Frequently Asked Questions Who should coach the sales team - manager or coach?
While many companies prefer to coach their sales team through a professional sales coach, getting coached by the manager is the best option. Sales managers possess industry knowledge and experience, allowing them to provide targeted guidance. They understand the internal dynamics of the organization, tailoring coaching to address specific team dynamics and aligning sales efforts with company objectives. Managers are readily accessible, offering immediate support and feedback during sales activities. Their established relationships and trust with team members enhance the effectiveness of coaching. While external coaches can provide valuable insights, leveraging the expertise and accessibility of sales managers creates a more tailored and integrated coaching experience. Study shows that when sales leaders provided coaching, company saw a 16.7% improvement in forecast accuracy and a 13.9% increase in revenue attainment.
Why do Sales Compensation Management Systems take a lot of time for the necessary information to reach their reps?
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.
Why did my commission rate change for the last week of the month?
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.
When should I update my Sales Compensation Plan?
Updating the sales compensation plan is a proactive process that ensures the relevancy, and motivation, and is aligned with your business objectives. You need to approach the plan with careful analysis, stakeholder input, and consideration of market dynamics in the following situations:
Annually or Regularly: Review and update your sales compensation plan on an annual basis or at regular intervals to align the plan with changing business objectives, market conditions, and sales strategies.
Changes in Business Strategy: During significant changes in business strategy, such as entering new markets, launching new products, or shifting focus, evaluate and update your sales compensation plan accordingly.
Market Shifts: If there are substantial shifts in customer preferences, competitive landscape, or economic conditions that impact sales dynamics, consider updating your compensation plan to address these changes.
Sales Team Feedback: Actively seek feedback from your sales team regarding the effectiveness of the compensation plan. They provide valuable insights into what works well and what could be improved.
What’s the best compensation plan to use with a new rep?
A new rep essentially gets the same plan as others in the same role. However, since they join with no product knowledge, and very less (if at all) closable pipeline - expecting them to carry the same target from day 1 is not reasonable. They are typically given a grace period to enable themselves and to generate a pipeline, commonly known as the “Ramp” period. The duration of the ramp period varies by sales cycle length. During this period 1) quota is ramped up in a pro-rated way to 100%, and 2) variable compensation is paid at the base commission rate or through recoverable and non-recoverable draws. The idea is to ramp up new hires as quickly and as efficiently as possible.
What to keep in mind while building a sales compensation plan for a Product-Led GTM strategy?
Product Led Growth follows a different trajectory in which Sales plays a different role (which is more of assisting the buyer instead of driving the sales cycle). For eg. in PLG, the sales team may be responsible for ensuring a successful trial by hand-holding the customer. Then the comp plan should reward leading indicators such as customer satisfaction from the trial etc.
What should be the pay mix for the sales reps in SaaS Industry?
While there is no one-size-fits-all when it comes to deciding the pay mix for the SaaS industry you might want to consider some components like Base Salary, Variable Pay (The base salary portion provides a stable income for sales reps and ensures a baseline level of financial security. The ratio of base salary to variable pay can vary depending on factors such as the complexity of the sales process, deal size, and average sales cycle length), Commissions, Bonuses (Commissions are typically tied to individual performance metrics such as the revenue generated or new customer acquisition, while bonuses may be awarded for achieving broader team or company-wide goals), Incentives for Specific Behaviors, Stock Options or Equity, and Performance Multipliers (The ratio of performance-based multipliers to the base compensation can vary depending on the desired level of motivation and the significance of exceptional performance in driving revenue growth).
What should be the key component of designing a sales compensation plan?
Designing a sales compensation plan is a crucial task for organizations to impact the motivation and performance of the sales team. Here are the essential elements to keep in mind:
Define the plan's objectives in alignment with business goals.
Determine the mix of fixed salary, variable pay, and incentives.
Identify measurable and relevant metrics and set minimum performance levels.
Establish competitive rates to reward sales achievements.
Assign realistic sales quotas and fair territories.
Clearly communicate the plan's details to all stakeholders.
Regularly assess the plan's effectiveness and make adjustments as needed.
Ensure compliance with laws and regulations.
What role does Revenue Operations play in sales comp plan design?
