Product-led growth (PLG) is growing in popularity amongst B2B companies. 

According to a survey conducted by ProductLed, 58% of the participating companies run PLG models. Ninety-one percent said they plan to increase their PLG efforts, while 47% committed to doubling their investment. 

It makes sense. 

Over the past decade, some of the most popular SaaS tools implemented PLG models, including HubSpot, Calendly, and Slack. 

Yours truly, QuotaPath, also adopted a PLG motion by offering free commission tracking software. 

By creating intuitive, user-friendly products and superior customer experiences, these companies provide customers with a self-service journey to learn, access and experience their products. And, they do so by offering their solutions for free.

This approach stems from the idea that once users see the value, they convert to paying customers and expand with more subscriptions. 

For Slack, it’s paid off. The company went public in 2019 and maintains a paid customer retention rate of 98%, according to this report. Calendly, too, surpassed 10 million users this past year and a $3B valuation. 

But how do freemium PLG models impact sales compensation plans since the product sells itself? 

Below we explore this topic. 

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How PLG motions impact sales compensation

A sales team in a PLG organization has a different focus than a traditional sales-led growth model.

For instance, sales-led teams focus on creating leads, demoing the product, and guiding prospects through the sales process.

PLG sales teams, on the other hand, spend more of their time helping customers realize value and expanding accounts. They might partner with free users to accomplish objectives and guide them through configurations, pricing, and contract negotiations.

So, how can you pay your team appropriately and competitively for PLG models?

Let’s look at an example.

Comp plan example for PLG companies 

To get started, keep in mind that PLG comp plans don’t differ greatly from a standard SaaS comp plan.

How you think about paying on PLG models shifts based on how expansions occur within your business. Do they occur naturally or is it a core component of the sales cycle? This question will help determine how you go about structuring your sales compensation strategy.

At QuotaPath, for example, our expansions happen relatively naturally. Perhaps a deal kicks off with 10 users, then the customer adds their SDR team and 5 new AE hires. 

As is the case with most PLG programs, the customer in this example does not need to sign a new contract. Rather, they can add users directly to the platform, with their pricing immediately updated.

PLG sales comp plans to consider:

The first PLG comp plan example we often see involves paying the sales rep on the expansion at the same rate as the initial contract and allowing it to count toward quota.

Usually, leaders will set a period of time that the expansion payout is eligible. We most commonly see timeframes set within 12 months of the initial agreement. Some organizations will leave it indefinitely. Others will pay reps on expansions only within the first 90 days. 

“If they immediately hand off the deal to a customer success or account manager, it doesn’t make sense to compensate the rep on the upsell,” Graham Collins, QuotaPath Chief of Staff said. “But if they manage the relationship, the rep deserves to be paid on that.”

Higher rates at the time of contract

Another commonly used PLG comp plan entails paying a higher commission rate on the first contract. 

The catch? The company pays a higher rate with no additional payment on expansions because there’s a significant chance they expand later. 

So, a rep might earn 20% off the bat, a rate we consider very high, due to its likelihood of adding more users later.

“Reps might not like this because they don’t get paid on the expansion, but whether or not it expands, the rep still earns a higher rate,” Graham added. 

Commission rates and quotas

A third option to consider is to pay the rep the same commission rate on the expansion while disqualifying it to count toward quota. Or, you could pay a lower rate and not count quota.

Here are the plans we see from most common to least common:

• Most popular: Count toward quota, paid same rate
• Count toward quota, lower rate
• Doesn’t count toward quota, paid same rate
• Least popular: Doesn’t count toward quota, lower rate

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For example, if 30% of free users convert to paid without an AE stepping in, then a cliff or decelerator will pay the AEs on a lower commission rate until they surpass 30%. Once they pass 30%, they begin earning a higher rate on every conversion thereafter. 

Build your PLG sales comp plan

Sales comp plans for a product-led growth company depend on the unique structure of your sales team, strategy, and product. 

We recommend beginning simple and adjusting your plan over time to drive sales behaviors that align with your company goals.

For support with comp plan design, visit our free resource, Compensation Hub. This library includes 20 adjustable free comp plan templates to run and test scenarios. 

To learn more about QuotaPath’s sales compensation automation and management software, book a time with our team for a chat. 

Move over marketing qualified leads (MQL). Community-qualified leads (CQL) are the hottest new best practice for generating solid leads and brand evangelists. 

According to this Community-Led Report, 22% of companies have developed community teams since 2020. These teams consist of cross-functional members of a company dedicated to providing resources and building relationships in communities where their buyers and customers are.

We’re big fans of this approach because it creates a space to build early, authentic relationships with those who fit within our ideal customer profile. That way, when the prospect is ready to talk to sales, they have already seen value from our company and aren’t coming in cold.

But don’t get too excited just yet! This form of engagement is only for the resilient. 

CQLs require a long game to convert them to a closed-won deal. 

Unlike MQLs, CQLs are not measurable. Plus, CQLs impact more than sales and marketing teams. 

So, let’s break down what a CQL actually is. 

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For instance, QuotaPath is a community partner in RevOps and Sales professional communities, such as RevOps Co-Op and Pavilion. We are active participants across their Slack channels and provide resources that directly relate to the sales compensation space, as well as other topics. Just last week we provided a community member with a sample RevOps Analysts’ job descriptions at their request.

Benefits of community-qualified leads to each department 

Each department in a company can benefit from a CQL, but it can look different across teams. 

Below, we break it down. 

Human Resources

By engaging in a community, active members within can identify talent to join the business, either by referral or by members sharing they are open to new opportunities.

Product

User feedback steers product growth. Communities offer a space to receive both solicited and unsolicited user feedback, giving the product team an instant peek into how to prioritize their product roadmap. The product team can also leverage communities to identify beta testers.

