Sales Compensation Simulator(exec.com) |
Sales Compensation Simulator(exec.com) |
As a case study in simplicity: our sales people get 1xMRR for each deal closed, or 2xMRR if the deal signs an annual contract. SDRs get a flat amount for each demo sat (doesn’t have to close, but does have to be accepted by the AE). The amount is equivalent to 0.75xMRR for a typical customer.
That’s really all you need in SaaS. This has scaled from less than 1M ARR through to… more than 100x bigger than when it started.
That said, this calculator was built to model/simulate the things that are super common in enterprise SaaS:
1. It takes sellers time to ramp up. Experienced sellers might be willing to jump to your company, but not if they are guaranteed to only get their (relatively) low base salary for 1-2 quarters.
2. If you decide to do a ramp, you have to make a choice about the OTE.
If you can avoid doing these things, that's great. Though whether that will fly largely depends on whether your sales cycle and target talent market supports it!
My wife used to be SDR and I seem to remember she got paid much less, maybe like 0.1xMRR.
Obviously your economics work & scale, just curious to understand how - is your close rate really high?
If an AE closes an annual deal (worth $12k in this hypothetical), and there were 4 other demos that didn't close, then you are paying $2000 to AE and $3,750 to SDRs, or almost half of your revenue on comp.
But even with your numbers, a payback period of 6 months is very very cheap in b2b SaaS. You don’t pay commission in the second year the customer is with you and you expect customers to stick around for 5+ years (ideally much longer; it’s the inverse of your churn).
I think there’s a clawback if customers churn within 3 months or something like that. It’s rarely needed.
Plus I assume they get some sort of middle of the road base salary? How low is that if you don't mind me asking?
How do you incentivize sales to focus on deals that churn less instead of deals that close fast?
I'd say typically companies have 6-month or 1-year cycles, and each cycle company rethinks the compensations (usually numbers through quotas, not procedures).
I see "Commission Rate (%)" as an input (when normally I see it as "Sales Target" as the input - which derives your commission rate)
Typically I see, $X is your Target Commission and $Y is your Sales Target.
(and when you divide those two figures, it equates to your % Commission Rate)
There's a few things I'd consider:
* If you have a bunch of reps, doing the periodic accounting to cut the right checks becomes more of a pain (though it's a pain anyways)
* When you give a choice, the employee might make what, in retrospect, winds up being the wrong choice. This can lead to pissed off sales people and regrettable churn.
OTOH, sales comp plans change every year anyways, so could just be renegotiated
This is not a trick question btw. Genuinely curious.
This is the role of sales managers. They should be ensuring that known bad deals don’t happen. Mostly by auditing every deal. Usually it’s pretty quick and easy to tell if a deal is good or bad if you are trying to be objective.
If a salesperson won’t accept this rule - fire them.
I heard from some CEOs that they vest sales bonuses over a 2-3 year period to incentive longer contracts.
But that of course makes the whole incentive scheme more complicated!