When it comes to sales comp plan design, RevOps brings a unique perspective that helps balance the financial objectives of the organization. They collaborate with the sales leaders to understand the company's overall revenue goals and objectives and analyze historical sales data, market trends, and customer insights. RevOps ensures that the sales compensation plan is designed to drive desired sales behaviors by considering factors such as product profitability, customer lifetime value, and sales cycle length to determine appropriate commission structures, accelerators, and thresholds. Most importantly they collaborate with sales operations and finance teams to establish clear processes for tracking and calculating sales commissions, managing sales performance data, and resolving any compensation-related issues or disputes.
What kind of customization does each sales incentive software vendor support?
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.
What is the sales quota and how is it determined?
A sales quota is a predetermined target or goal set for sales representatives or teams to achieve within a specific period, usually monthly, quarterly, or annually. It serves as a benchmark against which sales performance and success are measured. Sales quotas can be based on various metrics, such as revenue, units sold, profit margin, new customer acquisitions, or a combination of these factors. You can determine quota by Setting overall company targets, Analyzing historical data, Assessing market potential, Considering individual capabilities, Alignment with sales strategy, and Setting stretch goals.
Research shows that healthy competition can motivate individuals to perform at higher levels. When reps see their colleagues achieving or exceeding their quotas, it can inspire them to work harder and strive for similar success.
What is the role of data and analytics in RevOps involvement in sales comp plan design?
Data and analytics play a vital role in Revenue Operations' (RevOps) involvement in sales compensation plan design. RevOps teams leverage data to gain insights into sales performance, customer behavior, and financial metrics. They analyze this data to identify trends, assess the impact of existing performance metrics, and simulate scenarios to predict the effects of proposed changes. By tracking key metrics and continuously monitoring performance, RevOps can identify areas for improvement and make data-backed adjustments to optimize the plan. In essence, data and analytics enable RevOps to take a data-driven approach, ensuring that the sales compensation plan is effective, aligned with business goals, and continually refined for better results.
What is the commission structure and how is it calculated?
Different companies have different compensation structures based on their size, nature, and sales strategy. Developing an effectively designed sales compensation scheme holds significant importance for all businesses, especially in the subscription-based software industry. Nonetheless, devising a plan that not only encourages the sales team but also optimizes revenue generation can pose difficulties but it is equally important too.
A survey conducted by Harvard Business Review Analytic Services found that companies with highly effective sales compensation plans are 81% more likely to have salespeople who exceed their quotas than companies with less effective plans. Read more to understand how it is calculated.
What is the right balance of base and commission to pay for inside sales reps?
When creating an Inside Sales compensation plan, it is crucial to find the right balance between base salary and commission. It is also important to establish clear and attainable sales goals and quotas for each representative, taking into account their role, territory, and potential. Moreover, the commission structure should align with the company's objectives and strategies, such as customer acquisition or satisfaction. Providing regular feedback and recognition for reps' performance and progress is essential, and additional benefits and perks can be offered to promote their well-being and engagement. Lastly, it is vital to communicate the compensation plan transparently to the representatives, allowing them to ask questions and express any concerns.
What is the difference between Sales Incentive and Sales Compensation?
Sales incentives and sales compensation are two related but distinct concepts in the context of motivating and rewarding sales professionals.
Sales Incentives: Sales incentives are rewards or benefits provided to salespeople to motivate and encourage specific behaviors, actions, or achievements. These incentives are typically short-term and designed to drive immediate performance.
Sales Compensation: Sales compensation refers to the overall package of financial rewards and benefits that salespeople receive for their work. It includes base salary, commissions, bonuses, and other components. Sales compensation is typically a longer-term and more comprehensive structure designed to attract, motivate, and retain sales talent.
What is the commission period and how often are commissions paid out?
Commissions are typically paid out after the end of the commission period, once the calculations have been finalized and validated. The frequency of commission payouts also varies by organization. Here are a few possible scenarios:
Monthly Payouts: In this case, commissions earned during a specific month are calculated and paid out shortly after the end of that month. This cycle repeats each month.
Quarterly Payouts: Commissions accumulated over three months (a quarter) are calculated and paid out shortly after the end of each quarter. This cycle repeats every quarter.
Annual Payouts: Commissions earned over a full year are calculated and paid out at the end of the annual commission period. This cycle repeats on an annual basis.
What is the best way to tie a SaaS sales rep’s compensation to long-term company success?
Well designing the sales compensation plan in a way that incentivizes and rewards sales reps for actions and outcomes that contribute to the sustained growth, profitability, and overall success of the company over the long term. Instead of solely focusing on short-term sales results. The best way would be:
Adopting a balanced scorecard approach with multiple performance metrics beyond revenue.