Marketing 

Communities set the perfect playground for case studies. Finding people who are willing to talk about their product experience is invaluable. From these case studies, it’s also easy to get a testimonial as well. Communities are also a great hub for finding guest writers. They’ll be able to create authentic content that speaks to the product and brand of the company. These people could be tapped to become an ambassador for the business, too. 

Customer Success 

Customer Success can lean on communities filled with customers to offer best practices and use cases of your product to future buyers and new customers. This creates more value for the product to power users offering support to those who seek it. Communities can also serve as a host for educational content and product FAQs. 

Sales

It might be worth having a couple of your sales reps planted within the community. We recommend the reps who are best at establishing long-term relationships and are okay with a long sales cycle. Tell them the limits of what they can do within the community and what they should avoid. 

For instance, many communities will deter companies from actively advertising their services and pitching their products. But, if a sales member is listening and providing helpful resources and answers to questions that come up, that’s all fair game. 

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According to Commsor, community–led sales is a slow burn. The time in which a potential prospect hears about your business to when they first connect with a salesperson can take much longer than traditional sales. 

Additionally, it’s helpful to understand who in the community is a prospect versus an existing customer. We recommend creating a shareable document that sales and marketing can reference that lists out the customers in each community. 

This way, if someone asks about your product, you can tap into those customers you have solid relationships with to speak to their experience. Because, at the end of the day, your customers are your strongest sellers.

How QuotaPath thinks about community-led growth

While we have a growing business development team who nurture our MQLs before handing them off to sales, we also have invested in our CLG efforts.

In addition to Pavilion and RevOps Co-op, we participate in Modern Sales Pros, Wizard of Ops, and more. In these groups, we respond to compensation questions and consistently share content and free resources, such as Compensation Hub which includes a library of 20 adjustable sales comp plan templates and examples. 

Other resources we share out and encourage you to check out:

• Sales Compensation Calculator (Includes an On-Target Earnings Planner, Sales Quota Planner, and Commission Rate Planner)
• Quota:OTE vs. Sales:Earnings Ratio Calculator (Use this tool to ensure your reps’ on-target earnings and quotas reflect what they’re bringing in for the business)
• Sales Funnel (Experiment with different close rates, average contract values, and activity numbers to see what’s right for your business, team, and individual goals)

Last year, our Chief of Staff (and host of Sales Nerds Live!) Graham Collins shared the patterns he observed after conducting more than 350 compensation strategy calls.  

His top five takeaways include the importance of designing comp plans with a task force, keeping plans as simple as possible, aligning the plan to company objectives, avoiding an over-reliance on sales comp to motivate behaviors, and sales comp plan testing.

The latter, sales comp plan testing, is what we’ll focus on today.

In previous blogs, members from both Sales and Finance agreed that the comp plan design process should start with Sales. 

“I prefer when Sales comes to us with options and pre-proposals,” said QuotaPath VP of Finance Ryan Macia said, in How to include Finance in sales comp planning. “I don’t like starting from scratch. If you can come to me with some concepts that you think will motivate the team, then we can determine if it will break the bottom line.”

Additionally, Sales can take proactive steps by running light pressure tests of the comp model before taking those first concepts to Finance. 

Caroline Tarpey, our former VP of Sales, for instance, said once you give Finance your proposal, they’ll overlay the plan on historical data. 

“They’ll take the new plan and run last year’s numbers through it to see how it would pay someone under the proposed plan and how it differed from how it was actually paid out in the year prior,” said Caroline in How Sales and Finance can work better together this comp plan season. “This is a step Sales can take on too if you’re looking to expedite the process a bit and get Finance buy-in earlier.”

So, whether you’re Sales, Finance, or RevOps, and are curious about how to approach sales comp plan testing, we pulled some best practices with the help of our Senior Financial Analyst, Jonathan Mann.

How to pressure test your comp plan models

4. High-level testing: apply last year’s numbers

“Take a carbon copy of your current year numbers and apply them to next year’s proposal,” said Jonathan.

If it doesn’t fit with the current year, don’t even bother moving forward.

“Go back to the drawing board before you get too involved in pressure testing your forecast and model,” Jonathan said.

3. Run scenarios based on next year’s revenue assumptions

Identify overlaps across plans, bonuses, and SPIF programs. Determine the maximum commission rate that a rep could earn on a deal given any time period.

“If you only think about different programs and plans in isolation, and fail to consider where they overlap, you could up paying a rate that you didn’t intend,” Jonathan added.

2. Skip to the bottom line then work backward

Look at the average commission for the year across the sales team.

“My mind goes straight to a mid-range estimate to what kind of commission expense this results in the year based on the revenue modeling,” Jonathan said. “Then I look at if that number is sustainable and reasonable.”

1. Run sensitivity analysis on each component before modeling mixed variables

Take each variable, such as Quota to OTE, actual commission rates, and multipliers, and test individually in controlled environments. Then proceed with scenario modeling by mixing variables. 

Jonathan also offered this advice to his fellow Finance peers, “These can be sensitive discussions. Acknowledge that. Be human.”

Happy testing!

For additional sales compensation strategy support, check out Compensation Hub. This free library includes 20 adjustable sales comp plan templates that model according to your inputs. Run different scenarios and test to see if the commission structure fits your business.

And, to learn more about QuotaPath’s automated compensation management software, book time to chat with their team today.

QuotaPath’s Senior Director of RevOps, Ryan Milligan, presented on sales compensation transparency at the ‘Hot Takes Live’ event hosted by the lead scoring platform Breadcrumbs. Below, he shares his “hot take.”

I care a lot about sales compensation, and I believe it should be public and equal for everybody. 

One of the things I run into a lot is that companies assign different quotas and pay different comp plans to people within the same roles. 

That could be due to rep tenure or different territory assignments. But when this happens, reps have different base salaries, on-target earnings (OTE), and variable comp. All of which I am firmly against. I feel very strongly that within your sales organization you need to have people in the same roles with the same variable, base, and OTE.

