Commissions floors, or “cliffs” require an individual to meet a certain performance threshold before gaining commission payout eligibility as defined by the sales compensation plan.

Usually, a certain amount of sales or revenue determines the floor or threshold.

The benefit? It can incentivize salespeople to focus on hitting key performance milestones while safeguarding the company from having to pay commissions for underperformance.

However, unintended consequences often appear with cliffs. 

Rather than motivate reps to hit the threshold, commission floors can actually demotivate and frustrate reps. Instead of aiming for a high velocity, albeit smaller deals, cliffs may encourage reps to go after less, larger deals. Or, it can promote sandbagging. 

Sandbagging occurs when a rep intentionally stalls a deal to game their compensation plan. If there’s a cliff, and the rep knows they can’t pass the threshold in the current month or quarter, they may hold it to have a better shot at passing the cliff in the next quota cycle. 

Now, with that context, are you for or against commission floors?

This topic can be a heated one, so we reached out to a few experts in the space to hear their thoughts.

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Graham Collins: Against commission floors

We first asked Graham Collins, our Chief of Staff, Compensation Plan Expert, and Sales Nerd.

“Commission floors tend to encourage sandbagging,” said Graham. “If I have to hit 50% of my quota this quarter to start earning commission but I know my next deal only gets me to 40%, then I’ll kick it to next quarter.”

Plus, set the floor too high, and you’ll upset your reps. But if you set it too low, and everyone hits it, then why even have a cliff?

“Cliffs can discourage new salespeople and even applicants,” said Graham. “It’s a red flag that indicates a lot of the team missed quota so they had to add a floor.”

As an alternative, Graham suggests adding a commission rate to a different tier. For example, once a rep hits 50% of their quota target, their commissions retroactively apply to everything they’ve sold. 

For compensation plan strategy support and templates, visit Compensation Hub.

Rhys Williams: Against

Rhys Wiliams, Domestique Consulting Founder & Managing Partner and former VP of RevOps at Convercent, shared four reasons against commission floors.

1. If you design the comp plan correctly, you shouldn’t need a floor.
2. They lead to sandbagging.
3. Cliffs can be a cultural drag and make it more difficult to recruit the best AEs.
4. There’s likely a larger systematic issue.

Regarding his last point, Rhys suggested the following as a potentially larger issue: “Do you have an effective demand generation forecasting meeting that is contributing to a consistent pipeline where AEs have enough coverage to hit their number?”

If yes, a floor won’t fix that. 

Cassandra Anderson: Depends on the ramp period

We also asked Optimove VP of Global Revenue Operations & Enablement Cassandra Anderson for her take on cliffs. 

“I see both sides,” Cassandra said, who has set floors at 50% and 70% until recently removing the floor because they have no ramp. 

“A floor can ensure the company isn’t taking a bath on commissions paid before the rep is really ramped,” Cassandra said. “But does a rep lose motivation by not being paid from $1? I think the use case depends on the ramp period and the time-to-value. I’m sure there are other factors too and those are my quick thoughts.” 

Final thoughts on commission floors

If you do move forward with a commission floor, one thing to remember is to set an appropriate level and align the cliff with overall business goals. For instance, having a commission floor that is too low might discourage salespeople to achieve higher goals. Reversely, having a commission floor that is too high might lead to an increase in the cost of sales and negatively impact the overall performance of the business.

To find a cliff appropriate to your business model, check out our Commission with Accelerators & Cliff comp plan example and modeler. To discover and build other comp plan designs, visit our free compensation planning resource, Compensation Hub.

About QuotaPath

Want to see a custom demo of QuotaPath’s automated commission tracking? Book time with our team today, and see how our customers save nearly 20 hours of work every month by automating their commission tracking and payments processes. 

What is OTE?

OTE stands for On-Target Earnings. Your OTE is the amount of money you can expect to earn if you hit 100% of your quota. This number is usually given in an annual figure. For example, a sales job posting might say “$90,000 OTE”. This number is sometimes rounded to an even earnings number for convenience. For example, your true OTE might be $90,240 but you might be told that it is $90k for simplicity.

How do you calculate OTE?

The equation for OTE is very simple:

Do you need help calculating OTE, setting a sales quota, or determining a commission rate? At QuotaPath we built an entirely free sales compensation calculator, no sign up required.

