Alan DraperAccording to an inside sales survey from ZS and Reality Works, 40% of large technology companies plan to increase their inside sales headcount this year. But simply hiring first-rate inside sales professionals does not guarantee that they will drive revenue for your sales organization. The right compensation plan can both ensure that reps know what is expected of them and can help motivate them to sell at their best.
The right compensation plan can make the difference between sales being a revenue or cost center. Not surprisingly, a question we asked regularly is how to best structure inside sales comp plans. Unfortunately, there is no simple answer. The way you structure comp plans will often vary based on a rep’s experience and role. A comp plan that works perfectly for an SDR that’s right out of college won’t work at all for a heavy-hitter account executive.
Common Sales Compensation Factors
Creating the ideal compensation plan presents a fair share of challenges:
Setting the Right Quota
The ZS and Reality Works survey shows that 79% of tech companies use quota-based comp plans (90% of larger companies). However, setting quota properly requires a delicate balance. If quotas are too aggressive it can lead to high turnover or lack of motivation. If quotas aren’t high enough then reps just aren’t going to be motivated to do their best. Setting quotas accurately requires accurate sales forecasting. And in order to make accurate sales forecasts, it requires tracking the right predictive analytics. Only by tracking the right metrics can you predict pipeline and set quotas accurately.
Weighting Compensation Plans
Comp plans need the right weight of base vs. bonus. Base salaries are important to provide reps with a sense of their security (they won’t get evicted if they have a slow month). Commission, however, is what drives most sales reps. A bonus needs to sufficiently inspire reps to sell at their best. Placing a cap on a rep’s bonus will correlate with a cap on their motivation to sell for your company. In sales, the sky should be the limit.
The Rising Cost of Hiring Reps
Let’s get one thing straight: there is a lot of competition when hiring reps. If a rep has a proven track record of success, that rep is going to be highly in-demand. That’s why it’s so important to ensure that pay is competitive. Because if a rep’s comp plan isn’t competitive, they’re going to be inundated with offers from recruiters with pay that is more competitive.
As a result of high competition to hire reps, many companies are hiring reps with less experience (often right out of college). As a result, companies need to know how to structure compensation plans that appeal to less seasoned reps.
In order to help you overcome the challenges associated with creating compensation plans, this post will offer some compensation plans designed for various roles. Whether you are hiring outbound SDRs with no sales experienced, or heavy hitter AEs, these comp plans will help you motivate reps to be top-performing members of your team.
Outbound SDR Sales Compensation Plan Example
Sales development reps (SDRs) are reps that are tasked with lead generation and appointment setting. They almost never actually close deals, instead handing deals off to account executives to close. SDRs are often fresh out of college. As a result, they are looking for plans that offer a lot of structure and security. Our joint webinar with OpenView Venture Partners reveals some tips that can help you structure compensation plans that are ideal for SDRs.
Keep It Simple for SDRs
In order to keep comp plans simple for reps that are beginning their journey in sales, we recommended separating comp plans into three sections:
- Base: The regular amount that reps see in their paychecks that is unaffected by performance
- Bonus: The additional amount reps receive based on meeting various goals.
- Kicker: Any additional bonus that is tied to closed won deals or competition
Base Vs. Bonus
Since SDRs are concerned about meeting their basic needs, 70% of their total compensation package is the base and 30% is the bonus.
How to Calculate the Bonus
When calculating the bonus, many of OpenView’s portfolio companies are using a 40/60 rule: 40% of the bonus is tied to appointments set and 60% is tied to actual opportunities. Another powerful way to motivate SDRs is by offering a kicker (extra pay) for opportunities they drove that actually end up closing. This motivates reps to not simply source opportunities, but source great ones.
Inbound Sales Rep Compensation Plan Example
Inbound reps (sometimes known as lead qualification reps or marketing qualification reps) are tasked with following up with leads that call as well as leads that fill out contact forms or download content.
Base Vs. Bonus
Like most sales comp plans, compensation plans for inbound sales reps should be comprised of a base and a bonus. Like SDRs, 60-70% of an inbound sales rep’s total compensation plan should be base salary, with the remainder making up the bonus. Inbound sales reps, like SDRs are often early career — my first sales job was as an inbound sales rep. They will usually want to have a large enough base salary to pay rent (whether a particular month is fruitful or not.
How to Calculate the Bonus
Where inbound sales rep compensation plans differ from comp plans for outbound SDRs is how bonuses should be structured. Here’s what we recommend:
Accepted Opportunities- Tie 65% of an inbound sales rep’s bonus should be derived from accepted opportunities. It’s key that these opps are all “accepted” by sales. That way it helps account executives provide oversight into opportunity quality. The last thing you want is inbound sales reps handing unqualified opps over to sales.
Opportunity Revenue- 25% of the bonus should be tied to revenue that actually closes. We like doing this because it further incentivizes inbound reps to source high-quality opportunities and gives them a stake in your company’s wins.
SLAs- Finally, 10% of the bonus should be tied to hitting SLAs. These are the activities that are expected of inbound sales reps and should be clearly outlined in their comp plans. Some vital SLAs for inbound sales reps might include responding to every inbound lead within five, following up with every inbound lead at least eight times and more.
This is an excerpt from a post that originally appeared on the RingDNA blog. Read the full post here.
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This article was written for Business 2 Community by Alan Draper.
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