Here’s how I think about this. 

This can lead to inequity if you don’t build this process fairly from the start. 

Comp transparency within the sales team

Additionally, there’s a lot of transparency in the job market itself, but not as much within sales teams.

I’ve talked to a lot of sales teams where one AE didn’t know that she made less than another AE in the same role, who had more tenure and a better territory. 

So, as we’re adding transparency to the job market, we also need to add it internally with our sales teams. 

At QuotaPath, we have an Account Executive, an Account Executive II, and a Senior Account Executive role. Each rep with the same title shares the same variable and base, and as they get promoted they earn a higher base and variable as they level up to AE II or Senior AE. 

That should be public, and every rep should know and understand the varying levels of OTE for positions within the org. 

Why sales compensation transparency is important

Sales compensation transparency is important for a couple of reasons. 

One, it removes preferential treatment. We’ve all talked to the sales teams that began as founder-led sales. Then eventually a startup grows to have three reps. The first three reps brought on board did really well. Then reps five through 17, don’t do as well, because they’re not getting those great deals handed off from the CEO. 

We want no preferential rep treatment. We want every single rep to have the exact same shot at winning. 

Secondly, it gives growth visibility to your team. When a rep can see their path to success and the comps that follow promotions, they are less likely to look for another job.

And finally, something I care very much about — it makes the sales commissions process easier. You have the same commission rate across your teams, and quota-to-OTE ratios that your reps understand. It’s easier to calculate on the Ops side and easier for your team to tie deals to earnings.

As a result, you have a commission and comp process that is equitable and fair for your organization — and happy reps.

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Make sure to implement a comp plan easily understood by your reps, that’s public-facing, and standardized across roles.

About Compensation Hub and QuotaPath

QuotaPath aims to deliver sale compensation transparency to scaling revenue teams. With real-time insights into earnings, attainment, forecasted commissions, and quota retirement, QuotaPath’s commission tracking software motivates teams to bring in the next deal. RevOps and Finance teams can explore adjustable sales comp templates and models within Compensation Hub, a free and ungated comp planning resource, then automate the process entirely in QuotaPath. Sync your CRM and trust the data is accurate.

Leaders may disagree on including sales compensation elements such as clawbacks, cliffs, and decelerators, but one thing they can agree on is that the topic of pay is an emotional one.

Dealing with people’s pay is something that’s extremely sensitive. It’s something you don’t want to get wrong — and, frankly, can’t get wrong.

That’s why it’s critical that you regularly communicate with your team about their commissions and build transparency around your compensation processes. Because when done wrong, unhappy reps and mass exoduses follow.

Mark Roberge, for instance, witnessed this firsthand.

The Managing Partner at Stage 2 Capital and former HubSpot CRO once received more than 10 account executive resumes from the same company after it issued a new sales compensation plan. 

Put yourself in that position for a moment. 

Your sales compensation plan caused an immediate knee-jerk reaction that sent a dozen reps fleeing to another company. 

How would you recover?

“Money is emotional,” said Hilary Headlee, EVP, Sales + Customer Success COE at Insight Partners. “You’re playing with people’s money and their livelihood.” 

When Hilary ran Sales Ops previously, balancing the emotional element of compensation was one of the trickiest pieces, she said. 

“There’s a perception that sales is coin operated, in it for the money, and that they have tons of money,” Hilary said. “But when you talk to these folks, you learn that maybe they’re taking care of their parents and three kids or siblings, or paying off a horrible medical bill.”

“It’s not always what it seems,” she added. 

In doing so, you’ll gain a deeper understanding of what motivates them and why. This can influence your coaching approaches and compensation strategy.

Begin comp plan design with the leaders closest to the reps

“There tend to be misaligned goals with comp plans in terms of what the company wants and what the individuals want,” Kevin “KD” Dorsey said, when asked what the biggest challenge around sales compensation is. 

The Sales Leader, Advisor, and Coach at Winning By Design added that to ensure a human approach makes it into your comp plan, get the people closest to the sales team involved early. 

“You have to understand how individuals make decisions,” KD said. 

When you have your company’s Finance team control the comp plan design from the jump, you risk a plan that only benefits the company. 

“If the plan is built by someone that does not understand Sales, salespeople, and the sales process, the plan itself almost always breaks,” KD said. “Because it’s just built with assumptions that aren’t real or things that are not achievable.” 

Ensure your compensation planning process includes a human element

As we wrap up, remember that your compensation strategy is more than a variable pay structure. It’s a motivational tool and a way to align and reward your reps to your company’s business goals.

But in order to leverage it as motivation, you must first understand what motivates your team. And that starts with empathy and a human approach.

With that, we leave you with this quote from Co-Founder of Climate Club, Philip Charm:

“Compensation is part of the core foundation of trust between the company and the individuals.” 

For help with compensation planning, visit our free resource, Compensation Hub. To learn more about QuotaPath’s commission tracking and compensation management software, book a time with our team for a chat. 

Gamification in the workplace has increased in popularity by 143% over the last five years, according to recent research. The same study revealed that 70% of global 2000 companies and 50% of startups use this approach to drive employee engagement and boost results. This comes as no surprise when you consider that:

• 72% of people say gamification motivates them to work harder on the job
• 90% of employees say gamification makes them more productive
• Employee engagement increases by 60% with gamification
• 89% of workers say that gamification makes them feel happier at work
• 69% of employees reported they would stay at a company for more than three years if they used gamification in some way

With benefits and outcomes like this, it makes sense that companies using gamification are 7 times more profitable than those that don’t.

More specifically, the benefits of gamifying sales commissions include:

• Increased familiarity with how to earn more
• More reps actively tracking commissions and attainment progress 
• An increase in desired sales behaviors
• More reps hitting quota
• More closed deals
• Increased revenue
• Better sales rep retention 

The timeliness of gamification in today’s market

Since before the pandemic, hiring and retention have changed. It’s become increasingly difficult to retain great talent. Add in the current economic conditions, and many businesses have reduced their headcount, which has forced them to do more with less.

