commission progress, and their projected earnings forecasted based on their existing pipeline. It’s easy for reps to see how much they’re earning from every deal while keeping track of how close they are to hit their quota. That means management can track their team’s overall performance with the team leaderboard while also understanding some shortcomings, allowing them to test “what if” scenarios. To learn more, book time with our team. Or, get started for free with a 30-day trial.

We’ve shared downloadable AE compensation policy templates as well as a generic sales commission agreement. Next up: we have an SDR compensation policy template. 

Download the SDR comp policy template

Why use this template for your SDR policy

If you’re involved in sales, you know that one of the key components to success is having a solid commission policy. Yet, these can be tricky to write out for several reasons.

First and foremost, you need to tailor the policies to the company’s specific needs and goals and the sales teams that make up a revenue department. That leads to much back and forth between stakeholders involved in the process.

Additionally, sales compensation agreements consider various factors that can impact compensation, such as the type of product or service being sold, the length of the sales cycle, and the size of the deal. 

What’s more, sales compensation policies must be legally sound and compliant with any relevant regulations or laws, which call for specific language or clauses to ensure that it is legally binding and enforceable.

Finally, sales commission agreements involve money, and money is emotional.

Both the company and the sales team are vested in ensuring that the commission structure is fair and transparent, which can lead to detailed negotiations and complex calculations.

Inside the SDR compensation policy template

To help write your compensation agreement, we created a downloadable SDR commission agreement template. We designed this SDR compensation agreement template so that you can customize it to the unique needs of your SDR team. 

The default plan models the Qualified Opportunity Bonus & Closed Won Commission SDR comp plan example. This compensation plan (one of 20 free comp plan templates from Compensation Hub) pays a flat-rate bonus when the SDR qualifies. Additionally, for any deal the AE closes that the SDR generated the lead for, the SDR earns a commission percentage.

The template also includes sections on commission rates, payment terms, and performance metrics, as well as provisions for disputes and clawback. 

To automate the distribution and signatures of compensation policies, check out QuotaPath’s Plan Verification feature.

We believe that a strong compensation policy is key to building transparency and trust on your sales team, and we’re excited to share this resource with you.

Download our SDR commission agreement template today and take the first step toward maximizing your sales success!

About QuotaPath

QuotaPath automates sales compensation management and commission tracking for scaling GTM teams. Integrate your CRM for trusted and real-time earnings and forecasted earnings data. Simplify commission payouts and communications, and align your teams with a variable compensation source of truth. 

Sign up for a  30-day trial, or book time with our team for a custom demo. 

This is a guest blog from our friends at Sage that answers if sales commission is a period cost.

Is sales commission a period cost and, if so, what kind of period cost is it?

Period costs are expenses that only indirectly relate to the product development process, while product costs are those that directly relate to product development. So, period costs include expenses like marketing budgets, utility fees, business travel, and employee benefits. Product costs are expenses that are necessary to physically build the product being sold, such as raw materials, manufacturing supplies, and direct labor.

But what about sales commissions?

What is a sales commission?

A sales commission refers to additional compensation paid by an employer to a sales representative when they meet and exceed minimum sales targets. In most commission models, this compensation is added on top of the employee’s base salary as a monetary incentive.

Done right, a sales commission model can unlock your sales reps’ full potential, motivating them to outperform sales targets.

Industry-wide sales commission rates are generally believed to average around 20-30% of gross margins. However, this average is hugely influenced by commission structures. Using Glassdoor salary data, Mailshake estimates that architecture sales agents have the highest commission average at 37%, followed by the likes of retail, pharmaceutical, and telecommunication sales.

Why sales commission should be considered a period cost

Sales commission usually falls into the category of selling, general, and administrative expenses (SG&A) or operating expenses, both of which are period costs. However, it can also be classified as cost of goods sold (COGS), which is typically classed as a product cost.

Here are some reasons why sales commission should always be considered a period cost.

Financial reporting implications

Treating sales commission as a period cost simplifies the process of producing a comprehensive income statement. Period costs are included on your business’s income statement and should be categorized appropriately to glean insights into the costs incurred by each.

This serves to help your finance team calculate your company’s net income and analyze the impact of your expenses within the accounting period. Sales commission should be accounted for on an accrual basis (i.e., when the sales commission is billed to a rep rather than when it is received). This is in order to comply with ASC 606 regulations, which we’ll discuss shortly.

Tax implications

In order to file accurate business taxes and avoid financial audits, you need to meticulously document period expenses. Just like your other period costs (office expenses, advertising, etc), sales commissions make up your total period cost and need to be reported to ensure that you’re paying the right amount of taxes. 

Different countries have different tax authorities. In the US, for example, the governing tax body is the Internal Revenue Service (IRS). In the UK, it’s HM Revenue and Customs (HMRC). The rules regarding whether sales commissions are tax-deductible may vary by location. 

In the US, sales commissions are tax-deductible under both selling, general and administrative expenses (SG&A) and cost of goods sold (COGS) classifications. HMRC also recognizes commission as an allowable business expense that is tax deductible. So, it’s critical for your company’s financial health that all your sales commission payments are categorized correctly as period costs on your tax return. 

Filing tax returns is a hefty task for finance teams. To automate the tedious tax filing process and avoid the financial and legal repercussions of inaccurate tax filing, utilize tax software for small businesses. Tax software streamlines tax filing by allowing you to upload invoices, receipts, and other period expense documents into the cloud, in real time. 

With all of your financial records in one centralized location, you can enjoy painless tax reporting experiences and ensure that you’re audit-ready.

Decision-making implications

To explain the decision-making implications of sales commissions as a business expense, it helps to cover all three classifications of period costs: current, historical, and predetermined.

Current expenses are costs incurred within the current period.

Historical expenses are costs that relate to previous periods and therefore do not factor in decision-making.

Predetermined expenses are upcoming costs that are expected to incur in a future period and therefore must be considered when calculating overall budgets.

For businesses that need to comply with ASC 606 (which we’ll explain further in the next section), sales commissions should be classed as predetermined period costs. This means that they are calculated as an estimation and spread out over the contract lifetime. Naturally, this makes them critical to financial decision-making, most notably budget calculations.

This is all to say that failing to correctly classify sales commissions as period costs can limit data transparency and result in poor financial decision-making.

ASC 606 and subtopic 340

What is ASC 606 and how does subtopic 340 relate to sales commission? 

Explanation of ASC 606 and why it’s important

ASC 606 is a revenue recognition standard launched by the Federal Accounting Standards Board (FASB) as a joint initiative with the International Accounting Standards Board (IASB). Its primary objective is to standardize how revenue is recognized for all sales agreements and contracts between companies and customers.

As laid out by the ASC 606 standard, the five steps for recognizing revenue are as follows:

ASC 606 standardizes global revenue recognition by providing a single source of truth. As a result, there are fewer disadvantageous inconsistencies in revenue requirements and information pertaining to revenue recognition is more informed, robust, and valuable.

Compliance with ASC 606 does however mean that accounting for sales commissions has grown more complex.

How the subtopic 340 ties to commissions specifically

ASC 606’s subsection, ASC 340-40, dictates that sales commissions must be capitalized as intangible assets (on the company’s balance sheet rather than expensed immediately), correlated to a customer, and amortized over the expected contract term in alignment with the performance obligations laid out in the contract. 

Amortization is the process of spreading out the costs of intangible, long-term assets (in this case, sales commissions) over their anticipated lifetime. This contrasts with revenue recognition before ASC 606, where businesses could use manual spreadsheets to track sales commissions as and when the bonus payment was made. 

With the task of capitalizing, forecasting, and amortizing to complete, manual spreadsheets are no longer sufficient. Companies need to use small business accounting software to perform advanced forecasting and reporting to relieve admin burdens and generate hyper-accurate insights — all while keeping compliant.

Factors that determine if sales commission is a period cost

Still not sure whether to class sales commission as a period cost? Here are some factors that can help you decide.

Timing

The timing of your sales commission payments can help you determine whether the expense comes under period cost classification. If, for example, your sales commission payments are based on the volume of sales a representative secures over a period of time (under ASC 606 compliance), then the requirement to amortize the expense means that you should class it as a period cost.

Revenue relationship

Sales commission that is classed as income rather than expense is not a period cost. This occurs when your company earns a commission. (For example, when your company makes a commission by selling a product through a business partnership.) This type of sales commission is considered revenue.

Incentive structure

Along with the self-explanatory “salary plus commission” structure, some of the most popular sales commissions structures are:

• Gross-margin commission: This is a profit-based commission in which payment is calculated using the gross revenue generated from the sale. So, the higher the price a sales rep sells an item for, the higher their commission is in alignment with how much the product cost to build.
• Revenue commission: Sales reps receive a flat percentage on every sale. So if a product was worth $2000 and the rep’s commission rate was 5%, they would receive $100 compensation.
• Tiered commission: Commission continually goes up once reps hit a specific target.
• Straight commission: The rep receives no fixed salary or wage. So, they only generate income from the commission that they make on a sale. 

As you can see, commission incentive structures can vary significantly. Evaluate carefully whether the incentive structure counts as an incremental cost of obtaining a contract with a customer, as per ASC 606 regulations. Consider whether the cost would incur regardless of whether the contract was obtained. 

Payment frequency

Are payments made monthly, bi-monthly, quarterly, or annually? 

As we’ve covered, sales commissions classify as period costs when they have a set structure that aligns with ASC 606 regulations. Sales commission payments should be scheduled in alignment with payment structures and regulations and reported accurately on your income statement.  

Industry norm

For most industries, it is the norm to classify sales commissions as a period cost. It mitigates non-compliance and tax repercussions, which can have serious financial and legal consequences for your business. The exception is usually within businesses that earn commission as income, in which case commissions must be strictly separated and reported appropriately.

Final thoughts

So there you have it. Sales commissions are a period cost. Now, how do you execute a commission model that is incentivizing, streamlined, and hassle-free?

