Compensation plans.
Essential? Check.
An ongoing source of drama? A never-ending saga? Double-check.
But, when a comp plan is done right, it can be the secret sauce your team needs to do their best.
When building a comprehensive compensation plan for a sales team, we need to take into consideration the specific items that make your product and sales cycle unique. For example, you may decide that 30 demos a month is reasonable, but how complex is your product and how big of a buying decision is it for your customer? This may cause your sales team to fiercely go after the 30 demos, but most of them will hold to real potential to close.
Then the million dollar question arises, how do you compensate someone balancing the amount of effort with the amount of dollars closed - or not - on a deal? And how do you make improvements to ensure the goal aligns with your team’s capacity, and that every engagement is directed to the correct target using the correct tactics?
To answer those and other questions, we gathered in a Q&A session where participants watched Cortney, Max and Matt take a couple of real-life (but anonymous) comp plans apart, then discussed how they could be built better. With a full-house of RevOps pros on the call, there were plenty of questions that revealed important information to make use of in your next comp plan review.
The first comp plan presented in the Q&A session was for 5 Business Development Representatives in a growing tech startup at Series C and about $35 million raised.
The plan is based on:
- 20 demos per month quota
- Compensation of $70,000 base and $30,000 variable
- Average sales price is $60,000, sales cycle is 120 days
- Payouts are monthly
Many start ups tend to begin with a robust sales department and consider every lead ready for sales, which will end up in the hands of a BDR.
“I find it pretty surprising that the BDR is giving the initial demo,” Max says. “This could indicate that it’s a pretty straightforward product.” If the product is straightforward, a higher number of demos would not hurt, but it’s also important to take into consideration the experience level of the BDR team, and how many of those leads could be nurtured by marketing before handing them off to sales.
From Max’s perspective, it seems counterintuitive given that it’s a volume game. Plus, sales cycles and payouts are not in alignment.
When a team is scrambling for leads, going after everybody will not increase sales. It’s important to bring transparency among stakeholders to deploy the right strategies to qualify your leads, and create realistic goals for sales. This quantity play may not lead to as high of closure rates, as stated by Cortney:
“If you are incentivizing your BDRs to get quality versus quantity, your AEs are going to most likely close more deals at a higher win rate.”
It’s okay, but…
“Bringing a measure for lead quality would obviously improve things for this company”, says Matt,” but criteria for that needs to be in place and universally understood”. That’s where a RevOps conversation can start by bringing together sales and marketing to work on data segmentation, launch some nurturing campaigns and pass only qualified leads to sales.
That can help to improve the sales process, but we still need to find out how to compensate the team.
“Compensate based on sales accepted leads,” he says. “Were they the right job title, right level, right company characteristics?”
“This is something we’ve actually done a lot of work internally at Spiff here,” says Max.
“Coming up with those criteria of what qualified actually means. There’s some simple criteria you could put in there.”
This could include readiness to buy, technical fit and ability of the contact to push the sale forward in their organization. Max also recommends a mix of incentivizing both volume and qualified leads. Compensation could also include rewards for size of the deal or contract length, but it’s all based on the business’s objectives.
“It doesn’t have to be all or nothing,” he says.
While moving the sale towards closing becomes the AE’s role, having a small amount of compensation for the BDR when a deal closes is “that extra cherry on top,” he says, noting it also helps ensure higher quality leads.
“In my opinion, this very much encourages collaboration between the AE and their entire support team,” Max adds.
The second plan was for 5 AEs in a growing tech startup with about $25 million raised, about 100 employees and revenue between $1 and $5 million.
The plan is based on:
- AEs sell, but don’t prospect
- Quota is $720,000
- Average sales price is $15,000, sales cycle is 30 days
- Compensation is $150,000 split evenly between variable and base
- Payouts are monthly
“Things that we saw that looked good were, the payout frequency aligns with the sales cycle length,” says Cortney.
With a more streamlined sales process, comes the sales team that hits quota faster. The new challenge here is to maintain this high performing team motivated and continuing going after leads, therefore, a rewarding compensation plan is paramount. According to Cortney, “The uncapped accelerators are ideal. It motivates your reps so that they don’t stop selling after they hit quota.”
This one looks good, but there’s always a way to make it better.
According to Max, adding a renewal component would help as would the possibility of a large deal bonus.
“These are simple things you can do that are going to help bring in more revenue,” he adds.
In this case, renewals may not be up to the AE, but adding them into the AE comp plan builds on the concept of sales being a team game and everyone being rewarded (even a small amount) for the right behaviors.
“If they’re bringing revenue into the company, especially if they’re meeting their quota on new business and also bringing in renewals, why wouldn’t you comp them on it?” asks Max.
Matt tossed another element into the mix; splitting compensation based on channel. Your team may have diverse professional backgrounds, and more experienced sales people may have a large network and strategies for different channels that work for them. All of which should be accounted for in a compensation plan.
“If an AE is bringing in their own deals, I think you absolutely should incentivize for that,” says Cortney. “It’s going to help make sure they continue to go outbound versus just getting everything inbound.”
However, in this example, there was no prospecting as part of the role.
“So, it kind of makes sense the way the comp plan was set up,” Matt says.
He also notes that he’s seen different compensation for new business versus retention. “You need to incentivize for what the business needs”. The effort to retain business is generally a bit different than getting new business. We’ve talked a lot about the prospecting and sales phase earlier in this blog, but what are the necessary steps to retain your customers? On another RevOps note, this iswhen sales aligns with your Customer Success team to potentially retain, cross-sell or upsell.
“Align the incentives with the action, the outcomes, that you want to drive,” he says.
What about those people who have more responsibility than just their own numbers? If they lead a team, what makes sense? While it comes down to the business process, Cortney says those comp setups can be separated into two.
“If they are getting their own deals and closing their own deals, you can definitely give them an individual quota,” he says. “And have that be a separate component compared to their team quota.”
But Max says, “team leaders often don’t have their own quotas. They generally are tasked with leading the team rather than taking on their own numbers. It ensures a focus on helping everyone achieve”. This is a great opportunity to make the leader of the team keep that RevOps structure in mind. As the BDRs and AEs may get caught up in the details of their sales, having the leader identify when there’s an opportunity for cross-sell or retention and when to bring help from marketing or customer success. These are all essential actions that can be part of compensating a team leader.
Yes, everyone WANTS to hit 100%, but Max says it’s just not realistic.
“It’s not the reality of how you go about designing your territories, quota values and planning for headcount,” he says. “It’s essential to have some buffer in there.”
If you want to put an end to that never ending comp-plan saga, use these best practices and share them:
- Be simple, transparent, understandable
- Communicate frequently
- No gates, no caps, minimal deceleration
- Balance short-term and long-term incentives
- Show potential earnings based on pipeline
- Incentivize things that are beneficial to the business
- Run SPIFFs for tap AE and BDR
- Granular compensation: calculate and show on a deal by deal basis
“Coming to Spiff is going to allow you to be able to design your plans if you need a redesign or use your current design and be able to give visibility to your reps,” says Cortney.
“Setting up your plans in a way where your reps understand it, where it’s readable.”
This just scratches the surface of all the goods discussed in the Q&A session, you’ll have to watch the video to get it all and to find out what Matt’s favorite M&M is…
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