As our sales rep, Alex Brennen, shared an insight from her prospect calls, “We are in a time when rep motivation and squeezing the juice out of every rep is critical for organizations more than ever. Motivating reps using their own “why”—which is often money — is the best method.”

Our Sales Compensation Trends Survey supports this sentiment, revealing that 86% of reps rank compensation as their top priority when looking for a job. This makes it essential that your existing reps and potential hires understand the value of your carefully crafted comp plan and its details.

Sales compensation gamification helps reps gain a deeper understanding of your comp plan and how they can maximize their earnings. It makes selling more fun, increases rep happiness, and boosts retention.

How QuotaPath gamifies sales commissions

Automating sales compensation with QuotaPath gamifies compensation for your reps in the following ways:

Provides clarity around sales commissions

Reps immediately gain insight into sales commission earnings and quota attainment, and which deals will push them to their next bonus or commission tier. 

As Director of Commercial Operations Ron Morgan at EverView said, “Our comp plan was easily measured and easily viewed by our sellers in QuotaPath, which drove positive selling behaviors.”

Thomas Egbert, Prefect’s Head of Finance added, “This platform has significantly upgraded our sales compensation process. From the time saved on the financial side to our reps fully understanding and feeling motivated by our incentive structures. QuotaPath saves days of time worth of unnecessary spreadsheets and emails.”

Forecasting commissions

Plus, by gamifying sales commissions, QuotaPath gives reps the ability to run “what-if” scenarios. This way they can see how close they are to goals and how much they’ll earn when deals in the pipeline close. With QuotaPath’s forecasting software, reps always know how much to expect in their paycheck.

According to VP of Sales Joe St Germain at Blackthorn, “Our reps realized they could run scenarios and see how much they could earn from our monthly kickers.”

This led to big pushes from Blackthorn’s reps as they moved to fully maximize the accelerators set by Joe. QuotaPath’s ability for reps to run “what if” scenarios also broke down how much they would need to book monthly to lock in an extra 2 percent per deal toward the end of the year.

Real-time visibility

QuotaPath automatically tracks sales commissions in real-time, so reps can see how much they’ll earn on a deal-by-deal basis and how much they will make when they hit the accelerator threshold.

That’s how Blackthorn broke sales records. According to Joe, “Our team has had record sales months the past three months. QuotaPath’s visibility has given our reps a little extra boost to go out and get as much as they can.” 

Personalized goal setting and tracking

Additionally, with gamified sales commissions, reps can track their achievements and progress toward personal goals, like saving for a vacation.

Alex said, “We’ve seen a best practice is to focus on how their attainment is working toward their personal goals, rather than the company’s targets. My manager opens up our one-on-ones talking about how I’m trending toward the vacation I am planning at the end of the year that I am tracking in my QuotaPath Workspace.”

This leadership technique, Alex picked up from Kevin “KD” Dorsey’s Winning By Design course teaches focusing on the person in “salesperson.”

“As I’ve grown as a leader, I have a better understanding of what truly drives behavior, motivation, and long-term success,” wrote KD. “If we can make better people, the sales will follow.” What a great way to motivate sales reps and get to know them better!”

Start boosting sales performance

The research speaks for itself. Businesses that use gamification are seven times more profitable, their employees are more engaged, happier, and more productive. Plus, their retention rate is better. 

Gamifying commissions provides your sales team with a better understanding of how they earn on your compensation plan. It gives reps the ability to track their progress toward key milestones and what they need to do to boost earnings. 

Gamification helps keep your team motivated and focused on the behaviors you are trying to encourage. Plus, quota attainment and overall revenue increase. Isn’t it time you start benefiting from commission gamification too? Book a demo to see how QuotaPath tracks and gamifies commissions.

Paying your employees on a commission basis is a complex operation, and it can sometimes be difficult to retain employees if the system isn’t working for them. If you don’t run an attractive system, it may also be more challenging to recruit the best candidates. For example, during new-hire ramp-up periods, most employees can’t be expected to earn much commission, which can put people off if they expect a certain standard of living.

When your products have long sales cycles — for example, on large construction projects — this could also pose a problem as your employees can wait a year or more for their commission earnings to kick in. Likewise, certain products backload deals later in the year. It can be difficult for employees to organize their finances if their commission payments occur primarily in three months of the year, with little to go around on the other nine.

In all of these cases, the solution could be moving to a payment system that involves a draw against commission.

What is a Draw Against Commission?

A draw against commission is a loan to an employee against future commissions that have not yet been earned. It’s typically used as an alternative to straight commission or salary-plus-commission-based payment schemes. A draw on commission works by either paying the employee recoverable or non-recoverable draws.

Recoverable Draws

When your employee is on a recoverable draw against commission scheme, a fixed amount is advanced to the employee to cover a specific period. If the employee earns more commission than has been paid, the employer pays them the difference. However, if the employee doesn’t make enough, they are expected to pay it back at a later date, usually in the next draw period.

Non-Recoverable Draws

Non-recoverable draws against commission are often paid to new sales employees for an initial fixed period. If their earned commission is higher than what they have drawn, the employer pays out the difference. However, if employees don’t make as much as they have drawn, they are not penalized. This acts as a guaranteed minimum income until the new employee has built their customer base or when their sales have long lead-in times.

We recommend offering this when your sales cycles are particularly long to offset the ramp-up period as well as the waiting game before their first deal finalizes.