With sales compensation software, you can easily build custom compensation plans and align sales reps with your revenue objectives. QuotaPath is an easy-to-use commissions solution with excellent forecasting and integration capabilities. Use it to unify teams, scale workflows, and eliminate confusion around sales commissions. Use Ledger to amortize sales commission costs and stay compliant with ASC 606. Try QuotaPath out for free over a 30-day trial (no credit card required). Or, chat with their team to learn more by scheduling a demo.

Sales quota attainment is a critical metric for any sales team. It measures how well a team is performing against its sales goals and offers a peek into the reality of your on-target earnings (OTE) for interested hires.

But setting a good quota attainment goal can be challenging. 

For starters, if you ignore market factors and set a quota attainment goal without considering it, you’re bound to miss it. You must understand the size of the market, the competition, the buying habits of your target customers, and environmental factors that may give buyers pause. 

Another challenge is not setting realistic goals.

If you set your sights too high, your team will grow discouraged and give up. But, if you set your sights too low, you’re not going to achieve your sales goals.

Lack of a solid process and resources can also deter your quota attainment percentage. Teams are more likely to thrive when a good sales process is in play and the training, tools, and support complement that process. 

On the flip side, when you understand the market and have strong sales enablement and historical performance data, you should be able to set a fair and reasonable quota attainment goal for your team.

Easier said than done, however. What is a realistic quota attainment? We explore below. 

80% is considered a good quota attainment rate

Our suggestion has been and will remain a minimum of 80%. 

“My 80% bar differs from what other sales teams say,” said QuotaPath CEO and Co-Founder AJ Bruno. “Others set an 80% target that translates to the sales team attaining 80% of their quota over the year.”

But AJ’s 80% rule is that 8 out of 10 sellers should hit their quota. 

“This perspective promotes consistency across the entire team,” AJ said. 

Others agree. 

We recently ran a LinkedIn poll and the results favored 80%  more than any other option. Although, to our delight, 90% and above came in second. 

Why 80%? 

In addition to the consistency that 80% drives across the entire team, 80% also represents a realistic number. It’s not out-of-reach, but it’s also not too easy in that it becomes an arbitrary number or a threat to your revenue targets. 

“You want your quotas to be achievable by most, but not incredibly easy to achieve, and also not super difficult,” per Revenue.io’s blog, “Sales Quotas: Everything You Need to Know for 2022.”

Following the 80% rule also accounts for the performance of both your top and bottom performers. That way, the former can pick up the slack for the latter and the organization as a whole can hit its targets.

Plus, 80% quota attainment is a good indicator of your team’s performance. If your team consistently hits its quotas, it means they’re doing a good job of prospecting, qualifying leads, and closing deals. This is a good sign that your sales process runs smoothly and that your team feels motivated to succeed.

How to set a realistic quota that gets your team to 80% attainment

Our Chief of Staff and Interim Head of Sales Graham Collins wrote a great blog on how to set SaaS quotas. Below, we pulled his key takes.

1. Quotas should be equal to some multiple of their OTE.
   
   This might be 3x the rep’s OTE or 8x depending on the size and stage of your company. Our rule of thumb is a quota 5x that of the rep’s OTE. This ensures the sales the rep brings in are greater than the cost of the rep itself to keep on your team. So, if your OTE is $120K, following a 5x rule, that means their quota would be $600K.
   
2. Sales cycle length and company stage play a big role.
   
   To ensure that your quotas are reasonable, use data and benchmarking reports from companies that match your size and sales cycle from your industry. It also doesn’t hurt to talk to peers, mentors, and your friends at QuotaPath.
   
3. Adjust when needed.
   
   Remember that you should adjust quotas to account for changes in the market, the economy, and your own sales process. Evaluate your quota and attainment rates so that you can ensure quotas remain challenging but achievable.

Quota attainments around tech

RepVue, a platform with verified sales organizations’ ratings, recently published the top sales team attainment numbers from their reviews. And, guess what? The best fell between 80-90%.

Take a look at the top 3.

1. Miro: 85%
2. Veeva Systems: 84%
3. Gusto: 83%

Give your reps visibility into their attainment progress

Of course, there will be times when your team doesn’t hit their quotas. But if you’re setting realistic goals and providing your team with the resources they need to succeed, you should be able to achieve 80% quota attainment on a regular basis. 

To help track progress and give your reps real-time visibility into their performance and forecasted attainment, check out QuotaPath. Our sales compensation and commission tracking software integrates with your CRM, like HubSpot or Salesforce, and translates pipeline data into earnings and attainment progress. 

Let your reps see how close they are to achieving their goals and encourage them to bring in those lingering opportunities to reach them. 

Sign up for a free 30-day trial and begin tracking, or talk to our reps by scheduling a demo to learn more. 

After heavily investing in our native HubSpot integration, we are honored and proud that QuotaPath is a leading commission software app on HubSpot Marketplace.

QuotaPath has seamlessly automated sales commissions to remove the burden of manual calculation for thousands of HubSpot users across RevOps, Sales, and Finance. We’ve made it possible for stakeholders to access real-time earnings, attainment, and forecast data at any time both in HubSpot and QuotaPath.

That’s right, this is a two-way relationship between the platforms and a truly one-of-a-kind CRM commission tracking integration. 

So, how did it begin? 

We recognized the similarities between us early on. For instance, HubSpot believes in swapping friction for clarity, consistency, and ease of use, which mirrors how we think about sales compensation. Our platforms would work well and deliver a positive experience for those looking to make variable pay more transparent and meaningful. 

So, we launched an official integration in 2021 and deepened our partnership in April 2021 when HubSpot Ventures invested in QuotaPath. 

Since then, we have continued to evolve our platform in step with HubSpot. 

Today, we both offer transparent pricing, a free-to-try model, and a simple UX atop a high degree of functionality. For us, that’s led to faster onboarding rates (23% faster) for customers who come to QuotaPath with HubSpot, as well as higher retention rates (120%).

QuotaPath’s HubSpot integration includes:

• Quick implementation setups
• Real-time data integration
• Customizable mapping of fields
• Earnings viewable directly in HubSpot
• A HubSpot-Certified App

Below, learn more about QuotaPath and HubSpot, and how to leverage the most out of this exclusive integration. 

Inside the HubSpot QuotaPath integration

QuotaPath is the only commission software that offers a true native integration with HubSpot. 

That means no manual refreshes or waiting on updates to see existing and forecasted earnings and attainment data. In QuotaPath, this information is real-time and accurate. As long as the data in HubSpot is correct, QuotaPath’s data will match. 

Additionally, your field names in HubSpot migrate to QuotaPath, so that you and your team won’t have to learn new terms between the two platforms.

“Because QuotaPath and HubSpot share the same fields, I can align my language to what my teams are seeing in HubSpot. When I call it an ‘amount’ or ‘close date’ in QuotaPath they know what it means from HubSpot,” said Katie Cooper, Muck Rack’s Senior Business Manager, Business and Data Operations.

We also earned HubSpot app certification by having a success rate of 98%+ for all activities, more than 100 customers using the integration, meeting HubSpot’s security best practices and other metrics tied to privacy, reliability, performance, and usability. 

Plus, we took the integration a step further. Sellers don’t even have to leave HubSpot to view their earnings data via a QuotaPath HubSpot card.

With QuotaPath, you can:

• Import HubSpot Deals in 4 clicks
  
• View QuotaPath Earnings directly in HubSpot
  
• Identify which records count toward earnings
  
• Map comp plans with HubSpot CRM data from designated fields
  
• Import custom HubSpot fields
  
• Define Deal stages to pull from HubSpot
  
• Preview mapping and input additional filters
  
• Set payout eligibilities and schedules
  

“When I’m reviewing commissions in QuotaPath, I’m not checking to see if they’re right in QuotaPath. I’m checking to see if the deals and fields in HubSpot are correct. Knowing that the data comes from HubSpot is a huge peace of mind. I can trust it,” said Katie.

Operationalize sales compensation with HubSpot and QuotaPath

Having trust in the data provides huge value when it comes to syncing HubSpot and QuotaPath — as does the simplicity of setup and ability to operationalize your sales compensation strategy.

With a UX that’s easy to make changes in, QuotaPath admins can learn the platform quickly and see fast time-to-value.

In fact, many of our users run commissions for their entire GTM team just weeks after signing. The HubSpot integration takes only a few clicks to set up. Should you need help, our team is ready to jump in at no additional charge.

“Our Customer Success Rep Josh was so patient with us,” said Jay Wallace, Sales Founder and VP of Worldwide Sales at runZero. “He made strong recommendations in HubSpot that led to a better output with QuotaPath. He really went above and beyond.”

Plus, when you need to refer to compensation data from previous quarters or fiscal years  — or get a pulse on cash flow — QuotaPath makes this info accessible to all stakeholders. This offers a nice change for those coming from organizations with private spreadsheets. 

By operationalizing your sales compensation process, you will save time calculating and paying commissions, when you need to add new team members, compensation plans, SPIFs, and more. 

“A major game-changer for me is the ease with which I can onboard a new team member,” Katie said. “Assigning a plan, quota, and rate in QuotaPath saves me about 30 minutes per employee.”

What’s more, reps build accountability over their variable compensation by having a universal system to check commissions, communicate discrepancies in-app, and reference comp plan policies on demand. 

Motivate teams

Rep accountability is great, as is motivation. 

QuotaPath’s HubSpot commission tracking integration gives reps instant visibility into how the next deal impacts their earnings. This eliminates the guessing games around how SPIFs impact their earnings, or how close they are to quota or the next commission tier.

For instance, Joe St. Germain, Blackthorn’s VP of Sales, noted how after implementing QuotaPath, his reps used the forecasted earnings and attainment view to run “what if” scenarios.

 “Our reps realized they could run scenarios and see how much they could earn from our monthly kickers,” Joe said. 