Using tiered commission structures that incentivize recurring revenue and customer relationships and Foster collaboration.
Incorporate team performance metrics to promote collaboration and overall success.
Offer long-term incentives like equity or profit-sharing programs.
What is a typical commission for a sales professional selling software as a service (SaaS)?
The typical commission structure for a sales professional selling SaaS can vary based on factors like industry, company size, deal size, and sales role. There are some common practices that include:
1-Commission is often based on a percentage of revenue generated, ranging from 5% to 30% or more.
2-Some companies tie commission to the Annual Contract Value (ACV) of customer subscriptions, typically 5% to 15% or higher.
3-Tiered commission structures may be used, where higher performance leads to increased commission rates.
4-SDRs usually receive lower commissions for lead generation, while AEs earn higher rates for closing deals.
5-Commissions are typically paid monthly or quarterly, with potential bonuses for meeting specific targets.
What is a good SaaS comp plan for an experienced salesperson?
An experienced sales rep requires a competitive base salary, a tiered commission structure that rewards exceeding targets, ongoing residuals for recurring revenue, accelerators and bonuses for exceptional performance, clear performance metrics tied to company goals, realistic sales quotas, and targets, non-financial incentives, transparent and timely reporting, career progression opportunities, and regular plan review and feedback. The plan should provide a balance between competitive earnings and alignment with company objectives to drive growth and success for both the salesperson and the organization.
What integrations do I need to be mindful of while implementing sales comp software?
No doubt sales compensation software can ease up the complex calculation and provide fair compensation to the reps. But every prize comes with a responsibility and here the software requires some of the additional features from the organization like CRM Integration, Sales Performance Management (SPM) Tools, Data Warehouse or Business Intelligence (BI) Systems, Payroll, and HR Systems, Single Sign-On (SSO) and Identity Management (provides seamless authentication and access control for users within the sales comp software), Document Management Systems, and Finance and Accounting Systems (ensures accurate financial reporting, commission accruals, and alignment with financial processes).
What factors should be considered when designing a sales comp plan?
When designing a sales compensation plan, sales leaders should consider various factors to motivate and incentivize their sales team effectively. This includes aligning the plan with overall business objectives and strategy, considering the length and complexity of the sales cycle, balancing profitability and margins, researching industry norms for competitiveness, differentiating compensation based on sales roles and hierarchy, defining measurable performance metrics, establishing performance thresholds, determining a commission structure that rewards top performance, setting realistic quotas and fair territory assignments, and implementing a system for ongoing feedback and evaluation. Regular monitoring and adaptation of the plan ensure its alignment with business goals and the continued motivation of the sales team.
What factors influence sales compensation in the SaaS industry?
A SaaS compensation model differs from a regular sales compensation plan because the deals typically take longer to close. Once the deal is closed, the customer success manager takes on a significant role in nurturing the long-term relationship with the customer. It is influenced by factors like
Subscription Model and Revenue Recognition: Factors such as the length and value of contracts, renewal rates, and recurring revenue is crucial in determining commission structures.
Customer Acquisition and Retention: SaaS industry depends on customer acquisition and retention metrics. KPIs such as new customer acquisitions, upsells, cross-sells, and CLTV impacts the commission structure. It encourages salespeople also focus on expanding existing customers and maintaining relationships.
Sales Cycle Complexity and Deal Size: The complexity and duration of the sales cycle, as well as the magnitude of deal sizes, influence sales compensation. Complex sales processes may require different commission structures to account for the various stages and efforts involved.
What are the sales goals and objectives that the compensation plan is intended to achieve?
The sales goals and objectives that a compensation plan is intended to achieve can vary depending on the organization's specific strategies and priorities but every team has the same end goals i.e. Revenue growth, Customer acquisition, Market penetration, Customer retention, Cross-selling and upselling, Sales cycle acceleration, Profitability, Product or market expansion, Team collaboration and support, Performance consistency.
What are the key design parameters of a comp plan we can skip, so the plan does not become too complex?
SaaS business is inherently Complex and simplicity comes at the cost of alignment to the business model/objectives/behavior.
What are the most common compensation plan design flaws, and how can you avoid them?
Not designing a comp plan based on your historic data
Not aligning it to your sales strategy. KPIs of different roles.
Not identifying and rewarding the specific behavior that leads to success
Setting targets too high or too low (<70% of team achieves their target)
What are the key performance indicators (KPIs) that will be used to measure sales performance?