Tips on Using Draws Against Commission

When using draws on commission, it’s essential to remember that there are state and federal laws governing its use. It would be good practice to hire a specialist employment lawyer or accountant (check the average salary of CPA)  to ensure you comply. Here are some essential tips on what you should be aware of:

1. Most commissioned roles still need to comply with minimum wage laws, so check that your organization meets these requirements.
2. Many states have rules on commission-based employment that are stricter than federal ones. Therefore, if you have employees across multiple states, be aware that you will need to comply with each state’s laws.
3. Remember to consider overtime wages. While some commissioned employees don’t qualify for overtime payments, many are. This often depends on if they work on external or internal sales.

Automate Your Draw Against Commission Process With Quotapath

When you pay people on a commission basis, it’s sometimes helpful to use a draw against commission process. This is often appropriate for new employees, where sales are seasonal or when sales have long lead-in times. It’s sometimes even a good idea to make the payments non-recoverable, particularly for new employees.

With QuotaPath’s commission tracking software, keep track of your employees’ commissions and what they’ve been paid and reconcile it all within one easy-to-use application. Simply input your CRM data, and the software does the rest. Remove blocks between Finance and Sales through QuotaPath’s sales compensation management software. Contact us today to schedule a demo.

Although Sales and Finance share a goal to generate as much revenue as possible, their approaches to achieving it differs quite a bit.

“Typically, people in Finance gravitate toward data-driven decision-making that’s backed by evidence,” said QuotaPath VP of Sales and Customer Success Caroline Tarpey. 

By contrast, although sales leaders also leverage data, they may lean toward a decision-making process that favors quick action versus deeper reviews.

So, when it comes to getting Finance buy-in for your sales compensation plan proposals, we recommend treating it like a sale.

“We as salespeople tend to forget to sell the way that Finance likes to buy,” Caroline said. “And the way they like to buy is through proof.”

For example, when we sell QuotaPath’s commission tracking platform to sales leaders, they are most motivated by our proof of increasing attainment. Meanwhile, Finance wants to see an audit and all of their data in the system to double-check if it’s correct.

To find out how Sales sell their comp plans to Finance, check out the Q&A with Caroline below.

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What happens after the preliminary Sales and Finance convo?

After you socialize the initial plan ideas, Finance will want you to put together an actual plan in writing that they can then take offline and digest. 

What’s important for sales leaders to remember at this step?

The notion that your finance leader will give you the final answer on the fly for anything other than a small SPIF is fundamentally misaligned with how Finance wants to make decisions. They need the draft and they need to run their own scenario modeling in tandem with RevOps. Financial leaders need to follow financial world trends; there are great platforms to read financial news, such as BadCredit.

What kind of testing will Finance and RevOps run?

Usually, they’ll overlay the plan on historical data. They’ll take the new plan and run last year’s numbers through it to see how someone would have been paid out and how it differed from how it was actually paid out. 

This is a step Sales can take on too if you’re looking to expedite the process a bit and get Finance buy-in earlier. 

READ MORE: How to involve Finance in Sales Comp Planning

What should Sales avoid while working with Finance over comp planning?

We should avoid asking them to act the way we act. Quick actions by sales leaders make us successful. But what makes Finance successful is not having that hasty decision-making. 

Also, do not wait until Dec. 23 to throw a meeting on the calendar with Finance to talk through your comp plan mock-up. The earlier the better. This process takes time, so give it the time it deserves.

Lastly, can you share a time when Finance passed on your proposal and what followed?

It is my fundamental job to help my reps earn as much as possible, and I want to give them the best path to achieve their financial goals. That means I am eager to throw in motivational components to their sales commission structure, like accelerators and bonuses for large deals, competitive takeaways, and specific products or industries. 

I put a plan proposal together that included a lot of components. I had not come to the table having done my analysis of how much it would pay out in a top rep scenario. 

When the CFO took a look, she came back to me and said the effective payout rate on a deal that hits on all of these compensation levers pays an astronomical percentage. We couldn’t pay out half the value of the deal, but she did come back with options that we could implement. 

There you have it. For additional support with your compensation plan needs, visit Compensation Hub. This free (and ungated) resource is available for anyone to explore and model commonly adopted compensation structures with their own business variables. 

And, to learn more about QuotaPath’s commission payout and incentive compensation management software, book time with their team today. 

How you roll out your comp plan design to leadership and your sales team can have a huge impact on the trust level and rep retention in your organization.

Mark Roberge, Managing Director of Stage 2 Capital, for example, has been on the recipient side of a mass exodus.  when “10 amazing salespeople from a particular company came to me with job applications.” 

The cause?? A comp plan design change fumbled by a bad communication plan.

According to Mark, “You have to carefully manage the design and communication process of a compensation plan.”

Just as important as it is for reps, leadership also needs to have a solid understanding of the comp plan. Doing so creates alignment across the organization and helps Sales, RevOps, and Finance work together to design mechanics and levers that help them reach their revenue targets.

Below, we outlined what to include when preparing your comp plan design for presentation to leadership.

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Example compensation communication plan for reps

Equally important is how you communicate new sales compensation plans and changes to your reps. To do so effectively, leaders should provide proper context and details. Below, we provided a brief explanation of each element you should include in an example compensation communication plan.

Multiple meetings

When it comes to meetings, start broad and become more detailed when sharing a new or revised comp plan design. You can accomplish this through the following series of meetings. 

Voluntary town halls  

Mark recommends holding voluntary town halls prior to the comp plan design process. 

During this open discussion, share potential changes to the comp design that reps can expect next quarter with the VP of Sales and possibly the CEO present.

Outline the drivers of the plan and reasons for upcoming changes. Then ask for comments and suggestions.

Following the meeting, post a draft of proposed plan changes on Slack to facilitate rep comments and further discussion. Your reps will have a few good ideas, so you can use those in your plan design. Just make sure you explain why you can’t use the bad ones.

As Mark says, “Your salespeople deserve to know why the design is the way it is and why changes they propose can’t be done.”  

This meeting prevents any surprises when you roll out the final plan.