As a result, reps made big pushes to move the incoming deals across the finish line, Joe said.  

EverView’s Director of Operations Ron Morgan shared a similar experience.

“Our comp plan was easily measured and easily viewed by our sellers in QuotaPath, which drove positive selling behaviors,” Ron said, who noted a record sales year after implementing QuotaPath.

Plus, with our HubSpot cards feature, reps can toggle between existing earnings and forecasted earnings directly from their HubSpot view. 

Encourage HubSpot CRM hygiene

By adding commission values to individual deals via QuotPath and HubSpot, we’ve found that organizations have benefited from improved CRM hygiene. 

Turns out, to get reps to care about accurate data in the CRM, tie it directly to their commission potential. In doing so, you’re immediately delivering a direct incentive for reps to maintain their pipelines. Those “hypothetical numbers” in the CRM become tangible by showing how the data informs their future paychecks.

One RevOps leader, for example, noticed in the first weeks after implementing QuotaPath that his reps kept HubSpot cleaner once they could see how their pipeline translated to earnings. 

A similar logic applies when reps flag errors in QuotaPath.

“When they say, ‘This looks wrong in QuotaPath,’ I can ask them if it’s wrong in HubSpot, too,” Katie said. “If it is, they can fix it in HubSpot and QuotaPath will automatically adjust.”

HubSpot and QuotaPath, a match unlike any other

The HubSpot CRM already provides so much information to your GTM team. Now, take it to the next level by giving them a tool that converts that data to actual earnings. 

Ready to add automated commission tracking and payouts to your HubSpot setup? Learn more by scheduling time with our team for a custom demo. Or, sign up for a 30-day trial (no CC required). Build your comp plan within QuotaPath, integrate HubSpot, and invite team members to begin tracking.

 Learn how HubSpot and QuotaPath can help your business reach its goals.

This is a guest blog from our friends at Dialpad on sales objectives and key results (OKRs).

In sales, it’s easy to feel overwhelmed with numbers and unattainable targets. Sales objectives and key results (OKR) is a goal-setting approach that enables organizations, and individuals to reach their potential.

This article will explain everything you need to know about OKRs and why they’re important. We’ll also show you some simple examples to illustrate how sales OKRs work.

What are sales OKRs?

OKR is a dynamic management approach made up of ‘objectives’ – measurable goals, and ‘sales results’ – a series of smaller aims to help brick-and-mortar stores and eCommerce firms reach their objectives. It creates alignment within teams by helping members engage better.

OKRs encourage a team-focused approach because working towards your own key results will often cross over with other team members’ key results. This also encourages accountability as team members work on individual key results that will help the whole team reach the objective.

The purpose of OKRs is to track your sales goals in real-time. They are objectives, usually set quarterly, with a set plan (the key results) of how to work towards them. But these aren’t just targets that need to be hit. They are also ambitious objectives that encourage teams to develop and learn. In fact, if you find you are ticking off your list of objectives easily, you probably aren’t challenging your team enough.

For example, if a team leader wants to decrease the time taken for sales reps to pick up parked calls within a call center, they could set the goal of decreasing call waiting times by 50%. But this doesn’t look at core problems and encourages short-term fixes.

Using the OKR approach of goal-setting, the team would look into why response times are down. Measurable goals would be set, such as decreasing call waiting times by 50%. But key results could also include categorizing calls and prioritizing callers. This would mean results are long-term, and the teams would be discovering new ways to work.

OKRs encourage transparency within a business. Team members working towards the same objectives should be kept in the loop about what each other is doing. Their individual goals (key results) are often tied in together.

OKRs should also promote ambition and growth within your team. It’s not only effective when working in sales. This approach can also be used in any line of business. It’s a framework that is split into two sections: sales objectives and key results.

Sales objectives

The “objective” part of your OKR is the overall goal and motivation for your key results. It should set out what you aim to achieve and why this is important for your business and employees. You must create a concise objective that explains what you need to do to reach your end goal.

Objectives can be either qualitative or quantitative. OKRs should be measurable. But you don’t have to get straight into numbers in your objectives. You specify these in your key results.

You can choose an objective, such as ‘Integrate our online sales channels using an e-commerce integration platform.’ Then your key results could set out how you would do this. Alternatively, you could set something more specific, such as ‘Increase productivity of sales channels by 25%.’

Key results

Key results are measurable goals that help you track your progress toward your main objective. They are basically steps created to allow you to reach your main objective. There are always multiple key results, some of which will tie in together. It’s also important to create a hierarchy to establish which results are more important, which help others, and which can be left until later.

For example, if you’re trialing a new call forwarding service within your sales department, you will want to track its functionality. So an example objective could be – “Use new call forwarding service to decrease the hang up rate of customers by 10%”.

Key Results

• Have all sales team trained on new tool within week 1
• Create a call-forwarding strategy using peak call times
• Decrease call-waiting times by 25%

The difference between OKRs and KPIs

OKRs are sometimes confused with KPIs (key performance indicators). Here are the main differences between the two:

• OKRs are created to boost engagement and are team-focused. KPIs evaluate business activities, projects, or products.
• OKRs tend to change quarterly, depending on the business. KPIs are long-term goals.
• OKRs tend to have a hierarchy and are connected. The key results are created to help achieve the objective. KPIs are of equal priority and usually separate.
• OKRs encourage ambition and development within a team. KPIs are more about hitting targets.

Let’s say a Google Analytics agency, Dubai, is having trouble getting repeat customers.

KPI: Increase the number of repeat customers by 50%.

This could be done by offering a discount to repeat customers. The company would hit its targets, but the results would be temporary while the deal is offered.

OKR Objective: Encourage repeat customers.

Key Results

1. Increase customer satisfaction by 20%
2. Improve communication with current clients 
3. Ask for feedback once projects are completed

These are goals that tie in together, making them more efficient. They are also in order, so the team knows what to prioritize. The results encourage communication, so the teams are learning new skills, such as using the perfect talk-listen ratio. Even if customer satisfaction is only improved by 15%, the current results are sustainable and leave room for growth in the future.

Why are OKRs important?

Promoting Teamwork

For example, if customer journey optimization is one of your priorities, your main objective would be to improve your customers’ experiences. But your key results would bring your team together to reach this objective.

For example, the first key result could focus on tracking the current customer journey, while the second could involve gathering feedback from customers. The final key result would focus on creating a new customer journey using the information gathered from the first two key results. With team members working towards your main objective using individual key results, you are creating a more well-rounded team who can work together.

Track progress in real-time

Setting long-term goals is important. But once you reach them you want to know how you got there. What problems did your team face along the way? What did they learn?

Also, if your team failed to meet its goals, you need to know why. What stopped your team from achieving its objectives? What progress did they make?

We see teams create OKRs most frequently on a quarterly basis. But do what works best for your team. Key results are measurable, so you can see exactly how your business is progressing. But it’s not just about your figures, it’s also about your team’s development. Transparency and ambition are key. You don’t just want to track your sales, you want to look at how your team has progressed. This can be as simple as finding out what they have learned while working on their key results. It could also include discussions on how the team can improve in the future.

Overcoming problems

With OKRs, your sales team is all working towards the same objective. Even if team members have individual goals, they all crossover and benefit each other. Weekly meetings mean that team members can look at problems together and work out how to solve them. Communication within a team is very important. 

How to set good OKRs

• Look at problems within your business – what isn’t working? What can be improved?
• Be clear and concise when setting objectives – you need to know exactly what you aim to achieve from this goal.
• Set measurable goals – how will you know you’ve been successful?
• Make goals achievable – don’t look at goals completely out of reach, shelve them for later.
• Don’t make goals too easy – remember this isn’t a checklist, it should promote ambition.
• Look at how your OKRs can improve your KPIs – don’t just duplicate them.
• Look at past objectives – were they successful? Can they be built on?

Measuring your success with OKRs

We have talked about your OKRs being measurable, but how exactly do you measure your success? One of the main ways to do this is by analyzing the sales metrics. But this isn’t all of the information. You also want to review team learnings, gained advantages, and how the team collaborated.

For example, if a sales manager doesn’t think that their teams are properly utilizing their call logs they may set the objective: ‘Increase productivity of sales calls by 10% using received calls list.’ One of the key results could be: ‘Use call logs to determine the best times for sales calls.’

Measuring your success, in this case, would come from comparing the previous period’s sales figures with this period’s. This would determine whether this key result had helped the team to achieve the overall objective. However, even if your team has not met the objective’s target, the information you gather throughout the process is helpful. For instance, team members could compare data on the best times for sales calls. This can help them increase the likelihood of meeting the objective next period.

Start creating your sales objectives and key results

Now you understand the importance of OKRs and how they work, it’s time to get your team together and set up some objectives. Don’t expect to get it right straight away. This management approach evolves over time while you tweak objectives and key results.

Remember, having too many objectives will be counterproductive to your team. Don’t create more than 3 or 4 at once. If you have more than this you’re spreading your team too thin. This can lead to them creating quick fixes to quickly complete objectives. The whole point of OKRs is to set goals to improve sales effectiveness long-term. Think quality over quantity. 

About the author:

Jenna Bunnell is the Senior Manager for Content Marketing at Dialpad, an AI-incorporated cloud-hosted unified communications system that provides valuable call details for business owners and sales representatives through features like Dialpad call waiting. She is driven and passionate about communicating a brand’s design sensibility and visualizing how content can be presented in creative and comprehensive ways. Check out her LinkedIn profile.

No two sales interviews are exactly alike. In some, the focus may be on your experience and education. Other interviewers may be more concerned with seeing if your personality will mesh well with the existing team. But there’s one question that seems to crop up more often than not, and it’s a doozy: “Why sales?”

This question can come in a few different formats. The why sales interview answer is very similar. It seems like such a simple query, but finding the right way to answer this burning question could mean the difference between scoring a new position or going back to the drawing board (or the job board, as the case may be).