Key performance indicators (KPIs) are crucial to measure sales performance. It can be done by evaluating Revenue Generated, Sales Growth, Customer Acquisition, Conversion Rate, Average Deal Size, Sales Cycle Length (time taken to close the deal), Customer Retention, Cross-Selling/Up-Selling, Sales Pipeline, Sales Activity Metrics (Number of calls made, meetings conducted, demos delivered, or proposals sent).
What are the factors influencing sales compensation?
The key factors influencing sales compensation are business objectives and strategy, market and industry dynamics, sales roles, and responsibilities. Sales compensation plans should align with the company's objectives, consider market conditions and competitive landscape, and account for the specific responsibilities of different sales roles. By considering these factors, a well-designed sales compensation plan can be created to motivate and reward sales professionals effectively while remaining competitive and aligned with organizational goals. Regular review and adjustment of the plan based on changes in these factors are important for its ongoing effectiveness.
Sometimes while re-balancing territories to provide equitable earnings opportunities, territories with high volumes will receive higher payments and may require a different commission rate structure. How should this be tackled?
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.
Should you adjust comp plans for economic downturns or market conditions?
During economic downturns, the sales rate is low and the churn is higher, leading to low sales motivation. Companies, therefore, need to introduce short-term incentives or bonus programs and maintain open communication with the sales team to keep sales motivation high. Temporary adjustments such as reducing the commission rates or adjusting the bonus structure are also some viable options. Here are the steps that companies should follow - 1) Adjust for clear, realistic targets that reflect current market conditions; 2) Initiate team-based incentives to encourage collaboration. Companies must include recognition programs, career development opportunities, additional training, or flexible work arrangements. Additionally, during such times, there should always be an open line of communication so your reps know and understand the reason behind adjustments in their commissions. This level of transparency gives the reps much-needed confidence and a sense of authority.
Should we adopt a consumption-based (or usage-based) pricing model? If so, what are the key considerations when implementing it?
Yes, It is a great idea to adopt a consumption-based pricing model because as more companies adopt a product-led strategy and customers have greater purchasing power, implementing a consumption-based pricing model enables users to initially access your product at a low or no cost. They can gradually increase their payment as they perceive the value and usage of the product grows. This approach is favored by both startups and established companies as it aligns customer value with expenditure, ultimately driving revenue for your organization.
Let’s say someone has 6 months remaining in their annual contract. How should cross-sells work? For context, CSMs manage renewals, and AEs manage upsells and we don’t have a dedicated AM or Renewals team yet.
Cross-sells should go to AEs if they manage Upsells and there is no AM team.
Should sales support roles such as sales operations and enablement have a variable pay component to their salary? If yes, how do I go about setting possible variable pay/commission structures for them?
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.
In a sales organization how much (in percentage) should a salesperson make in base salary and commissions on average and why?
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.
If we're currently paying a 15% commission on any deal to sellers or anyone that brings in a deal. How should we compensate the VP of sales and account management?
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%.
If an employee is not getting satisfied with the compensation plan or if they keep getting errors in their commission, is it justified for them to do shadow accounting?
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
How will the compensation plan impact other departments and functions within the organization?
Sales compensation impacts different departments in different forms including Finance, Customer Success, HR, and Marketing. For the finance team, the inflow and outflow of money is the key factor. They decide their budget based on the sales compensation structure because they need to pay incentives, bonuses, and salaries to the reps as well. Customer Success obviously needs their share of compensation for maintaining the relationship and retaining customers by cross-selling and up-selling. When it comes to the marketing sector they are equally involved in getting leads and compensation helps sales and marketing collaborate together to bring and convert leads. And HR needs sales compensation to attract and retain top-performing employees.
How will the compensation plan be reviewed and evaluated over time to ensure it is achieving its intended goals?
The compensation can be reviewed to ensure that it is achieving it’s intended goals by using various manners like Collecting performance data, Analyzing performance metrics, Seeking feedback (from sales teams, sales leaders, and stakeholders), Comparing with benchmarks, Evaluating plan outcomes, Communicating changes, Monitoring ongoing performance (Track key performance indicator, and collect feedback).
How will the commission plan be communicated to the sales team?
Once the comp plan is designed, here are the top three ways in which it can be communicated:
Written Documentation: Provide a clear and comprehensive written document outlining all aspects of the compensation plan, including commission structures, target metrics, and payout calculations, use visual aids to enhance understanding.
In-Person Meetings: Conduct interactive meetings or virtual presentations to explain the compensation plan directly to the sales team. Ensure clarity and address any questions or concerns.