SKO 

A lot of revenue teams will officially introduce new comp plans at the sales kickoff (SKO). If you’re adding this to your agenda, which we highly recommend, the CSO, CRO, or VP of Sales should:

•  Explain how business goals link to sales goals
• Demonstrate alignment across HR, sales operation, and sales executives in designing the plan
• Clearly delineate changes to the comp plan and the why behind these changes
• Show how the company will support the sales team with these changes
• Inspire the sales organization

Team and one-on-one plan reviews

In addition to the SKO, we suggest sales managers conduct team meetings and one-on-ones specific to compensation. This will provide an opportunity for managers to explain the plan,  and how it impacts both the team and individual contributors. This marks a great time as well to distribute detailed plan documents, FAQs, videos, what-if calculators, and other launch materials for sales team members to review.

Plan verification

Once you have communicated the plan changes to your team, ask your reps to show their understanding by signing a commission agreement. 

This is an essential step that entails asking reps to indicate they understand their plans by signing off on them. Leadership should introduce plan verification or re-verification every time they make a change to the compensation plan. You can complete this process by using DocuSign, via email, in person, or by leveraging our in-app Plan Verification feature.

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Explain the why behind the changes

Make it easier for your team to accept changes by helping them understand why leadership adjusted a plan and how new resources and enablement will support them. This creates excitement and adoption of the new program.

Create channels for reps to reach out with comp-related questions

Plan documents should answer most rep questions, but it’s best to provide your team with multiple ways to address remaining questions. Some options include a private chat channel, email threads, phone, and in-person.

Plan your comp plan design presentation

You invest plenty of time on comp plan design, so don’t let it go to waste due to poor communication. Plan to present your plan to your leadership and team to ensure understanding while building excitement and adoption. Otherwise, you risk rep attrition and missed revenue targets. Have your comp plans ready to go? Try running it through Compensation Hub to see how healthy it is for your business looking ahead.

A business development representative (BDR) or sales development representative (SDR) team sets the first impression of a product to a prospect while growing a pipeline of qualified leads for account executives (AE).

Most organizations don’t add this sales function until noticing a significant uptick in quality leads.

At QuotaPath, we built out our first SDR team this past summer, led by our Director of Demand Generation Bret Lehnhof after our AE team no longer had the bandwidth to follow up with marketing qualified leads (MQLs). 

When building out the team, Bret said we look for people who are confident or “go-getters,” who don’t necessarily come from sales. Maybe they bartended or worked in retail sales, as people who have worked in fast-paced environments tend to do well in sales. For these individuals, joining an SDR team is the perfect entry point into SaaS sales. 

For any team thinking about creating an SDR team, check out what Bret shared after developing QuotaPath’s.

What we learned:

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The better the compensation plan, the happier the SDR, and the more they’re willing to work hard to reach quota.

Pro tip: To explore various SDR commission pay examples, check out these five in Compensation Hub.

5. Set clear expectations of the responsibilities of an SDR 

There are a lot of things an SDR has to balance in order to be successful. Bret mentioned that one of the things we look for when recruiting SDRs is people who have demonstrated a go-getter mindset. That’s regardless if they’ve ever had sales experience or not, because if their previous experience reflects this behavior, then they’ll go the extra mile to pursue a prospect. 

“They have to learn how to figure out what the lead is and how it becomes an MQL,” said Bret. “That involves researching Salesforce and HubSpot, diving into LinkedIn, learning about the company, and enrolling them into a Salesloft cadence.”

At QuotaPath, SDRs also identify the lead as an ”ideal customer profile” or ICP. This helps them further qualify a potential lead if they use the ICP guide correctly. 

To ensure your reps feel adequately prepared to perform their roles, always provide them with the full scope of their responsibilities. 

4. Create a realistic and attainable quota 

We brought on our first SDR from our AE team. As a junior AE, this person demonstrated a solid understanding of the outbound sales motion and product and showed a willingness to qualify quality deals. 

She already knew the product and how to sell it, and she was willing to take a step back from her junior AE role to help build out a new function in the sales department and take on a possible future leadership role. 

In her first month, she blew her quota out of the water. 

“You’re not going to have much data or know what’s attainable for an SDR when you get going,” Bret said. “So, start with a quota that seems attainable for the first quarter.” 

After two successful months of having a one-person SDR team, we also just brought on another SDR who started ramping up into the role within a couple of weeks! 

Creating a quota that’s attainable for your team sets the bar for positive outcomes and a team of SDRs who want to continue to have that same level of success. 

3. Have the right tools to maximize productivity 

A lot of SDR teams, including ours, uses Salesloft to manage their outreach cadences. Other popular tools include Outreach and Reply.io.  

“Figuring out what length of an email is most effective is key, as well as understanding the timing of the intervals between outreach touches,” Bret said. “We were pacing them out too widely in the beginning. Now we’ve narrowed it down and reduced some of the gaps in outreach touches and it’s really helped with conversion rates.” 

Additionally, give them a tool that makes it easy for them to track their progress. For instance, our reps leverage our own platform for attainment and commission tracking.

Having the right tool in place will play a role in the success of your SDRs. 

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1. How to develop your SDR team in 2023 

For other sales teams planning to build an SDR team in 2023, Bret said to avoid biting off more than you can chew. 

“Start small and test out the SDR function within your organization to make sure it works for you and the business model. Then, scale up as you find success,” Bret said.

He added that it’s important to empower the SDRs to own their own process. Allow them to experiment often and get creative so it’s not so regimented and they won’t get bored. 

Are you preparing to build out your first SDR team in 2023? The process can seem overwhelming, but QuotaPath can help you. For comp plan best practices and SDR compensation examples, visit Compensation Hub. 

Get the commission agreement template

A sales commission agreement may seem like an inconvenience, but not only are they the law in California and New York, they are beneficial to you and your reps in many ways. 