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Why sales? The reasoning behind this common interview question

Sales jobs are all about convincing someone that they need whatever it is you’re trying to sell. That could be software, paper, real estate — almost anything — and during an interview, the commodity you’re trying to sell is yourself. The question “why sales?” is valuable for several reasons:

• It puts your skills to the test. If you can’t convince your interviewer that you’re the best candidate for the job, that could make your potential boss a bit wary. This is your opportunity to showcase your ability to make a product or service shine.
• It separates candidates who do their research from those who don’t. Answer “why sales?” with a clear-cut, well-constructed answer that acknowledges both your own strengths and a few of the company’s key attributes. Do that, and it’ll be apparent that you did your homework before sitting down to chat.
• It reveals what drives you. Sales requires enthusiasm beyond a desire to make tons of cash. When times are slow, what’s going to inspire you to keep working? Let’s say you’re interested in a growing industry like SaaS sales. Are you driven to develop long-lasting relationships with customers to pave the way for upgrades and upsells? Most employers are looking for the big-picture answer to “why sales?,” not just someone who wants to close the big account and move on.

Why sales interview answer

Why are you interested in sales? You need to know the answer to that question before you sit down for your interview. Think of this like an elevator pitch. Develop a short, catchy explanation of what attracts you to sales and why you think you’re going to be good at it. This should be about 30 seconds to a minute long, no more. You’ll likely have a chance to elaborate further, but the idea is to sell yourself without selling.

• Does the challenge of closing a sale get your heart pumping?
• Do you feel strongly about the product or service you’re selling?
• Do you get supercharged by the competitive aspect of beating out your colleagues?

You can tailor your why sales interview answer to the company for which you’re interviewing, too. Check out their website and visit sites like Glassdoor to see what makes the business tick. If employees talk about monthly sales quotas or tiered commission, see if that resonates with you. If so, reference that as you being “committed to surpassing monthly quotas by 10%” or something similar.

Above all, it’s important to be honest. You’re likely interviewing with someone who has been through this process countless times and met with dozens if not hundreds of applicants. They can smell a lie from 10 miles away. In other words, don’t ramble on about your 100% close rate unless you have the cold, hard figures to back it up.

Examples of great answers to the question

The interviewer may ask “why are you interested in sales?” as soon as you sit down. If you’re brand new to this space, see if you have a personal or professional background that ties into whatever you’d be selling. If so, make that experience the basis of your answer.

Example (assuming you’re applying for a job selling restaurant technology):

Say you’re experienced in the same industry but want to move from the company you’re at. Talk about what you can bring to the table and why you want to make the switch.

Demonstrate your knowledge of the company. This could mean referencing recent news stories (positive ones only, of course). Or, you could discuss something in the company’s mission statement that aligns with your own core values.

Emphasize skills pertinent to the industry. If you’re applying for SaaS sales jobs, discuss your tech background and willingness to play the long game.

Why do you want to work in sales? What not to say:

When it comes to interview questions, sometimes what you don’t say is more important than what you do say.

• “I need the money.” Clearly, someone seeking employment is looking for compensation. Employers understand that you have financial goals you need to meet. That said, money shouldn’t be your only motivator — if it is, don’t admit it.
  Anything vague. It’s quite possible to talk a lot without saying anything. That kind of slick, salesy talk won’t work on interviewers who have heard it all.
• Complaining about your current boss or disparaging their product/service. No one wants to hire a Negative Nellie. Bad attitudes are not only contagious, they’re toxic. Present the kind of positive, uplifting energy that helps entire teams succeed. After all, one person does not a sales department make. Remember, a rising tide lifts all boats.
• Any references to “always be closing.” The idea that sales is about talking customers into products they don’t necessarily need is ethically questionable and quite outdated. Modern-day sales techniques are more about addressing the clients’ needs and shifting the sales pitch to match those concerns and priorities.

“Why sales?” is one of the top interview questions for good reason. It gives discerning employers insight into applicants’ motivations and helps them evaluate preparedness. For job seekers, the question is an opportunity to highlight their best assets. Master this question and you’ll stand out from other candidates for all the right reasons.

Questions sales candidates should ask during an interview

Now that we’ve got your interview responses sorted out, let’s explore some of the questions you should ask the interviewer.

• Can you tell me more about the sales team and their roles?
• What are the main challenges facing the sales team currently?
• How is performance measured and what are the expectations for the role?
• What percentage of the sales team is hitting quota?
• Can you tell me more about the company’s sales process and how new sales representatives are trained?
• Can you provide examples of successful sales campaigns or initiatives?
• Can you tell me more about the company’s products/services and target market?
• How does the company support its sales team in terms of technology and resources?
• Can you tell me about the company culture and how it relates to the sales team?
• Can you tell me about opportunities for growth and advancement within the sales team?

Happy interviewing!

About QuotaPath

QuotaPath’s commission tracking and sales compensation management software automates and simplifies tracking, calculating and paying out sales commissions. Teams who see the most value from our platform already track their deals using a CRM and have between 20 and 250 employees with plans to grow. Learn more by scheduling a time with our team.

More than 40% of reps aren’t motivated by their comp plans.

An easy fix? Consider SPIFs.

There are various ways to motivate specific sales rep behaviors and drive performance. Although properly prepared sales compensation plans address most overarching business goals, there are times when short-term rewards like SPIFs are necessary.

What is a SPIF? 

A SPIF, also known as a SPIFF or SPIV, is a short-term element of the overall incentive compensation management plan. What does SPIF stand for? SPIF stands for sales performance incentive fund or special performance incentive fund. It is designed to motivate specific behaviors of quota-carrying teams, such as salespeople, customer service agents, lead qualifiers, and sales engineers.

What is a SPIF in sales?

SPIFs can be used across departments within an organization to improve performance or to encourage and reward specific behaviors. In sales specifically, leaders run SPIFs to inspire revenue-generating behaviors.

When and how are SPIFs used?

Sales teams often add SPIF programs to meet short-term goals like:

• Closing a pipeline gap
• Improving specific behaviors or metrics
• Motivating reps to sell new customers or product types

To drive participation and reward attainment, employers offer various types of incentives or rewards to team members based on the rules set forth at the beginning of each SPIF program.

SPIF challenges

Well-executed SPIFs can be very effective. However, long-term or repetitive use can reduce their impact and diminish returns. Keep the following challenges in mind to increase the odds your SPIF program is a success.

SPIFs are often planned hastily

First and foremost, it’s common for teams to add SPIFs in response to unanticipated marketplace or organizational changes. As a result of this reactionary nature, SPIFs usually lack organization, planning, and strategy. Rushing into a poorly executed sales incentive rewards program can cause more harm than good by driving the wrong outcomes, distracting reps, or creating goals that conflict with those of your overall sales incentive program.

That’s why it’s best to plan SPIFs while building out your compensation plan design proactively. Create a  step-by-step process for adding unexpected SPIFs to minimize the risks of reactively introducing poorly executed programs.

Poorly executed SPIFs are common

Additionally, leaders usually calculate their SPIF program outside of their main compensation management services. In doing so, this increases the associated financial risk and makes it more difficult to track or analyze. So, it’s best to leverage a commission tracker that allows you to quickly add customized SPIF plans to facilitate compliance and control monitoring.

Sales reps can’t keep their eye on the prize

Plus, most sales organizations encourage reps to track their SPIFs independently, using a manual commission tracking spreadsheet or the likes. This is both time-consuming and error-prone. And, reps can’t easily monitor their progress toward their overall attainment goals. This reduces the motivational impact of the program as they approach the end of the designated period. 

It’s difficult to prevent cheating

Along with difficult tracking processes, SPIFs may lead to reps holding deals until they can benefit from the SPIF. When reps know a SPIF program is about to begin, they may delay closing deals to count them toward the desired program goal. To avoid this, wait to announce the upcoming SPIF until it’s time for the SPIF to begin. 

ROI measurement isn’t easy

Measuring the success of a SPIF program after its completion entails a complex process further complicated by manual tracking. Sales compensation platforms facilitate post-SPIF analysis, so you can determine which SPIFs are worth repeating.

Too many SPIFs are counterproductive

Last but not least, offering SPIFs too often reduces the motivational impact they have, leading to diminishing returns. If you feel the need to offer SPIFs frequently, you should revisit and revise your overall sales compensation plan. Ensure it’s driving the right behaviors and types of sales.

How to execute successful SPIFs

Take the time to properly plan SPIF programs to increase your odds of success and ROI. Below we share how to plan for your first SPIF.

1. Start with clean accurate historical sales data. This makes it easy to identify times and product lines best suited for SPIFs.
   
2.  Plan SPIFs when you design your sales commission plans. These programs can be easily integrated into the overarching comp plan, so they are implemented when they’re most needed to balance seasonal variability and key milestones throughout the year.
   
3. Use SPIFs to support established sales initiatives. These include planned promotional offers for new products or a new market segment to pursue.
   
4. Determine the overall compensation budget and what percentage to allocate for SPIFs. Then carefully track SPIF spending throughout the year to stay on budget.
   
5. Always measure SPIF performance against objectives. This prevents repeating expensive mistakes and increases future successes.
   
6. Use past SPIF performance insights to help guide future SPIF planning and adjustments.
   

The key to completing this process successfully is clean accurate data. An integrated sales compensation platform, like QuotaPath, makes this possible.

Integrating SPIFs with Your Overall Compensation Plan

Keep in mind, that you’ll want to integrate your SPIF with your overall compensation plan.

To do so, follow these seven guidelines.

By following these strategies, you can integrate SPIFs strategically into your overall compensation plan. This ensures they act as a valuable tool for motivating top performance, achieving sales objectives, and ultimately contributing to your company’s success.

SPIF Best Practices

We’ve gathered some tips on how to get SPIFs right to further boost your success.

Set well-defined goals for each SPIF. Knowing what you want to accomplish at the outset makes it easier to communicate to your team and to gauge success at the completion of the program.