Individual Consultations: Schedule personalized meetings with each team member (organized by the sales leader) to discuss their specific compensation plan. Plans can be communicated using tools like sales compensation software. Reps can get a better insight into the plan along with many other details like- compensation forecast, leaderboard, and real-time details of their earnings.
How to design a commission for Recurring Revenue?
Recurring Revenue can be of three types - New Business, Renewals, Upsells & Cross-sells. The commission should be based on which role will be responsible for each one of these three revenue streams.
How is SaaS different from traditional software?
SaaS differs from traditional software in its delivery and deployment model. Unlike traditional software, which is typically installed and operated on individual computers or servers, SaaS is centrally hosted and accessed over the Internet. With SaaS, users can access the software application through a web browser or a dedicated client interface, eliminating the need for local installations or complex setups.
SaaS providers handle software maintenance, updates, and infrastructure management, allowing users to focus on utilizing the software rather than managing the underlying technical aspects. Moreover, it is often subscription-based, offering flexible pricing models and scalability to meet changing needs.
This cloud-based approach provides advantages such as ease of access, rapid deployment, automatic updates, and reduced upfront costs, making SaaS a popular choice for businesses seeking cost-effective and user-friendly software solutions.
How does RevOps help ensure sales comp plans are fair and equitable for all sales team members?
RevOps helps ensure fair and equitable sales compensation plans by using sales performance data to identify biases and disparities in compensation plans and establishing consistent performance metrics for all team members.
Collaboration with HR and Finance: RevOps works with HR and Finance to align compensation plans with industry standards and legal requirements.
Regular reviews and adjustments: RevOps regularly evaluates and adjusts compensation plans based on performance and feedback.
Communication and transparency: RevOps promotes open communication and transparency regarding compensation criteria and payout structures.
Incentive alignment: RevOps aligns compensation plans with company goals to incentivize desired behaviors and outcomes.
How do you compensate others involved in the sales process (e.g. sales engineers, etc.)?
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.
How does RevOps collaborate with other departments, such as finance and HR, in the sales comp plan design process?
RevOps collaborate with other departments during comp plan season to get insights from a different perspective.
Finance: They collaborate on determining commission rates, payout structures, and budget allocation for sales incentives. RevOps collaborate to understand the alignment and financial feasibility and status.
Sales: RevOps collaborates directly with the sales department to gather insights into the key performance metrics, targets, and thresholds that align with the sales team's objectives. They also consider the sales team's feedback on previous compensation plans.
Marketing: Mostly sales and marketing have the same motive i.e. lead generation. RevOps collaborate to ensure they have plans for lead generation and pipeline goals and define marketing-qualified leads (MQLs) and sales-qualified leads (SQLs) to establish fair attribution and compensation for sales efforts.
Customer Success Management: They work together to identify the retention rates, upsell/cross-sell revenue, and customer satisfaction, that should be incorporated into the compensation plans and incentivize sales efforts that drive long-term customer value and satisfaction.
How do you know when it’s time to switch to automation for calculating sales compensation plans?
There is no certain time to decide when to switch to automation. Every growing company knows that sales reps are the most crucial asset of the company and they need to be motivated and satisfied for the growth of the company. In a complex sales compensation plan, involving multiple metrics, tiers, and calculations, manual calculations require automation to provide accuracy and get rid of time-consuming calculations i.e. error-prone, and difficult to manage. Not only this Automation allows for flexibility and customization in incentives for teams and individuals.
With automation you get real-time calculations and faster payout cycles, improving efficiency and keeping your sales team motivated. Apart from time, Consider the cost and resources associated with manual calculations. If your organization spends significant time, effort, and resources on manual compensation calculations, automation may offer cost savings and free up valuable resources.
How do I structure a SaaS sales compensation plan?
A sales compensation plan is a set of rules that details how a sales team is compensated for reaching predetermined targets. Salary, commissions, bonuses, and other incentives are all included.
SaaS companies cannot function without sales compensation plans, which incentivize sales teams to meet objectives that advance the company's goals. It can also not work without sales commission management software that helps in maintaining all the commission details for closed deals.
Increased revenue and profitability might result from a sales compensation plan that encourages sales representatives to go above and beyond their quotas.
How do I create a commission structure when the product is billed based on usage? For context, we will know how much the deal was worth a month after the deal is sold.
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.
How can we motivate and incentivize our sales team to achieve their targets and goals?
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.
How can we ensure that our commission expense is consistent and predictable over time?