So, even if you don’t employ any reps in those two states, it is in your best interest to invest the time and effort to prepare a proper sales commission agreement. Then, once you have that prepared, you can confirm your sales team’s understanding by having them sign the agreement. 

As a heads-up, this process can be time-consuming. But is totally worthwhile. 

Not only are you complying with the law (if you happen to have team members in states that require it), but you also take a step to ensure your reps understand how and when they earn commissions.

This ultimately creates alignment and transparency across the comp planning process.

When reps understand how they earn commissions, your comp plan does what it’s intended to do — motivate and guide reps.

Otherwise, everyone involved ends up frustrated. Reps grow unhappy with their pay and can’t understand why they aren’t making the income they were expecting. Your team members miss quota, which keeps your organization from hitting revenue targets.  

Why is a Commission Agreement Important?

A commission agreement ensures clarity and alignment between an organization and a commissionable sales rep by explicitly defining compensation terms, including commission rates, payout schedules, and performance expectations. This agreement reduces misunderstandings and disputes, fostering trust and accountability between both parties. It also provides a legal framework to protect the company and the rep, ensuring compliance with labor laws and organizational policies. Ultimately, a well-crafted agreement motivates the sales rep by clearly linking their efforts to rewards, driving performance and achieving business goals.

When to Implement Commission Agreements

That’s where plan verification comes into play. 

Anytime you introduce a new comp plan or change to an existing one, you should issue a commission agreement.

We call this process plan verification, which occurs when a rep signs a commission agreement that outlines the details of their sales commission plan. 

Typically, this happens at the beginning of the year and when mid-year adjustments are made.

Leaders at larger companies often administer compensation plan verifications via DocuSign, storing agreements in Dropbox, on Google Drive, or in an email folder. This process is similar for smaller companies as well but may take place in person.

Attaining 100 percent comp plan verification can be a slow, frustrating, manually tracked process that takes weeks to complete. 

Fortunately,  it doesn’t have to be that way. With QuotaPath’s Plan Verification, your reps can verify their compensation plans in just a few hassle-free steps directly in QuotaPath.

Commission Agreement Example

Before you can verify your reps’ understanding of the sales compensation plan, you need to actually create your commission agreement. This template should include the following:

• Effective dates – The specific start and end dates when the plan will be used to calculate commissions.
• Intro – This section explains what the document is, its purpose, and what action the recipient needs to take.
• On-target earnings – A clear explanation of the amount of money the rep can expect to earn if they hit 100% of quota. We see this number most often as an annual figure. This section delineates how much the rep should expect to receive from base salary and from commissions
• Quota – This section specifies goals the sales rep must attain during a designated period to earn commission
• Commission table – A listing of commission rates earned on deals depending upon the rep’s progress toward quota.
• Payment eligibility – An explanation of the timing of qualified commission payments and any other rules pertaining to commission payment, such as the client paying their entire invoice by a specified date.
• Bonuses – A listing of quarterly, monthly, or annual bonuses along with related targets to hit, the amount to be paid, and when the bonus will be paid.
• SPIFs – This section addresses the fact that there may be times throughout the year, such as slow periods, when the company wants to drive revenue by running contests, incentives, and/or bonuses (called SPIFs). This part of the sales compensation plan template specifies that SPIFs include short-lived, time-based, one-off compensation drivers.  As such, management will provide and distribute the terms of said programs as they occur.
• President’s Club – An explanation of what this reward is and how to qualify.
• Clawbacks — A clawback occurs when a rep must pay commissions back to the company when a customer abruptly ends the contract within a certain period. This section is where you detail rules relating to clawbacks.
• Legal Disclosure – This section communicates that this is the entire compensation plan, that it supersedes prior agreements, and that verifying by signing signifies acceptance and compliance by the rep.

Commission Agreement Template

To start, download this commission agreement that we created, then tailor it to your specific details.

For more information on QuotaPath and our Plan Verification feature, chat with a team member today. 

And if you’re looking for sales compensation plan templates specific to modeling structures, check out our free Compensation Hub.

Best Practices When Using a Commission Sales Agreement

Here are five best practices when using a commission sales agreement:

1. Clearly Define Compensation Terms: Specify commission rates, payment schedules, performance metrics, and any conditions for earning or forfeiting commissions. Ensure these terms are precise and unambiguous to prevent disputes.
2. Include Compliance and Legal Protections: Align the agreement with applicable labor laws, tax requirements, and industry regulations. Outline how disputes will be resolved and include confidentiality clauses to safeguard company information.
3. Address Quotas and Performance Expectations: Clearly outline sales targets, quotas, or other performance benchmarks required to earn commissions. Detail how adjustments (e.g., for refunds, cancellations, or returns) will affect payouts.
4. Outline Termination and Post-Termination Terms: Specify how commissions are handled if the sales representative leaves the company, including any owed payments for deals closed prior to termination.
5. Ensure Mutual Agreement and Updates: Review the agreement with the sales rep to ensure understanding and alignment. Regularly revisit and update the agreement as compensation structures or business goals evolve, obtaining signatures for each revision.

Common Mistakes When Drafting A Commission Agreement

Like anything, some common mistakes can arise when writing your commission agreement.

These are the most common to pay attention to:

Lack of Clarity in Terms: Ambiguous language around commission rates, payout schedules, and performance metrics can lead to confusion and disputes. Clearly defining terms, such as when commissions are earned (e.g., at contract signing or payment receipt), is critical for both parties.

Failure to Address Adjustments and Exceptions: Omitting how adjustments for refunds, cancellations, chargebacks, or partial payments impact commissions can leave the agreement incomplete. This oversight can result in financial misunderstandings and legal complications.

Ignoring Termination and Post-Termination Clauses: Not specifying how commissions are handled when a sales rep leaves the organization can lead to disagreements. Clearly state whether commissions will be paid for deals closed before termination and under what conditions.