Provide clear direction to your reps. They need to understand what they need to do to earn the incentive and what target, such as X leads or Y deals at $Z, equals success.

Designate who is eligible for the SPIF. This prevents confusion and prevents disappointment.

Specify a clearly defined start and end date for the SPIF.

Consider all SPIF-related costs to prevent going over budget.

Avoid SPIFs that contradict your main sales compensation plan.

Keep it simple. Complicated rules only lead to frustration, disappointment, and less participation.

Don’t use SPIFs too often. They become less effective at motivating and exciting the team if they become the norm.

They should be unexpected. Otherwise, reps will sandbag deals if they know when SPIFs are scheduled.

Make them possible for everyone. So, instead of offering a reward for the top X reps, set a SPIF target all team members can reach, like anyone who hits 100% of quota.

Tie success to things reps can control. For example, complete X dials per day for so many days versus speaking to X prospects per day.

How to use SPIFs to drive key business metrics

You can use SPIFs to drive specific business metrics, such as NPS scores, gross profit margin, and more.

For example, you could reward SPIFs or kickers for products that generate higher gross margins. To motivate your team to sell and upsell your most profitable products, pay your team higher rates on new business or renewals that include the products that yield higher gross margins.

You could also give a SPIF on non-discounted deals to promote full-priced deals. Maybe it’s $100 for each one on top of the commission they earn from closing the deal.

Another SPIF might entail $250 every time the rep closes a multi-year deal to drive gross revenue retention.

Key Metrics to Track During a SPIF

So, which metrics should you track? Consider starting with these five:

1. SPIF Achievement Rate: This metric measures the percentage of sales reps who successfully achieve the specific goal or behavior required to earn the SPIFF incentive. It helps measure the program’s overall effectiveness in motivating desired actions.
2. Sales Velocity: Track the average time it takes to close a deal during the SPIF period. Ideally, the SPIFF should incentivize faster deal closure, leading to a potential increase in sales velocity.
3. Revenue Generated: Monitor the total revenue generated as a direct result of the SPIF program. This helps determine the return on investment (ROI) of the SPIF by comparing the cost of the incentives to the additional revenue generated.
4. Product/Service Mix: If the SPIFF targets specific products or services, track the sales mix during the program. This reveals if the SPIFF is successfully driving sales towards the desired products/services.
5. Rep Engagement: While not one of the direct sales metrics, monitor rep engagement throughout the SPIF. This could involve tracking participation rates in training sessions or surveys to gauge their enthusiasm and overall satisfaction with the program.

Bonus Metric:

• Cost per Acquisition (CPA) of New Customers: If the SPIF aims to acquire new customers, track the CPA during the program. This helps assess the cost-effectiveness of the SPIFF in acquiring new business.

By tracking these key metrics, you can gain valuable insights into the effectiveness of your SPIF program. This allows you to refine future programs for optimal results and ensure they align with your overall sales goals.

Communicating SPIF Programs to Your Team

Effective communication is paramount when introducing a Sales Performance Incentive Fund (SPIF) program to your sales team. Here’s how to ensure your team is clear, motivated, and ready to succeed:

Transparency and Clarity: Start by clearly outlining the program’s goals and objectives. What specific behaviors or achievements does the SPIF incentivize? What are the desired outcomes the program aims to achieve? Be transparent about the criteria for earning the SPIF and the program’s timeframe. This clarity ensures everyone understands how to participate and what to do to win.

Highlight the Benefits: Don’t just explain the mechanics; emphasize the benefits. Frame the SPIF as an opportunity for reps to earn additional rewards and recognition for their hard work. Showcase how the program aligns with their personal career goals and contributes to achieving team objectives. By highlighting the potential rewards, you can generate excitement and motivate reps to participate actively.

Provide Resources and Support: Equip your team with the resources they need to succeed. Develop training materials or conduct coaching sessions to ensure everyone understands the SPIF details and the specific actions required to earn the incentive. Make ongoing support available to answer questions and address any roadblocks reps might encounter.

Communicate Regularly: Don’t just announce the program and expect magic to happen. Maintain open communication channels throughout the SPIF period. Provide regular updates on progress towards goals, celebrate individual and team achievements, and address any concerns that may arise. This ongoing communication fosters a sense of engagement and keeps reps focused on maximizing their earning potential.

Consider Feedback: After the SPIF concludes, gather feedback from your team. What worked well? What could be improved? This feedback loop allows you to refine future SPIF programs to better align with your team’s needs and preferences. By incorporating their insights, you can create even more effective incentive programs that drive exceptional sales performance.

By following these communication strategies, you can ensure your SPIF program is a well-understood motivating force that propels your sales team toward achieving outstanding results.

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SPIF examples

Companies with the best SPIF incentives tailored them to their teams. What motivates some sales reps may not appeal to others. Hence, it’s best to know your team and their preferences before selecting a reward for your SPIF program. Otherwise, you risk reduced participation and results. We find that successful SPIFs fall into seven categories:

Money – This is a popular choice, but not everyone is motivated by more dollars.

Praise & Recognition – Some people enjoy being in the limelight and see rewards in this category as potentially positioning them for promotion or advancement based on performance. These include:

• Feature of top performer’s name on the leaderboard
• Inclusion in the President’s Club
• Receipt of a displayable award/trophy

Access – These types of SPIFs provide access to special information, support, and resources not available to everyone. These incentives offer professional advantages. But some reps may not value them because they don’t cost the company any or much money. These include:

• The ability to select which sales engineer they’re paired with
• A private calling booth solely for the individual’s use
• First dibs on new accounts or the ability to pick a handful of target accounts
• A one-on-one dinner with the executive team providing access to exclusive information
• Opportunities to attend trade shows, trainings, or certifications to help advance their career

Power – This rewards individuals with the ability to participate in a change or process impacting the sales team. These include:

• Working with the creative team to build the next sales deck
• Inclusion in discussions about sales compensation structure
• Influence over the terms and location of the next President’s Club

Gifts – Like money, gifts are quite commonly used as SPIF incentives. These include:

• Basic gift cards
• Books
• Items to make work life better, like noise-canceling headphones or an extra-wide computer monitor
• A subscription to a platform like Headspace or a music streaming service

Consider these examples to get your creative juices started once you figure out what is attractive to your reps.

Unsuccessful SPIFs and solutions

Regardless of how hard you try, there’s always a chance you’ll fail the first time you use a specific incentive. If you can determine why it was a flop, make adjustments and try a variation in the future.

Some reasons a SPIF might fail include:

Incentives didn’t match the audience.

Although you can’t please everyone, the incentive needs to motivate most reps included in the program. Without this consideration, you’ll have poor participation and weak results. For a team consisting of diverse demographics, no single incentive will appeal to everyone.

That’s when it’s beneficial to offer reward points where X points are awarded for each unit achieved. Then at the end of the SPIF period, recipients can redeem their points for gifts of their choosing from a selection you offer. And, remember to reveal the gift options at the beginning of the program so reps know what they are working toward.

Promoting a team SPIF

Rewarding the entire sales team for hitting a team goal can negatively impact your team’s culture. This holds especially true if the team falls a few dollars short of a multimillion-dollar goal. Top performers end up feeling short-changed and weaker reps face backlash. Instead of team SPIFs, consider an incentive that applies to everyone who exceeds quota or another target. 

Leveraging Technology for SPIF Management

If you’ve made it all the way here, you should feel fully prepared to implement a SPIF that motivates and rewards your reps. Thank you for joining us!

Our last recommendation is to partner with a tool like QuotaPath to make SPIF management seamless and adaptable to your process.

In doing so, you’ll take advantage of:

Try QuotaPath’s free commission tracking software in a trial experience. Or, schedule time with a member of our team to learn how to optimize your entire compensation process. 

Revenue operations, commonly known as RevOps, is more important in today’s market than ever before. 

As buyers have shifted buying behaviors to conduct their own research and trial a product before even speaking to sales, companies have had to adjust. And one of the bigger adjustments over the years has been the rise of RevOps. 

What does a RevOps person do? RevOps aligns the entire revenue team by delivering data and visibility into a business’s more important metrics and processes. Then, they leverage their findings to improve efficiencies and drive revenue predictability according to Clari. In fact, SaaS companies with RevOps practices have reported the following increases in productivity and outcomes:

• 100% to 200% increases in digital marketing ROI
• 10% to 20% increases in sales productivity
• 10% increase in lead acceptance
• 15% to 20% increases in internal customer satisfaction
• 30% reductions in GTM expenses

So, it’s understandable that RevOps has rapidly risen in popularity. For example, job opportunities for RevOps-related job titles increased by 300% over the past 18 months. 

Plus, 41% of surveyed companies in Revenue.io’s recent study reported having an in-house RevOps function, a stat that’s up 15% since 2021. Another 11% of companies said they plan to introduce RevOps in 2023. 

When is it time to add RevOps?

Not sure if your company is ready to jump on the RevOps bandwagon? Here are some indicators that it’s time to launch your RevOps practice:

• You have a goal to drive transparency and accountability at scale across your organization.
• Your revenue targets across Sales, Marketing, and Customer Success aren’t aligned.
• Key business metrics across departments don’t match up.
• You’re experiencing continuous internal strife and conflict leading to finger-pointing and mistrust.

If that sounds like your organization, read on for best practices in developing your RevOps foundation, scaling your practice, and learning from some of the best SaaS companies that adopted RevOps early on. 

Building a foundation for RevOps

Every successful RevOps function shares three key elements in common. These include assembling a cross-functional team, setting RevOps metrics to measure success, and establishing repeatable processes. 

Let’s take a look at each of these.

Assembling a cross-functional team

RevOps is about creating alignment across your customer-facing departments like Sales, Marketing, Customer Service, Renewals, and Product. 

When these teams are well aligned:

• Sales can easily recognize the right customers for your products
• Marketing can attract and retain the right customers
• Customer experience is excellent
• Operations can put the right tools, systems, and resources in place

When strongly aligned, you’ll see shared goals and objectives and consistent cross-functional communication and collaboration on go-to-market efforts.