Ensuring consistent and predictable commission expenses over time allows for accurate financial planning and budgeting, enabling effective resource allocation. You can maintain stable cash flow within the organization, avoiding financial uncertainty. Consistent commission expenses promote fairness and equity, preventing perceptions of favoritism. While some flexibility may be necessary, maintaining consistency provides stability, supports financial planning, motivates the sales team, and promotes fairness within the organization.
Establish clear commission structures aligned with business objectives.
Regularly evaluate and benchmark commission rates.
Set realistic sales targets and quotas.
Use consistent performance measurement criteria.
Monitor and adjust commission structure as needed.
Utilize forecasting and budgeting techniques for expense planning.
How can we control commission costs while also rewarding top-performing salespeople?
It is necessary to understand that you cannot just spend the company’s money on the sales team. There are many other things to take into consideration. Here are a few ways to control commission costs while also rewarding top-performing salespeople:
Set realistic and achievable targets to strike the right balance.
Implement commission tiers and caps to control excessive payouts.
Utilize variable commission structures based on factors like margins or customer segments.
Introduce team-based incentives to promote collaboration and distribute rewards.
Provide non-monetary rewards and recognition for exceptional performance.
Streamline sales processes to maximize productivity and reduce costs.
Continuously evaluate and refine the commission structure to align with company objectives.
How can we balance the need for short-term results with long-term sustainability in our sales comp plan?
Companies that focus on driving immediate revenue while also ensuring lasting growth and profitability need to follow different strategies to balance short-term and long-term results. Starting with quarterly bonuses and equity or profit-sharing programs, to motivate immediate performance while Incorporating customer success metrics alongside revenue targets to encourage sales reps to focus on building strong customer relationships and driving long-term customer retention. Companies need to consider long-term strategic objectives like market penetration, expansion into new segments, or successful product launches. While all of this is very obvious one of the most important strategies would be adjusting the comp plan after considering trends and sustained performance rather than just short-term spikes.
How can RevOps help track and monitor the effectiveness of sales comp plans over time?
To begin with a study conducted by CSO Insights found that organizations with a dedicated RevOps function experienced a 17% increase in revenue attainment compared to those without. Furthermore, the same study revealed that companies with RevOps had a 22% higher win rate for forecasted deals. So this is clear that RevOps play a crucial role in a company. RevOps provide data-driven insights and analytics, i.e. valuable information, and enable informed decision-making. RevOps leverages technology solutions, such as sales performance management (SPM) software and CRM systems, to automate the tracking and monitoring of sales comp plans. These tools provide real-time visibility into sales performance, making it easier to assess the effectiveness of comp plans over time. They also compare the performance of individual sales reps and teams against established benchmarks to measure the impact of sales comp plans on performance and identify high-performing individuals or areas that need adjustments.
How are disputes or discrepancies regarding commissions resolved?
Most of the disputes are caused due to unfair sales compensation calculations. Sales reps feel undervalued and sometimes leave the company. It not only wastes the time of the sales rep in shadow accounting but also the time of the sales leader who tries to solve the issue and the finance team who now has to juggle between month-end audits and compensation calculations. Calculating compensation is a cumbersome task and the finance team thinks that they are doing a thankless job. Well, it is a thankless job. This dispute can be resolved if the sales rep has a better understanding of how they will be compensated and get transparency of the calculations. This can be done by using Sales Commission software which can ease up the calculation job and provide real-time insight into the compensation.
How are commissions impacted by changes in the sales compensation plan or sales quotas?
When the sales compensation plan is altered, it often involves adjustments to commission structures, rates, or eligibility criteria. These changes can influence the amount of commission earned per sale or the overall commission potential.
Similarly, modifications to sales quotas, which are predetermined performance targets, can affect commission calculation. Higher or more challenging quotas may require salespeople to achieve higher sales volumes or revenue thresholds before earning commissions.
These changes in the compensation plan or quotas can motivate salespeople differently, incentivizing specific behaviors or sales objectives. Organizations need to provide adequate training or guidance to maintain sales team motivation and engagement.
How are commissions calculated for salespeople who work in different regions or territories?
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
How are commissions calculated for salespeople who sell multiple products or services?
The finance department typically handles tracking sales, calculating commissions, and administering payments. Here are the elements to calculate commission in this case:
Percentage of Sales Revenue: A fixed percentage is assigned to each product/service, and salespeople earn a percentage of the revenue generated from each sale.