FAQs

Can you write your own commission contract? 

Of course! You can write your commission contract, but it’s important to ensure it is comprehensive and legally compliant. Including clear, unambiguous terms, consulting a legal professional, or using templates tailored to your industry can help ensure the contract protects both parties and aligns with applicable laws.

What key sections are included in a commission agreement contract?

A commission agreement typically includes key sections such as compensation structure (commission rates, payouts, and schedules), performance metrics or sales targets, dispute resolution processes, termination clauses, confidentiality agreements, and any conditions for earning or forfeiting commissions. These sections ensure clarity and reduce the risk of disputes.

Should sales targets be part of the commission’s agreement? 

Yes, including sales targets in a commission agreement can help align the sales rep’s efforts with the company’s revenue goals. Clearly defined targets provide transparency, establish performance expectations, and help determine when commissions are earned, ensuring alignment between the organization and the sales representative.

How do I terminate a commission agreement?

Termination of a commission agreement should follow the terms outlined in the contract, such as providing notice or meeting specific conditions. Clearly document the termination in writing, and specify how final commissions will be handled, ensuring compliance with applicable labor laws and avoiding disputes.

When should a commission agreement be used?

A commission agreement should be used whenever a sales representative’s compensation is tied to performance-based metrics, such as revenue generated or deals closed. It establishes clear expectations, protects both parties legally, and ensures alignment on how commissions are calculated and paid.

What is a commission letter? 

A commission letter is a simplified document that outlines the basic terms of a commission structure, often as part of an employment or contractor agreement. It typically includes details such as commission rates, payment schedules, and any performance expectations, providing a concise reference for both parties.

Can I edit your commission agreement template?

Yes! Go forth and customize.

What is a sales commission policy?

A sales commission policy is an internal document that outlines the company’s approach to calculating, paying, and managing commissions. It includes details about eligibility, performance metrics, adjustments for refunds or cancellations, and compliance with applicable laws, serving as a guideline for both employees and management.

Like other processes and procedures in sales, approaching hierarchies of parent child accounts contains a lot of blurred lines and situational dependencies. Fortunately, we’ve got some experience to clear this up.

Before we explore various scenarios and share our recommendations, let’s start by answering this question:

You might see this happen when selling into franchises, distributors, and affiliates, too. 

To avoid confusion, sales leaders should define rules and hierarchies around parent child accounts. 

How to approach parent child accounts in sales

First, you have to approach parent child accounts in sales by establishing rules. Then you can create an appeals process for the sales rep because, as we all know, exceptions to the rules will happen. 

Below, we list a few rules to consider when defining parent child accounts:

Externally:

• Who signs and pays the final agreement?
• Are you selling to different decision makers?
• Is there a different domain name or website?
• Is the headquarters on the child account different from the parent?
• How are they listed on Dun & Bradsheet?

These will help you determine what to set the opportunity as. In our university example, if the Journalism School has sole purchasing power, that may suggest that despite it being a child account, it could classify as new business for the rep. 

Once you have that, then you can begin to answer internal questions.

Internally:

• Who sells to the account, the AM (renewal/upsell rep) or AE (new business rep)?
• Who gets quota or credit on child accounts?
• Does it count as new or an upsell if parent is a customer?

No matter what, you’ll have to decide if all companies are unique, no companies are unique, or some companies are unique.

For instance, a “some companies” scenario might involve a child account with purchasing power, like the Journalism School example. On the contrary, purchase orders from a franchise that are signed off on by the decision-makers at the parent account (and from the parent account’s address) would likely categorize as an upsell opportunity instead of a new business one.

Most importantly, as you’re creating rules around parent child accounts, remember that situations change often. You should remain open to changing rep credit in situations where it makes sense.

As an example, if account executives typically don’t earn commissions on upsell opportunities, but AMs do not have time to “prospect” child accounts within parent accounts, that’s a strong case toward crediting and rewarding the AE. 

When should you establish child/parent account hierarchy in your CRM? 

The sooner the better.

“The worst time to settle these hierarchy disputes is after the contract is signed,” our Chief of Staff Graham Collins said.  

RevOps and SalesOps should have the classifications of parent child accounts established well before anything is signed, along with whether it’s new business or an upsell.

Ideally, this happens when a new account is created. But, let’s be honest, that’s incredibly challenging to maintain. So, when a new opportunity enters into your CRM, if it hasn’t been set yet, that’s when you should define it as new business or an upsell. 

How to comp on account hierarchies

To compensate on parent child accounts, consider treating every child and parent account as new business, each one as an upsell, or treating some as new business and some as upsells.

When thinking of rules on how to set parameters around sales compensation for account hierarchies, consider the questions we mentioned above:

• Are you selling to a different decision-maker?
• Is there a different domain name or website?
• Is the headquarters on the child account different from the parent?
• How are they listed on Dun & Bradsheet?

This will help determine if a child account is its own unique entity. 

Generally, you should aim to reward full credit — both commission and quota progress — when it’s a unique entity.

But you could also consider compensating on new child accounts as new business without retiring quota. A third option that we’ve seen is splitting the commission between an AM and AE on upsells within the account hierarchy. 

Another factor to look at when deciphering between new biz or upsells is the origin of the opportunity.

• Was it a referral from the parent account? That could be an upsell.
• Did the child account independently find you or did a rep reach out? We’d consider that a new account. 

That’s a lot of words to say, classifying parent child accounts and crediting appropriately to your team is a complicated beast. It’s not impossible though, you just need to set up guidelines at the onset and be willing to adjust when it makes sense for your reps and your customers.

Remember, 20% of your customers generate 80% of your revenue. Give your reps and AMs a reason to go after that 80%.

For more help with compensation plan modeling and design, visit QuotaPath’s free modeler, Compensation Hub. And, to automate your sales compensation process, including commission tracking, schedule a chat with a member of QuotaPath’s team.