Setting RevOps metrics

Once you’ve aligned your customer-facing teams, you’re ready to begin tracking metrics that are essential to your success. This enables you to have better visibility into your RevOps performance, identify potential issues, and give you time to adjust accordingly.

Commonly adoptedRevOps metrics your team should track include:

• Revenue: Measuring revenue looks different based on the business type. In SaaS, we typically track monthly or annual recurring revenue (ARR).
  
• Revenue retention: Gross revenue retention and net revenue retention have started to replace ARR as the most important metrics in 2023 when predictable revenue trumps “grow at all costs.” Measuring revenue retention provides insights into the success of Sales and Marketing processes such as whether you’re:
  • Targeting the right customers
  • Pitching the right way
  • Onboarding new customers effectively
  • Providing sufficient support to customers experiencing problems

• Customer acquisition cost (CAC): Ensure your CAC aligns with the customer lifetime value (CLV) of your product. For example, you wouldn’t spend $100 to acquire a customer with a CLV of only $20.
  
• Sales pipeline velocity: This metric tells you the average time from lead to paying customer. However, pipeline velocity is not measured in time but in revenue. You can calculate sales pipeline velocity by multiplying the number of sales-qualified leads (SQLs) in your pipeline by the average deal size. Then multiply that by the overall win rate expressed as a percentage and divide by the length of the sales cycle. High pipeline velocity is an indicator of close alignment between your sales and marketing teams.
  
• Customer churn rate: This is the percentage of customers who stop paying for your product in a designated amount of time. This is often an indicator of how well customer support is performing. Average churn rates vary from 4.75% to 7.55% depending on the industry, according to Recurly.
  
• Sales forecasting: Define how much individual sales reps and your entire sales function will sell in a designated time period. This is often monthly, quarterly, or annually. Historically sales created relatively unreliable forecasts that ignored critical factors like marketing spend, customer lifetime value, and customer churn rate. So, it’s best that your RevOps team create these forecasts, track progress against them, and adjust accordingly.
  
• Renewals, upgrades, and cross-sells: the more renewals, upgrades, and cross-sells you attain, the greater your customer lifetime value will be. This translates to a better budget for customer acquisition to help you hit your growth goals.
  
• Conversion rate: this is the percentage of leads who advance through the sales process and become paying customers. This figure alone doesn’t tell you much but it is a valuable indicator of the effectiveness of your sales and marketing efforts.

Recommended Reading: Who Should RevOps Report To?

Establishing processes

RevOps is tasked with removing silos between departments, especially Sales, Marketing, and Customer Service to create a cohesive customer journey. 

As silos are removed, inter-departmental processes throughout the revenue cycle need to be established to streamline operations and provide transparency. These might include how to hand off leads between Marketing and Sales or how to prioritize customer support requests.

Scaling your RevOps practice

Whether you’ve yet to start your RevOps journey or you currently have a team of one, let’s look at how to scale your RevOps practice.

How do you structure a RevOps team?

RevOps is intended to unify all revenue-generating operations. It encompasses four main functions:

1. Operations experts: Leads high-level strategy and makes sure GTM teams have what they need to function efficiently. This includes tools insights, processes, and content.
2. Enablement specialist: Responsible for training GTM teams on things like proper messaging about current and new product features and relevant use cases.
3. Data analysts: Review and translate data to understand revenue performance and how to improve it.
4. Tools management technical owners: Manages all software and technical tools. These team members make decisions about tools, train GTM teams on their use, and oversee APIs and integrations to ensure they are functioning properly.

Many organizations start with only one RevOps person, typically at the director level, who oversees these functions. Then, as the business scales, they begin to grow their Revops team.  

To expand your RevOps team, start by looking at your internal staff to identify current team members you can shift into these functions. Then, fill in the gaps by hiring additional staff as needed.

Key RevOps roles for your organization include:

Chief Revenue Officer or Head of RevOps: Typically reports to the CEO and works collaboratively with heads of sales, marketing, and customer success. This role oversees the unified strategy of the revenue business.

Sales enablement manager: Arms sales with the knowledge, content, and training needed to effectively advance sales through the pipeline to a successful close.

Systems administrator: Responsible for knowing all the ins and outs of the tech stack, managing integrations, developing new processes, and migrating data as needed.

Business analyst or sales analyst: A data analyst who understands and tracks RevOps metrics. This role knows how to leverage insights from metrics to identify ways to improve the efficiency and productivity of revenue teams.

Fractional hiring is also a possible solution if you don’t have the budget or a long-term requirement for a role. It prevents you from hiring someone short-term only to turn around and lay them off. Plus, it saves time by enabling you to add someone quickly who can hit the ground running without a long onboarding period.

Investing in technology and automation to streamline processes

Once you have established product-market-fit and go-to-market processes, it’s time to build your RevOps tech stack. 

As your company grows, your tech stack should evolve accordingly. Here’s an overview of the progression from the seed stage through series C funding:

Seed stage: At this point, you are likely closing your first 10 customers and only need the basics like CRM, proposal software, automations, a payment platform, and accounting software.

Series A: Acquisition of new business while scaling existing customers is your focus here. So, potential additions to your tech stack include platforms for sales engagement, a data provider, a customer success platform, commission tracking, quote configuration, and an eSign platform for contracts.

Series B: As your sales team expands, your focus is on standardizing processes as you grow your team. You may also be approaching more enterprise prospects, creating the need to configure more complex deals. Potential additions to your tech stack at this point include sales intelligence and upgrades to some of your prior technology selections.

Series C: By now your sales team likely consists of more than 30 team members divided between new business and current customer expansion. This is where you need to focus on a stack that helps you ensure standardization while being flexible enough for upsells and various renewal situations. Again, this is where you start upgrading some of your prior technology selections to meet your requirements as you scale.

We also found a great tech stack cheat sheet that gives you more details of potential technology to meet your needs.

Developing a culture of continuous improvement and learning

RevOps success requires a culture of continuous learning, adaptation, and improvements. In practice, this takes shape by constantly tracking and analyzing data to identify ways to improve revenue operations performance.  In doing so, you’ll be able to diagnose weaknesses and improve outcomes that allow you to keep pace as market conditions change.

Companies with successful RevOps practices

Who can you look to in the industry as a RevOps best practices example company? We sourced a few below, including us!

At QuotaPath, we have leveraged RevOps to accelerate growth. It started when our CEO, AJ Bruno, hired Ryan Milligan for the RevOps role. At the time, we had 40 employees. Ryan started as a SalesOps leader with a MarketingOps and SEO background but quickly shifted to a more centralized RevOps role.

The combination of SalesOps and analytics allowed the company to implement RevOps easily. 

According to Ryan, “The numbers are the numbers. We can’t change those numbers unless we start to think about the activities that drive the objectives, the results, and change those.”

AJ and Ryan conduct business reviews weekly where they assess the funnel from top to bottom. Ryan records information about the metrics and shares them with first-line managers so they can come to the meeting prepared with questions and ideas for continuous improvement.

Finding the right stack of tools and RevOps allows us to ensure we’re getting the most out of what we are using or make adjustments accordingly.

AJ said RevOps has been a key ingredient to QuotaPath’s growth.

Carbon Black, a cybersecurity company, began its RevOps journey to accelerate growth during a transition from an on-premise to a cloud business model. According to Daniel Carpenter, their RevOps leader, Carbon Black leveraged data science for RevOps success. It helped them drive productivity improvements for lead and account prioritization to facilitate prospecting and support Customer Success and renewals with predictive churn insights.

Carbon Black leaders have said they were glad to centralize their go-to-market operations functions under one leader. Although a challenge to finalize, the results in doing so have facilitated better process optimizations across RevOps. 

They also said that the enablement team played a critical role in driving the transformation from cloud-selling motions that their sales team and partners needed to learn.

Overall, Carbon Black believes their RevOps team was essential to meeting both its growth objectives and its speed of transformation during that transition.

Okta was an early adopter of the RevOps model, too. Jake Randall started out in finance at the company’s inception.  As the company started to grow, it embraced the RevOps approach even though it was yet to become popular.

Jake told Demand Gen Report, “A RevOps structure ensures you have a common understanding and agreement across the entire company for your go-to-market strategy, execution, and measurement to better drive growth.”

When Okta was a startup of around 50 people, they looked to optimize the entire buyer’s journey. This would enable them to grow as efficiently as possible.

As they built out their unified operations team, they made sure all operations roles had functional alignment with their business units to support them effectively. But the operations team was also a standalone function and team.

Jake summed things up by saying, “For Okta, RevOps is simply how we do business. And it’s the foundation from which a small startup became a $500M+ public company that is now delivering 50+% year-over-year revenue growth!”

Time to grow your RevOps practice

There’s no doubt that RevOps is essential to consistent revenue growth, efficient operations, and superior customer experience. Whether your RevOps journey is yet to start or you have a team of one, now you have a guide to help you scale.

Build a firm RevOps foundation by assembling your cross-functional team. Select essential RevOps metrics to track. And, establish processes to keep your organization on track.

If starting from scratch, establish the role of RevOps by identifying or hiring one person who can fulfill the four main functions of RevOps. If you’re looking to expand your team, look internally first before adding to your headcount.

Remember to select purpose-driven technology tools to meet your needs. Tracking and analyzing metrics is essential to your RevOps practice success. As is a culture of continuous improvement and learning.

About QuotaPath

QuotaPath supports RevOps, Sales, and Finance professionals by simplifying the process of sales compensation. From comp plan design through sales commission payments, QuotaPath partners with growth-stage companies to align teams over earnings and attainment visibility. To learn more, chat with our team or try QuotaPath for yourself with a free 30-day trial.

