Sales Compensation For Early Stage Companies

100 Dollar Bills

I blogged about sales compensation a couple of times in 2012 (here and here)When developing compensation for your sales team, there are four things to focus on.  You should keep your compensation plan:

  1. Simple
  2. Generous
  3. Focused on the Behavior You Want
  4. Fair

First, keep your compensation plan simple.  Your salespeople should be able to calculate their comp in their heads while ordering a latte at Starbucks.  While comp plans using multiple tiers, several factors and heavy duty algorithms might appeal to your inner geek, they will turn your team off and demotivate them.

Second, make your sales compensation plan generous.  Selling is hard; early stage selling is even more difficult.  You want your sales team pumped up, positive, enthusiastic and nothing demotivates a team more quickly than a comp plan that chisels them.  Remember, you can always adjust the comp down if you find that your payouts are above market (actually, salespeople fully expect you to do this) but it is much harder to go the other way.  Once you’ve killed your team’s momentum with a penurious plan, it is very hard to get them amped up again.  Don’t think about what you could save in commission, rather focus on how much more revenue you are generating by keeping your comp plan generous.

Third, make sure your plan is focused on generating the behavior you want.  You want your sales team to “game the system” , you just want to be sure it’s your game not theirs.   It may start out with landing meetings, then move to trials or betas and then to proving a particular kind of sale in a specific market.  Your comp should drive behavior to these goals.

Finally, your compensation plan should be fair.  This is really less about the plan itself and more about how you manage exceptions, grey areas and conflicts – things that you have to adjudicate.  You should do so by the spirit, not the letter,of the plan.  And, you should pay promptly – nothing deflates a salesperson faster than not getting money she is owed.

Additional Items

You may have folks recommend you use any number of the following items, but I recommend that you avoid them because they violate one of the four rules I detailed above.  My experience is that these items do not motivate salespeople and, in fact, can make them cynical and push them to game the system in ways you haven’t intended.

100% Commission.  Founder CEOs love this idea because, in their view, it helps make the salesperson think like they do, keeping them hungry and focused.  After all, the CEO may not be drawing a salary or only some money well below is market comp.  And, the firm only incurs cost when revenue is generated.

Most often, the salesperson subjected to this compensation formula doesn’t stick it out; if they haven’t generated some coin within a couple of months they lose focus and leave.  Because you are not paying them, they feel little obligation to keep at it.

Advances Against Commission.  In this structure you pay the salesperson a base salary but net it against his commission.  While better than the 100% commission structure detailed above, you’ll find your salespeople demotivated when, after closing a number of deals, their commission earned less what they have already been paid, is zero.  Wrong move.  You want your sales team positive and motivated.

Accelerators.  The idea here is to offer additional compensation above certain sales levels to drive the salesperson to perform.  On its face, this makes a lot of sense – you reward your sales team for high performance.  Indeed, this structure can work well in environments where a sales team has a significant momentum with a proven product.  However, with an early stage company, every sale is difficult and you want your team highly motivated from the get go, with every commission paid at an accelerated level.

Deccelerators.  The idea here is to motivate your sales team to generate a minimum level of sales by reducing the commission on this initial band of deals, so that they work harder to get through it and onto the gravy train.  As will accelerators, this can make sense in a mature market where a team has a lot of momentum.  With most early stage companies though, the first cluster of sales are just as difficult as the next cluster, so decelerators actually demotivate your team.  Pay ‘em handsomely for every deal!

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