Choosing the Right Sales Comp Plan For Your First Enterprise Reps
Three compensation plans to consider when deals aren't *yet* consistent.
DEAR STAGE 2: We’re an early startup chasing true enterprise deals. Our senior AEs have ~10 target accounts and the deals can be anywhere for $250-750K. It’s a feast or famine model where 1-2 deals can make a rep’s year. Have you seen any early-stage cos with this model recently? Trying to gather data points of what others are doing for comp plans and commissions. ~Early Days of Enterprise
DEAR EARLY DAYS OF ENTERPRISE: Chasing true enterprise deals as an early-stage startup is both thrilling and challenging. When a single deal can make or break a rep’s year, structuring an effective compensation plan becomes critical. Graham Collins, Head of Partnerships at QuotaPath and resident commission plan expert, and I put our heads together to share a few ways you could approach building a comp plan for an Enterprise AE in this scenario. Based on our experience, here are three viable options for compensation plans, each with its own set of pros and cons:
1. MBO Based on Leading Indicators
Management by Objectives (MBO) focuses on setting targets for leading indicators rather than just lagging sales results. Examples include the number of contacts by persona at target accounts, the number of meetings, opportunities created, and the progression of opportunities through the sales funnel. For example, in the first quarter of the year, the rep is tasked with fully building out account plans for 100% of their book of business – they are then paid a bonus commensurate with the achievement of that goal. It’s important to clearly define what an account plan looks like to prevent misaligned expectations.
Pros:
Predictability: Encourages a steady pipeline of activity, which can lead to more consistent results over time.
Focus: Keeps reps engaged with activities that drive future sales to build the right behaviors for managing enterprise deals.
Motivation: Helps less experienced reps stay motivated by recognizing and rewarding their efforts early in the process.
Cons:
Measurement Complexity: Tracking and quantifying these activities accurately can be challenging. You have to make sure you have clear definitions and inspection of the pipeline to avoid “gaming” the system.
Disconnect from Revenue: Reps might focus on activities rather than closing deals, potentially leading to less aggressive closing efforts. They might also focus on efforts that don't actually lead to revenue.
Short-Term Focus: May not always align perfectly with long-term revenue goals if not carefully managed.
Best For:
Reps who are newer or less experienced.
Early-stage companies looking to build and stabilize their sales pipeline.
Organizations with detailed-oriented leadership who carefully inspect pipeline stages.
2. Higher Base Salary with Lower Commission Percentage
Description: Increasing the base salary to be a larger portion of On-Target Earnings (OTE) while reducing the commission percentage on deals. Standard SaaS pay mix is a 50:50 between base salary and variable. In this example, you might see a 70:30 or even 80:20 base: variable split.
Pros:
Security: Offers reps more financial security, which can help attract and retain talent.
Simplification: Simplifies the compensation structure, making it easier to manage and understand.
Focus on Quality: Encourages reps to focus on high-quality deals rather than volume, aligning well with high-value enterprise sales.
Cons:
Lower Upside: May reduce the overall earning potential, which could demotivate high performers.
Budget Constraints: Higher fixed costs for the company, which can be challenging for early-stage startups.
Less Aggressive Sales: Reps might be less aggressive in pursuing deals since the high commission incentive is reduced.
Best For:
Experienced reps who value stability and are aligned with the company’s long-term mission.
Companies that want to reduce the risk of large commission payouts.
Organizations that prefer a straightforward and predictable compensation model.
3. Draw or Guaranteed Comp with a True-Up (*our favorite!)
This model involves paying a portion of expected commissions upfront throughout the year, with a reconciliation or "true-up" when deals close. For example, paying 50% of the expected commissions as a draw and settling the balance based on actual performance. On the surface, this appears very similar to option 2, and if your reps don’t close ANY deals, it is. However, where it differs is that reps don’t earn commissions until they sell above the guaranteed commission line.
Pros:
Stability: Provides financial stability to reps, reducing stress and turnover.
Alignment: Balances short-term financial needs with long-term sales goals.
Retention: Helps retain senior, experienced reps who are confident in closing large deals but need assurance of income stability in the near team.
Cons:
Cash Flow Impact: Can strain the company’s cash flow, especially if deals take longer to close.
Complexity: Requires careful management to ensure accurate true-ups and prevent overpayment or disputes.
Potential Complacency: If not monitored, reps might feel less urgency to close deals and drive tight timelines.
Best For:
Senior, trustworthy, and proven AEs.
Companies with sufficient cash reserves to manage upfront payments.
Organizations that can handle the administrative burden of tracking draws and true-ups accurately.
Choosing the Right Model
Your choice among these options should be guided by the specific characteristics of your sales team:
For Senior, Trusted Reps: Options 2 (Higher Base Salary) and 3 (Draw or Guaranteed Comp) are likely a better fit. These reps are likely to appreciate stability and have the experience to close large deals without the need for constant motivation through commissions.
For Less Experienced or Newer Reps: Option 1 (MBO) may make more sense. This approach rewards their efforts in building the pipeline and keeps them engaged in the process, even if they aren’t closing deals immediately.
Did you find this article helpful? Download our quick guide now to see the pros and cons of each model side by side.
I’m taking the week off next week for the 4th, but Dear Stage 2 will be back in action on July 13. See you soon!