In a previous blog, our Chief of Staff Graham Collins shared 5 sales compensation plan examples. This article included a sales manager compensation plan sample featuring a single commission rate that applies to all deals, regardless of team attainment. 

It’s perfect for a startup that just hired its first sales manager. The plan is logical, simple in nature, and makes room for new complexity within the plan as the organization grows.

Now, for teams looking to go beyond a single rate, we outline two more sales manager compensation plans to consider. But first, let’s review some terminology since the following compensation plan templates introduce new compensation levers.

Sales manager comp plans definitions

Accelerator: Our first plan below includes accelerators. An accelerator is a commission tool that rewards salespeople with a higher commission rate for exceeding a certain sales quota or target. 

For example, a salesperson might earn a 10% commission on sales up to $100,000, but receive a 15% commission on sales above that amount. The higher commission rate is known as the accelerator, and its purpose is to incentivize salespeople to exceed their sales targets.

Attainment point bonus: In our attainment-point bonus compensation plan example below, sales managers earn a fixed dollar amount for every percentage point closer to the 100% target.

For example, if the bonus rate is $100, and the team reaches 95% of the goal attainment, the manager would earn a bonus of $9,500.

Buffer: Sales manager compensation plans usually include a buffer to ensure your manager is not held to the entire team’s performance. This measure accommodates team absences, underperformers, and overperformers. 

So, instead of setting the sales manager quota to 100% of the team quota, you would hold your managers to 80%-90% of their team’s collective quota. 

Cliff or commission floor: A cliff/commission floor in variable compensation requires the commissionable employee to earn a minimum amount of quota or revenue before being eligible for variable pay. We see cliffs used in conjunction with other commission structures, such as accelerators or tiers, to provide a balance between guaranteed income and incentivizing high performance.

While we don’t recommend cliffs for sales compensation plans at the rep level, we do at the leadership level. 

What does a sales manager position pay?

Next, let’s look at a few data points as far as sales manager salary and on-target earnings (OTE). 

Senior Sales Manager salaries

According to 2023 data from Bett’s Recruiting, senior-level sales managers in tech earn a salary between $140,000 and $200,000 annually. When factoring in commission potential, those numbers increased to $280,000 and $400,00 for total OTE. These numbers will vary by experience, region, and size of the company.

First-time Sales Manager salaries

The same report showed that first-time sales managers make a salary between $120,000 and $160,000.

“However, this number can vary based on experience, company size, and even location in some cases. For example, an SM with more than three years of experience will see $140,000 – $200,000 in almost any tech hub region” — Bett’s Recruiting. 

Pay mix

Pay mix refers to the ratio of base salary and variable pay that makes up an OTE. This is usually listed as a percentage breakdown with a base salary listed first.

For sales managers, the two most commonly adopted pay mixes are 50/50 or 60/40. 

Sales manager compensation plan: Commission with Accelerator

One of the most widely implemented sales manager compensation plans is this structure, Commission with Accelerator. 

Under this commission plan, the manager earns a fixed commission rate on every sale by the manager’s team. Then, once the team surpasses 100% of its quota within the quota period, the manager’s commission rate increases for every subsequent deal.

Note: the commission rate should change with the size of the team. Meaning, as hiring increases, someone departs, or someone is promoted, the commission rate should fluctuate with those changes. 

Typically, leadership adjusts the commission rate on a monthly or quarterly basis to account for team changes. Failing to adjust the rate accordingly can significantly impact the manager’s earning potential.

Lastly, consider adding a “cliff” to this plan. A cliff or a commission floor ensures the sales manager does not receive a commission. In the example below, the cliff is cleared after the team achieves 50% of the target.

Sales Manager Compensation Plan: Bonus

Next up is the bonus-based sales manager compensation plan. This structure pays a pre-determined bonus for each attainment point tied to the manager’s team’s total quota attainment progress. 

It’s like the Single Rate Bonus Plan for account executives but for leadership.

Under this plan, the Sales Manager’s bonus percentage is equivalent to their team’s quota attainment percentage. For example, if the team hits 93% of the quota, the Sales Manager will earn 93% of their bonus (at $250 per percentage point). That’s regardless of the size of their quota.

Like our other comp plan template above, this structure includes a manager buffer of 90%. 

However, with this sales leadership compensation plan, the bonus for managers stays the same regardless of team size. As the team grows or scales back, the quota may change, but the per-attainment bonus remains the same.

Which plan should you use?

We can’t decide for you, but we do have some pros and cons to each plan. 

The first plan with accelerators includes a fixed cost of sales and is easy to understand. 

However, because the plan fluctuates with the team, it will require changes throughout the year. Additionally, this plan can affect earnings potential if it remains unchanged and may send your manager in a hurry to hire to maximize earnings potential. Because, in theory, the more people the manager has on their team, the higher the manager can make.

Meanwhile, the sales manager bonus structure promotes consistent earnings across periods and can account for high variability on the team. But, your leader may push back against hiring plans as it benefits them most when the team is smaller. This plan is also a bit more complicated to understand how individual deals impact earnings. 

Compensation resources

For additional compensation plan templates, visit Compensation Hub. This free and ungated resource includes 20 of the most-trusted comp plan templates. With 9 adjustable variables, build a plan aligned and fit to your business. 

When you’re ready, send the plan for review internally, then save it directly in QuotaPath to kick off a 30-day trial of our automated commission tracking and sales compensation management solution. Sync your CRM in a few steps and eliminate the need for manual tracking. 

We’ve found our most successful customers have between 20 and 250 employees with plans to grow, that use a CRM, like HubSpot and Salesforce, to track deal data, and that are looking for an easier way to manage commissions. Is that you? Start a free trial today.  

This blog on paid parental leave explores how to adjust sales compensation plans and keep pipelines warm to better accommodate new parents in sales.

The lowest salaries at a company usually involve the sales teams’ base pay, with their variable pay balancing out the difference (and beyond).

It’s that variable pay that reps often accept positions over. In fact, many companies offer sales on-target earnings (OTEs) that far outrank their neighboring department peers’ salaries.

That’s all great, and to be expected, until we explore the murky waters of parental leave policies for individual contributing sales reps.

Most leave policies that we see only offer base salary pay for new parents who take leave.

“Every other employee at the company is getting their full normal pay while on leave, and their manager and the business accept that output for that team will decrease,” wrote Co-Founder and CEO at Parentaly Allison Whalen in her blog.

“And yet, most companies still will only guarantee their sales reps just their base pay during this time, and often, the business will expect the sales team to hit numbers as though the sales rep isn’t on parental leave.”

Seems unfair, no?

The gender gap widens

Not only would most people consider this unfair, but base-pay leave plans tend to hit women reps the hardest.

Expecting dads, for example, historically have taken on the secondary caretaker role. As a result, leave policies that pay only the base salary haven’t caused much of an issue.

At least that’s what the new mom of two Olivia Millard has observed throughout her 10-plus years working in SaaS sales.

“In my experience, men who have had children while working in sales typically take the minimum amount of leave,” said Olivia. “They have a child, keep their pipeline, come back early, and end up not sacrificing any deals.”

Women, however, more often assume the primary caretaker role and take full leave, as a result.

This leaves moms in sales with less leave pay than their colleagues from other functions and puts them in tough spots upon their return.

Empty pipelines

For instance, in addition to earning lower leave pay, new parents — moms especially — who take the full leave, often return to empty pipelines.

“At most companies, when a sales rep returns from parental leave they have a normal quota instead of a ramp quota. So they return to work with limited to no pipeline, yet are paid and evaluated against a fully productive AE quota,” wrote Allison.

This happened to Olivia when she returned to work after leave with her first child a few years ago.

“I came back to a full quota and hardly any opportunities in my pipeline,” Olivia said. “I felt like a failure starting from ground zero.”

As a salesperson, that’s the last feeling you want to have, especially when trying to navigate the added stress and pressure that comes with having a child.

“All you want to do is win in sales. You don’t want to be at the bottom of the leaderboard just because you were out on leave,” said Olivia.

Perhaps this is why so many women leave sales in pursuit of other roles, such as account management or customer success.

But for Olivia, who chose a career in tech sales, she didn’t want to bump to another function.

“The world is changing. Women coming up in sales are now in their 30s. They’re in their prime. They’re experts,” Olivia said. “They want fat paychecks and a family, too. How can companies make it sustainable for us to have a career in sales and a family?”

So, Olivia and other motivated people at her company did something about it.

The solution

They began by advocating for change in bite-size increments, setting out clear near-, mid-, and long-term goals. This allowed them to prioritize where to compromise and what leaders to loop in. It also helped them stay calm, Olivia said.

“We had to remove ourselves emotionally and do a lot of benchmarking with other companies who resembled our organization.”

“Then it’s just a sale,” Olivia said.

The results of their presentations, advocacy, and research led to changes that the company solidified.

Those changes included:

• • Reps on parental leave would earn 60% of their OTE while out

• • Upon return, reps may work 4-day weeks

• • Distributing pipeline opportunities based on the sales cycle stage and splitting a percentage between the rep who takes it on and the rep who is on leave (ie: the further along the deal, the larger the percentage to the rep on leave)

• • Ramping quota upon return from leave (based on sales segment)

• • Codifying the new plan to avoid misinterpretation and grey areas

To learn how Olivia advocated for and made impactful changes at her organization around paid leave and sales compensation, we asked her a few questions.

What advice would you give others looking to change sales paid parental leave policies?

Olivia: Do not do this alone if you don’t have to, and treat it like a professional process like you would a sale. The more we professionalized it, the more progress we made. Start by finding your champion within your organization. Identify the motivations of those who are at the top and how much it will cost.

For us, that person was from human resources with the title Employee Advocate. She did her homework, brought it to our VP of Compensation’s attention, invited other leaders to be a part of it, and worked across divisions to get buy-in.

How did you go about benchmarking?

