Sales Compensation Knowledge Hub

You can motivate your team to sell more and hit the target by setting realistic targets (unrealistic target leads to sales rep burnout). The next thing is creating a sense of competition, as friendly competition within a team can be a great factor to encourage your reps to sell more. Also, remember if your team overachieves in one quarter but underperforms in subsequent quarters. It is not a balanced success. Therefore, you need to encourage and reward consistent performance over and above one-time performances. Lastly, reduce disputes and dissatisfaction over commission by providing automation for calculating the compensation. Sales reps can track their achievement and see the maths behind the computations without having to bother the Finance or the Sales Ops team.

Yes, incorporating a variable pay component into the salaries of sales support roles like sales operations and enablement can be beneficial. According to a survey by the Sales Management Association, 65% of companies provide variable pay to sales operations roles, with an average of 10-20% of their total compensation being variable. Moreover, a SiriusDecisions study found that organizations with a variable pay component for sales enablement roles had higher win rates and greater revenue attainment. When it comes to establishing appropriate variable pay structures, consider factors such as measurable performance metrics, such as sales productivity improvements or revenue growth driven by sales enablement initiatives.

When salespeople are doing the same job but located in different regions, their OTE is dependent on what is fair pay/living wages for that region. Similarly depending on the market potential and brand strength, the target might also be different. The structure of how the plan works will likely be similar and the base commission rate will still be target/variable. Also, their Quota/OTE ratio will also be in the range. For eg. In Emerging markets, the Quota/OTE ratio could be 6-8x whereas in Mature markets this could be 4-5.5x

Equitable earning opportunities should be tracked and managed through a metric known as Sales Efficiency Ration which is Revenue Achieved / OTE. This should be benchmarked right at the start and should be tracked throughout the payout period. Any deviations should be investigated and fixed for eg. if the actual is more than budgeted then that employee is underpaid and at risk of attrition; while if the actual is lower than budgeted then the sales rep is underdelivering and either the output needs to go up or the OTE needs to come down. The territory is connected to quotas, so higher potential should have a higher quota and your best (and most expensive) reps should be working on it.

Typically the overall compensation is referred to as OTC or OTE (On Target Earnings) which is the sum of Base + Variable (Commission, Bonus, etc.). The Base / Variable ratio is referred to as PayMix. The ratio is in the range of 50:50 to 70:30 for Sales Reps. For more complex sales cycles such as Enterprise, the ratio is in favor of a higher base (70:30) whereas for more transactional sales like SMB, it is 50:50. The typical sales rep makes a base commission rate in the range of 8-10% of new ARR in SaaS. There usually are accelerators for higher tiers of achievement and this could be up to 20-25% for the top tier.

The extent to which you can customize a Sales Incentive software varies greatly by Vendor. Most will give you a rule engine to capture complex plans however they also need the user to learn some language or have the vendor’s support team do it. CaptivateIQ gives an Excel-like interface for data import, creation of rules, and computation of incentives, while Spiff gives a web app-based UI-based plan designer. However, most are known to have limitations around custom reporting and exception handling. Some software like Visdum, have a wizard-based interface that guides users through creating complex plans, have pre-designed templates, custom reporting, and back it up with world-class support.

Creating a commission structure for a product billed based on usage can be challenging, but here's a suggested approach: Define a baseline: Establish a fixed percentage or amount that will be paid as a commission for each deal, regardless of usage. This baseline provides a minimum level of compensation for the salesperson's efforts. Set tiers based on usage: Determine different tiers based on the monthly worth of the deal, which will be known a month after the sale. For example: Tier 1: <$1,000 in monthly worth (No additional commission) Tier 2: $1,000 - $5,000 in monthly worth (2% additional commission) Tier 3: $5,000 - $10,000 in monthly worth (5% additional commission) Tier 4: >$10,000 in monthly worth (10% additional commission) Calculate commission: Once the monthly worth is known, calculate the commission based on the applicable tier. For example, if the monthly worth of a deal falls into Tier 3 ($7,500), the salesperson would receive the baseline commission plus a 5% additional commission based on the usage.

Your commission rate may have changed for the last week of the month due to seasonal variations in consumer behavior, monthly targets and performance goals, inventory management strategies, sales volume and revenue fluctuations, and negotiated agreements or contracts. These factors can influence commission rates as companies strive to incentivize performance, manage costs, and align with business objectives. It is advisable to contact your manager or human resources department for specific details regarding the reasons behind your commission rate change.

While sales reps are getting compensated for bringing leads and converting them into customers other employees from the sales team like sales engineers are not actively involved in selling. Sales engineers are typically involved in the selling process of complex and technical products or services. Their primary responsibility is to support the sales team by providing technical expertise, product knowledge, and solutions to potential customers. Their compensation is quite different from a sales rep. Once the deal is closed and the rep has successfully converted the lead with the help of a sales engineer (their product knowledge) then along with the rep sales engineer gets the compensation. For a sales engineer, a common break-up is 80 percent salary and 20 percent commission.

While many companies do not prefer their reps wasting time in shadow accounting, there is no book that says shadow accounting is unethical. It is all about the trust of employees in their company. If their compensation gets calculated once they might go to their sales leader or the finance department to ask for an explanation but if they get it wrong every time. It is justified to do the shadow accounting to take responsibility for their commission. According to a survey, only one-third of the average salesperson's day is spent selling or making sales. There are chances that their non-selling accounting might be shadow accounting. To prevent such activity companies can provide real-time details to the compensation via. sales compensation software

SaaS business is inherently Complex and simplicity comes at the cost of alignment to the business model/objectives/behavior.

If the system is based on Excel then the delay is because of the manual process that is both cumbersome and error-prone. Maximum time gets wasted in downloading reports, reconciling data, applying macros/formulas, and then segregating the master spreadsheet into individual sheets by the payee (in tens or hundreds). If it is a software-based system, then a delay happens if the system is not flexible and needs manual interventions or when there are process inefficiencies/exceptions - such as manual interventions to transform data or validate or reconcile (booking vs collection for eg.). Automating Sales Compensation is as much about process & stakeholder buy-in as it is about systems. Since this impacts salaries, any change has to be managed sensitively.

VP Sales should be focused on driving revenue growth not closing deals. Hence their compensation should be based on meeting milestones of revenue growth (starting from the current growth rate to the targeted growth rate). Account Management is typically compensated on Expansion revenue - Upsells and Cross-sells. The typical commission rate is 5-7%.

Cross-sells should go to AEs if they manage Upsells and there is no AM team.

Automation of the Sales Incentive Computation process will generally lead to more accuracy and transparency. The factors that will affect this are Choice of the right platform that is flexible to address current and future specific use cases. Platform’s ability to handle exceptions Quality of Onboarding & Ongoing Support Minimal deviations/ad hoc changes from a standard policy Typically, after the platform has been set up there is a parallel run to compare the platform’s output with that of the current process. The differences, if any, should be investigated and reconciled. In the case of Visdum, these differences have often shown how error-prone the manual, sheet-based processes are.