Also, if you want to automate calculating commissions and quota attainment, QuotaPath is here for you. We take the spreadsheets and human error out of calculating commissions with automated commission software. Get started for free or sign up for a demo.

OTE is not guaranteed

If you’re interviewing for a sales job, make sure you also ask the hiring manager about average attainment. The OTE for the role might be $120k, but if average attainment is 50% of quota, the average earnings will be substantially lower. OTE shouldn’t be impossible for even top talent to attain. It should be possible for most salespeople on your team to see success.

Other OTE terms to know

Fully-ramped OTE: most sales roles require some ramp time. Because of this, OTE usually doesn’t consider ramp quotas and payouts. However, good sales organizations will either give you a draw or increase your commission rate to make up for the lower quotas.

Pay mix: this refers to what % of your OTE is base salary and % is commission. The industry norm for SaaS sales is 50% base and 50% commission/bonus, but there are industries where the pay mix is different.

On-target commissions (OTC): the second half of that equation above. Some organizations refer to on-target commissions to mean how much a rep earns if they hit 100% of their quota.

Average rep earnings: remember the fact that OTE isn’t guaranteed. Some hiring managers will provide what an average rep earns in a year. If the average rep hits 100% of quota, they’re going to brag about this! However, if their reps are hitting 40% of quota and therefore drastically under-earning, expect to have to quiz them on this.

OTE examples

Account Executive

An Account Executive has an OTE of $100,000. Their base salary is $52,000 per year. They have a monthly quota of $40,000 and earn a 10% commission off every deal they sell. Therefore, if they close 100% of their quota every month, they would earn $4,000 every month. This means $48,000 in commission every year. Add that $48k to the $52k base salary, and you get the $100k on-target earnngs.

Sales Development Representative (SDR)

A Sales Development Representative (SDR) has an OTE of $70,000. Their base salary is $42,000 per year. They have a qualified meeting quota of 35 per quarter, and they get paid a $100 bonus per qualified meeting. They also have a sourced revenue quota of $210k per quarter, and they get paid 3.33% commission on deals they source. If they hit 100% of their quota every quarter, they earn $7,000 every quarter. This means $28,000 in commission every year. Add that $28k to the $42k base salary, and you get the $70k on-target earnings.

Director of Marketing

A Director of Marketing is responsible for overseeing the entire marketing department. Their annual quota is centered around revenue generated by the marketing team. Even though some disagree with holding marketing’s compensation to a metric! They have a base salary of $130k and their quota is $2.4 million. Once they hit 50% of their quota, they earn a $5,000 bonus. They earn another $5,000 bonus once they hit 75%. Finally, they earn a $10,000 bonus if they hit 100%. Adding their $20k possible bonus to their $130k base salary, their OTE is $150k.

If this all sounds like it’s too complex for you to solve on your own, don’t worry, we’re here to help! I’m happy to sit down with you for a free compensation plan strategy session. I promise we can cut some complexity out of your compensation plans and give you an understanding of how to build a great plan.

Report: Solving the biggest sales compensation challenges

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What is the average OTE for a sales rep role?

The average OTE for sales reps in the U.S. varies per industry, region, and company. However, according to Glassdoor, the average OTE for a sales representative in the United States is around $60,000 per year and ranges from $30,000 to $100,000 or more depending on the above mentioned factors.

This number increases for enterprise reps, who generally deal with larger, more complex sales and under longer sales cycles. Glassdoor’s data also reported that an average OTE for an enterprise sales representative in the U.S. is around $125,000 per year, but it can range from $75,000 to $300,000.

According to the U.S. Bureau of Labor Statistics, about 60,000 individuals held the role of “sales engineer” in 2021.

This role most frequently appeared in the computer systems design and related services industry, more commonly known as SaaS.

But what does a sales engineer do and how do you compensate them?

Below we detail the role, and compensation structures, and learn more about the support and services they provide. And we do so via the experience of our own sales engineer. 

First, what does a sales engineer do? 

A sales engineer brings technical skills, business knowledge, and customer service to support growth teams during the selling and implementation process of a customer’s journey.

They serve as specialists and technical experts during sales calls to establish trust within the technical frameworks of the product and show benefits in a way that go deeper than the rep’s pitch. 

At QuotaPath, we introduced a solutions consultant role last summer. 