We approached benchmarking by taking a ‘who we want to be in the future vs. who we are as a company right now’ perspective. Who do we want to attract to work here? Do we want to compete with the larger tech companies for talent? As such, we looked into the policies at Facebook, LinkedIn, and Google, by connecting with people within our own network or finding them online if available.

How should leaders at companies approach rep-level paid parental leave?

You don’t have to be perfect as a company, but you have to be willing to grow and evolve with employee needs. Be willing to listen. Be willing to change. That’s why I stayed. A company that is willing to grow with me is what I look for.

Start by holding open dialogues with people who have already gone on leave. Talk to managers. Identify short-term solutions and rank the least expensive to most expensive solutions. Be willing to compromise on both sides.

Paid leave sales compensation plans

In addition to Olivia, we reached out to our Sr. Director of RevOps Ryan Milligan for leave best practices compensation strategies. He suggested the following when designing sales compensation plan parental policies.

1. 1. Evaluate how the person is compensated today.
      Review the drivers of their sales compensation and what percentage of their OTE is base salary versus variable pay. How much do sales reps make? And, how much of their straight commission plans do they have control over?

1. 1. Plan for what happens while they are on leave.
      Have a clear plan in place for what happens to the reps’ deals and incoming leads while they’re out. Who will keep them warm, and how will ownership of the deal split when it closes?

1. 1. Determine how progressive or conservative your organization will go.
      The most conservative play would entail paying your reps base while they’re gone. Reversely, the most progressive policies pay full OTE. Maybe meeting in the middle works best by offering 60% OTE each month the person is out, like Olivia’s company.

1. 1. Prepare for their return.
      Keep those pipelines warm. Don’t have your reps feeling like failures on their first day back because they’re at the bottom of the leaderboard. Close deals and continue to feed and move prospects through the funnel.

      Even better, deploy ramp-up plans so that they have a fair shot at achieving OTE by year’s end.

1. 1. Communicate your comp plan leave policies
      Lastly, as we suggest with any comp plan, communicate your policies. Explain the “whys” behind the policy and show the math to everyone on the sales team.

Want some more help? We just went through structuring our own comp plans to support parents on leave. Reach out to kelly@quotapath.com and we’ll put you in touch with someone from our team to share our experience and offer suggestions.

About QuotaPath

QuotaPath provides sales compensation and commission tracking sales enablement software for scaling GTM organizations. Pairing an easy-to-use user experience with a highly technical backend, QuotaPath is the only solution fit to get Sales, RevOps, and Finance on the same page.

To see how we fit into your tech stack, check out our integrations page. And, to learn more, book a time with a member of our team today.

This blog, written by Cody Short, details commission rates by industry, setting commission structures, and more. 

All companies need a high-performing sales team. Sales helps a company increase its profitability and plays an integral role in the growth of the organization. 

But first, you need a talented team of people who can sell the company’s products. Easier said than done, right? 

A lot of businesses, especially early-stage startups, struggle to find and keep a loyal pool of top sellers. And in 2023, keeping those top sellers is more than ever. Mass layoffs across the tech industry and the previous year’s 50 million people who voluntarily quit their jobs have made matters increasingly more challenging. Plus, inflation in 2023 remains high at 6.04% — although that’s about 2% lower than in 2022.

However, having the right variable compensation plans in place can help with your sales team retention strategies.

It’s important to pay people well so that they feel like a valuable part of the team and remain loyal to the business. Many sales reps base their career decisions on the amount of money they can make at a company. 

So, how can you set sales commission rates that attract and retain talent? We’ve outlined a few commission structure best practices below.

Importance of Transparent Commission Rates

First, let’s start with why it’s important be upfront about commission rates.

Transparent commission rates foster trust between sales teams and leadership, ensuring everyone understands how their earnings are calculated. This clarity helps motivate salespeople, as they can directly see the link between their performance and rewards. Transparency also reduces confusion or disputes, saving time and improving morale. Lastly, it supports equitable treatment across the team, aligning compensation with goals and fostering a fair, high-performing culture.

Top Commission Rates and Bonus Types to Consider

A sales commission structure determines how much variable pay a company wants to compensate its sales teams.

A typical sales commission structure sets the rules or conditions for how a sales rep earns commissions or bonuses according to their sales compensation plan. The structure differs from the sales compensation plan model in that the plan itself outlines the sellers’ entire compensation package. This could include the base salary, commission rates, and on-target earnings (OTE).

There are about 10 commission structures to consider, in addition to determining when reps get paid, on what, and how much in the actual comp plan.

But what matters most is that the structure and compensation strategy complement one another and motivate and reward positive selling behaviors.

How Commission Rates Vary by Sales Role

The first commission rate we’ll cover includes the single rate, flat rate, and fixed rate. All three terms mean the same thing, which we define as a set earned commission based on a single percentage of the deals that close. By the way, the standard commission rate for SaaS sales is 10%. To set a commission rate, check out this blog.

Instead of a single rate, a company can offer a bonus. Bonuses incentivize sales reps by paying out a pre-determined amount after they meet or exceed a goal. A company can determine the bonus payout in several ways, such as the following:

Milestone Bonus: This bonus is awarded for achieving set goals for each given milestone (monthly or quarterly) within a year that is set by the company. Example: If you hit your quarterly quota you will get a $5,000 bonus. 

Ranking Bonus: This bonus is awarded based on a final ranking within a group. Example: If you’re the top seller for the quarter, you will get a $1,000 bonus. 

Bonus on Multiple Quotas: This bonus is awarded to the person who achieves multiple quotas. Example: If you hit your new business and retention quotas you will earn a $2,000 bonus. 

Accelerators, which reward sales reps for exceeding their quotas or goals, mark another way to incentivize reps. There are two types of accelerators:

Accelerated Rate Tiers by Attainment: The rates can change based on quota attainment or the amount sold. Example: 20% of any deal sold until achieving quota. When the quota is reached, you can earn 25%. 

Accelerators with Multipliers: Rates change based on achievements and multiply by other criteria. Example: You can earn 15% on a 1-year deal, 20% on a 2-year deal, or 25% on a 3-year deal. 

Usually, a company will offer a comprehensive compensation package that will include most or all of the things mentioned above. According to Mapmycustomers, nearly 50% of businesses offer a base salary plus commission, while only 25% offer a base plus a bonus. 

Commission Rates by Industry: A Detailed Breakdown

Curiosu what the top-paying sales industries are? We found some sales commission benchmarks by industry, according to mapmycustomers and SmartWinnr. 

The section of the table featuring only commissions is brought to you by data from Indeed.

Different types of compensation structure

There are more than three compensation structures, but these are the most common:

Commission-only sales compensation plan

A sales rep earns their entire pay based off of what they sell. This type of compensation is common in B2C transactions like real estate, auto sales, and insurance plans. Some sales reps stay away from this type of compensation plan due to companies usually don’t invest in developing the rep’s talent nor can the company forecast long-term business expenses.

Base salary plus commission sales compensation plan

This plan is probably the most common. It’s a healthy balance of giving the rep a salary to live off of, but also giving them an incentive to reach their sales quota. Companies who offer this plan tend to have a better forecast of their business expenses.

Base salary plus bonus sales compensation plan

This plan is most effective for reps who surpass their quotas or preset targets. This plan is also not exclusive to sales reps but also other roles in a company that assist sales reps in closing deals. This allows a company to remain predictable in their forecasts but still give their reps an incentive. 

Commission rates by role

In addition to industry, commission rates by role will vary as well. For instance, a sales rep typically earns the highest percentage from a sale, while a sales development rep, account manager, and sales director receive much less. Let’s take a look at the commission rates by role below.

Account executive commission rates

The standard commission rate on a deal for an AE is typically 10%. Most sales compensation plans will also adopt accelerators to motivate and reward overperformance. Check out this AE comp plan example and template that includes a 10% base rate and an accelerator.

Sales development rep commission rates

SDR comp plan examples might include a means to earn a commission if an AE goes on to close/won a lead the SDR generated. Called the Closed Won Commission model, SDR commission rates will usually fall between 3 and 5 %. 

Account manager commission rates

We’re noticing a shift in commission rates on account manager plans this year. Previously, 5% was the most common commission rate on upsells. However, now that organizations are moving from a “grow at all costs” mentality to a “predictable revenue model,” we’re seeing upsell commission rates closer to 10%. 

Sales Director commission rates

Since sales directors usually earn a commission from every single deal a member of their team brings in, commission rates for sales directors float between 3 and 5%. 

How the Right Commission Structure Can Attract Top Sellers

Thanks for learning with us today about commission rates and comp structures!

There’s not a perfect way to pay out a commission or bonus, but there is a way to make it fair for everyone. QuotaPath can handle nearly all sales compensation plans. So, regardless of the sales commission rates by industry, our commission tracking and compensation management software makes it easier for everyone to understand their sales incentive programs. 

To learn how our platform helps teams maximize revenue through automated commissions, book a time with our team today. 

PS: If you send us your comp plan ahead of time, we’ll map it out for you in QuotaPath and show you over a live demo. 

FAQ

What is a typical sales commission?

A typical sales commission is a percentage of the revenue generated by a sales rep, commonly ranging from 5% to 20%, depending on the industry, role, and sales model.

How much does a sales rep earn?

A sales rep’s earnings typically consist of a base salary plus commissions, with total compensation varying widely by industry, role, and experience, often averaging between $50,000 and $120,000 annually.

How to find commission rates?

Commission rates can be determined through industry benchmarking, analyzing competitor plans, and aligning rates with your company’s financial goals and sales objectives.

What are commission rates?

Commission rates are the percentage or fixed amount of revenue or profit paid to sales representatives as an incentive for achieving specific sales results.

How do you determine a fair commission rate?

Fair commission rates are determined by balancing industry standards, role-specific responsibilities, profitability, and the need to incentivize desired sales behaviors.

How often should sales commission rates be reviewed and adjusted?

Sales commission rates should be reviewed annually, or more frequently if business goals, market conditions, or team feedback suggest misalignment or opportunities for improvement.