I guess it’s time for a commission plan

Advice for rolling out your first commission plan

DEAR STAGE 2: I hired the first sales rep for our business on 100% base salary last year. I did this intentionally knowing we needed him to focus on the right initiatives and we were still in learning mode. Now that we have a more predictable demand gen model, it’s time to set a quota. I have a draft of a commission plan, but am wondering what I’m not thinking of…what are some of the most common mistakes you see with companies rolling out their first sales comp plan? ~Founder of seed stage company

DEAR FOUNDER OF SEED STAGE CO:  Sales comp is such an interesting topic because it comes down to people and motivating behavior. Look at it this way: The good thing about sales people is “they do what you pay them to do”. The bad thing about sales people is “they do what you pay them to do”. So you better get it right!

I’ll start with the two most common mistakes we see: 1) overly complex and 2) not aligned to business objectives. Let’s unpack those: 

1. Your plan must be simple and measurable.  If you can’t explain it in 30 seconds and your rep can’t look at a deal and know what they are going to make, it’s too complicated. 

2. Pick the top 2-3 behaviors you most want to drive based on the company strategy and build a plan that incentives those behaviors. Here are a few examples to get you started:

Source: Originally created for Stage 2 Capital GTM Accelerator program

I talk to founders every single week about sales comp, and there are a few very common questions worth sharing as you build your own plan:

1. When to pay (bookings, billings, or collections)?  I recommend paying out commissions as soon as possible AND aligned to the business. Don't pay on collections unless you are having AR problems and want sales to focus on that (almost never...), pay on billings if you have billing schedules that are spread over the year v. upfront, pay on bookings if the vast majority of your deals come in with 100% upfront payment. 

2. How should I use multipliers? 80% of comp plans leverage accelerators…I think it should be 100%. It is cheaper for you to have your best rep at 150% to goal and pay them more for that than to hire another person. Just ensure that you require someone to be on target for the year (year to date attainment), or whatever period you define for quotas, in order to be eligible for an accelerator. You want to avoid the situation where someone sits on a deal to book in the next period in order to game the system. 

And while we’re at it…enough with the cliffs. If a rep is not hitting goal consistently, you should be managing them out of the business. 

3. Should we pay monthly or quarterly? It’s a better motivator to pay frequently, but for early companies this is often a question of overhead time and balancing what is reasonable for your team. If you can manage monthly, do it. And if you use a solution like QuotaPath, it's definitely easier to manage both comp plans and payouts!

Good luck rolling out your ‘23 sales comp plan!

See you next week!