Tiered Commission Structure: Commissions increase as sales targets or milestones are achieved, encouraging salespeople to exceed goals. Different products/services may have different commission rates within each tier.
Weighted Commission Rates: Products/services are assigned weightage based on factors like profitability or strategic importance. Commission rates are multiplied by the weightage, resulting in variable commission amounts.
Fixed Commission: Salespeople earn a predetermined fixed commission amount per sale or unit, regardless of the product or service.
Hybrid Commission Structures: Organizations may use a combination of methods based on factors like profitability, sales targets, or strategic goals.
How are commissions amortized over time, especially for longer sales cycles or recurring revenue models?
Commissions amortization refers to the practice of spreading out the recognition of commission expenses over a specific period, typically matching the revenue recognition pattern of the associated sales. For this, you need to determine the period over which commissions will be recognized as expenses and use two common methods i.e. straight-line amortization (the total commission expense is divided equally over the commission recognition period) and proportional amortization (commissions are recognized proportionally based on the revenue recognized from the associated sales). Then comes the recognition period where you need to determine the specific period over which commissions will be recognized. For long sales cycles use an extended period. Make sure to ensure compliance with relevant accounting standards such as the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).
How are adjustments and clawbacks handled?
Adjustments and clawbacks in the context of sales compensation in the SaaS industry refer to the process of modifying or recovering previously paid commissions or incentives based on certain conditions or circumstances.
Adjustments: Adjustments are made when there is a need to correct or modify the initially calculated commission payout like Order cancellations or returns, Incorrect or overpayment, Contract changes or amendments.
Clawbacks: Clawbacks are a more severe form of adjustment where previously paid commissions or incentives are recouped by the company. This typically occurs in situations where there is a violation of company policies, unethical behavior, or if the conditions for earning the commission are not met like misrepresentation of sales, violation of compliance regulations, unethical practices, or the discovery of fraudulent activities. (The clawback amount is typically deducted from future commission payments earned by the salesperson).
For Start-ups is it fair to cut down the commission after communicating the comp plan to the sales reps?
Cutting the commission of the reps in Start-ups should be avoided. Such an action reduces the trust of the reps who may see this as an attempt to cut costs at the expense of their earnings and taking away what has been rightfully earned. This typically happens in two cases: 1) there were loose ends as plans were not designed and tested well. Sales reps are very good at identifying and exploiting them. Since a comp plan is a legal contract and is binding as such, it would be best to honor and then change terms if needed. 2) A Sales Rep twisted what should have been common sense to an unfair advantage. This needs to be addressed through a collaborative discussion. These issues should be handled sensitively and objectively as these can lead to a perception that can lead to attrition and impact future hiring.
Does a simple, ‘one-size-fits-all” approach work while designing a comp plan?
A simple, "one-size-fits-all" approach may not be the most effective method when designing a compensation plan not only because of their one business goals but also due to other factors involved like
Different roles within a sales organization have varying levels of impact on revenue generation, customer acquisition, or other desired outcomes.
Each role has unique objectives and metrics and a one-size-fits-all approach may not adequately capture these nuances and cause misalignment.
Sales roles can vary in terms of complexity, customer segments, product lines, or regions. A simplified approach overlooks the intricacies of individual roles, potentially demotivating the reps.
In a dynamic market adopting a standardized approach may ignore market realities and make it challenging to attract and retain top talent.
Sales compensation plans often require flexibility to adapt to evolving business needs, market conditions, and individual performance. one-size-fits-all” approach would limit this.
Does the level of complexities decide whether a comp plan is good or bad for the salespeople?
The level of complexity in a compensation plan does not determine its quality for salespeople. A good compensation plan should align with business goals, be fair and transparent, motivate and reward salespeople appropriately, and adapt to market dynamics. Simplicity is important, but it must be balanced with the necessary elements to drive desired sales behaviors and outcomes. Regular evaluation and refinement of the plan are crucial to maintaining its effectiveness. Ultimately, a good plan effectively drives sales results and provides a fair and motivating framework for salespeople.
Do you compensate and credit Business Development Representatives (BDRs) differently when a prospect fills out a form on the website and that BDR was actively working that account on the outbound side?
No, I would give the outbound BDR the same credit irrespective of where the lead gets registered. The website is a conversion engine for both inbound and outbound. Any lead that comes from the Outbound Account List should be credited to the Outbound team.
Do we only earn commission on sales?
While sales provide you the monetary value through commission, there are many other ways too:
Base Salary: Salespeople often receive a base salary as a fixed amount of compensation, independent of their sales performance.