After flooding our reps with proof of concepts and over-scheduling our CTO and Head of Product with sales calls, we knew it was time for a dedicated resource to support Sales.

Our very own Michael Davenport earned the promotion to solutions consultant after two years as an Account Executive. His sales background combined with his history of shining in deals that required intensive product technical know-how made him the perfect candidate.

Sales engineer responsibilities at QuotaPath

As a solutions consultant, Michael acts as a sales engineer and is introduced mid-way into the sales cycle after the rep has identified complexities that go beyond the usual requests. He also works in conjunction with Coleman O’Phelan, our solutions engineer, who reports to our Director of Product and does more of the coding work required for system integrations. 

Here, technical issues might arise when it comes to integrations or comp plan design. 

For instance, our commission tracker and sales compensation software ingest thousands of different comp plans. During the sales process, we ask our prospects to send us their plans, or comp plan descriptions and spreadsheets.

At that point, the sales team must interpret and validate how we’ll build the plan framework within QuotaPath. 

“From there, we must also validate how we’re going to integrate into the prospect’s system to get the data to flow into QuotaPath,” Michael said. 

That’s when Michael lends a hand to accelerate the sales cycle. 

“I take the technical work of validating comp plans and integrations off of the rep’s plate so they can focus on the sales cycle and quickly close the deal,” Michael added. 

His presence in the deal also helps ensure a smooth transition from sales to onboarding to ensure that everything will work accordingly when our customer success team takes over. 

And while the position is still relatively new, Michael said the key metric he’s established for himself is the annual recurring revenue generated from deals that include his involvement. He also looks into the closed/won rates for deals he’s in versus those he’s not.

“Ultimately, my main goal is to help our sales team close deals however I can,” Michael said.

Sales engineer metrics

QuotaPath remains in the early stages of this role, but as time progresses, Michael said he plans to implement the following metrics to gauge his success:

• Closed/Won rates of deal involvement
• Sales engineers’ time spent on deals and effectiveness on outcomes
• Categorizing the types of sales he’s brought into
  

“The last two will help me report at the end of a month or quarter that I spent, for example, 70% of my time on sales calls and 30% on customer calls with our CSMs,” Michael said. That information will then help inform him where he should spend more time. 

Sales engineer compensation

Michael’s seen a lot of sales comp plans in his work at QuotaPath, and that includes sales engineer compensation structures.

“I most often see team-based structures for small solutions consulting or engineering teams,” Michael said. “So, if the team achieves 80% of their number collectively, then my commission as a solutions consultant kicks in.”

For larger teams, Michael said sometimes you’ll see sales engineers assigned to a small group of reps who earn commissions only from the group’s total earnings. For example, if an engineer supports a pod of three or four reps, the engineer earns a percentage or bonus off every deal that pod closes, or any deal they play a role in. 

“These plans can start at the high level with the engineer earning a bonus from any deal regardless of the involvement. Or, they can go deeper by only compensating on deals the engineer supports,” Michael said. 

As for base-to-variable pay ratios, Michael said he most frequently sees 80:20 splits, with 20% attributed to variable pay. 

“The most important thing to remember is to incentivize what you want the person’s role to do,” Michael said. “If they support an entire team, then their compensation should be broad.”

However, if they’re used for a specific use case, such as writing code for one part of the platform, then consider paying them on only the deals they’re writing code for.

Who does a sales engineer report to

Most frequently, you’ll see sales engineers report to the head of customer success. That’s the case here at QuotaPath, too. 

This proximity to customer success helps instill a seamless handoff once the prospect upgrades to customer. This also helps ensure that the product will work accordingly as reviewed during the sales process when the sales engineer joined the conversation.

When is it time to add a sales engineer?

How do you know when it’s time to add a sales engineer to your salesforce?

“Salespeople will look for answers somewhere, so why not devote a dedicated resource, such as a sales engineer, to help them sooner?” Michael said.

If you’re noticing an uptick in complicated sales calls that require large time commitments from your reps and none sales leaders, it might be time to consider a sales engineer.

Thank you for the chat, Michael! To learn more about compensation plan design and commission structures, visit Compensation Hub. This resource includes 20 customizable comp plan templates. To see your comp plans automated in QuotaPath, book time with their team today.

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.

Navigating Commissions & Compensation Planning in a Volatile Job Market

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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.

Does your comp plan encourage sandbagging in sales?

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.