Bonuses: salespeople also get performance-based bonuses tied to specific achievements or milestones, such as exceeding sales targets, winning new accounts, etc.
Residual or Recurring Revenue: In industries with subscription-based or recurring revenue models, salespeople may earn a commission for building long-term customer relationships and encourages customer retention.
Incentives and Contests: Incentives programs, such as sales contests or rewards programs, where salespeople can earn prizes, trips, or other non-monetary perks to achieve specific goals.
Team Commissions: Salespeople earn commissions not only on their individual sales but also on the sales generated by their team or downline to encourage collaboration and teamwork.
Can RevOps provide guidance and support for ongoing sales comp plan adjustments and improvements?
Yes, RevOps can provide valuable guidance and support for ongoing sales compensation plan adjustments and improvements by analyzing sales data, trends, and patterns, to identify areas where adjustments or improvements may be necessary and identifying areas where the existing plans may be falling short or where adjustments can be made to stay competitive and attract top talent. RevOps actively seeks feedback from sales team members, sales leaders, and other stakeholders gathering input and gain valuable insights into their experiences, challenges, and suggestions for improvement. They also collaborate with other departments and provide guidance and recommendations on how adjustments to the sales compensation plans. RevOps also provide clear and transparent communication and helps ensure that the changes are well understood and accepted.
Can RevOps help sales managers effectively communicate and implement sales comp plans to their teams?
Revenue Operations (RevOps) can play a crucial role in helping sales managers effectively communicate and implement sales compensation plans to their teams through the following key points:
Collaborative Approach: RevOps promotes collaboration among different teams to design and implement fair and aligned compensation plans.
Data-Driven Insights: RevOps provides data and analytics to inform decision-making, helping sales managers design effective compensation structures and incentives.
Communication and Transparency: RevOps ensures clear communication of the compensation plans to the sales team, avoiding confusion and promoting transparency.
Continuous Monitoring and Optimization: RevOps enables ongoing evaluation and adjustments of the comp plans based on performance and market dynamics.
Technology Enablement: RevOps leverages technology tools for streamlined processes, tracking performance, and managing commissions.
Can RevOps help identify potential drawbacks or challenges in sales comp plan design?
Yes, Revenue Operations (RevOps) can help sales leaders identify potential drawbacks or challenges in sales compensation plan design. This can be done through:
Data analysis: Analyzing comprehensive data on sales performance and financial metrics to identify patterns and misalignments in the compensation plan design.
Cross-functional collaboration: Working closely with sales, finance, and other departments to gather different perspectives and uncover potential drawbacks or challenges.
Performance metrics alignment: Ensuring the compensation plan aligns with broader company goals and supports the desired sales behaviors and revenue strategy.
Continuous evaluation and iteration: Monitoring and evaluating the effectiveness of the plan over time, gathering feedback, and making necessary improvements to address any challenges.
Can RevOps help optimize sales comp plans to drive desired behaviors and outcomes from sales teams?
Yes, RevOps can indeed help optimize sales compensation plans by working closely with sales leaders and other stakeholders to understand the organization's strategic goals and align the sales compensation plans with these objectives. RevOps determine the right balance between fixed and variable components, set appropriate commission rates, and defines performance thresholds. Not only this they collaborate with sales leaders to establish performance metrics and targets including revenue generation, customer acquisition, cross-selling, or other key performance indicators. Once they establish performance matric, RevOps regularly reviews and analyzes the effectiveness of the sales compensation plans by monitoring performance data, gathering feedback from sales teams, and assessing. Lastly, RevOps helps facilitate clear communication to ensure that sales team members are aware of the plan details, including the specific behaviors and outcomes that are rewarded.
As it gets easier for a SaaS business to win customers, how does a CEO or VP of Sales cut the commissions to salespeople?
Typically when the business starts to grow and the companies become more efficient to close the deal in less time, they start to focus more on cost optimization. Cutting commissions can be a way to optimize costs and improve profit margins without sacrificing the quality of the sales team. An established company and experienced rep becomes better at converting leads into customers with less effort and the business manages to stay competitive even after reducing the overall cost of acquiring customers. They start focusing more on long-term customer value and retention. They need to keep in mind that they can only focus on cost-cutting once they are at a certain level of stability and predictability so that their high-performing reps do not churn. Lastly, keep adjusting your compensation strategy with changing sales strategy.
Are you confident in a sales incentive platform’s data workflows and processes?
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.
