I want to spend a few posts and some time on sales comp plans for early-ish stage SaaS companies (up to say $20m in ARR). Because most of the sales comp plans you are going to read about and learn about are great — for SaaS companies that are well post-Scale. That works great for Salesforce, or Box, or Datadog or Twilio, etc. Or for companies that are investing huge amounts in sales & marketing after raising $30m, $50m, $100m+ But they probably won’t work for you until you are Bigger. You’ll waste a ton of money and not learn enough.
We proposed a framework for a basic first comp plan in a classic SaaStr post here.
But before we get there, let me suggest one simple way to think about your sales comp plan: your top rep should be driving an M8 Convertible, or a Tesla Plaid, or goodness even a tacky G-Wagen, by the end of Year 1 on the job. And/or living in an incredible place, or buying a great condo or starter home.
Something like that. Just the top rep. And not when you hire them (you want to hire hungry reps, especially to start). But by 12 months or so down the road.
What do I mean?
Well, broadly speaking here’s what you want your first real sales rep comp plan to actually accomplish:
- The comp plan must be nominally competitive with peer companies. If it’s not, you won’t get the good ones. You can’t cut corners here. You’ll get candidates, but you’ll end up with dregs if you do. The best reps want to be paid top of market if they do well. (And these days, mediocre reps want to be paid top of market even if they do so-so, see below).
- Your top 1-2 reps should be able to just kill it. Make a ton of money. And buy an M8 Convertible or Model S Performance. Because you want them to prove it works, your sales and business model. To prove it to everyone else, without a doubt. Maybe there will only be one LeBron on your team at first. But you need one. One that is so good at selling your product, he or she not only closes a ton of business — but is so confident that he or she can continue to sell your product that buying an M8 convertible is just a downpayment on an even greater future as a salesperson at your SaaS start-up. Great salespeople that don’t believe don’t sign four-figure monthly leases.
- The mid-packers should feel OK-but-not-great about their comp. You don’t want an incentive structure where the losers hang around on the sales team. That will not only waste capital and more importantly leads — but you’ll get confusing data. You want a plan where they cycle out. If your mid-packers are paid fair but complaining they want to make more, but your top performers are making a ton … you might have it dialed in right. 🙂
- The pretenders should cycle out as well. These are the folks that talk the talk, but can’t close the customer, at least not enough, at least not without, say, the entire Salesforce brand [or insert other Big Leader here] and apparatus behind them. My tell-tale sign here? The Panerai watch. The $10,000 watch. But without the Plaid or M8 Convertible (or worse, paired to a dated AMG sedan from 1-2 generations ago). Why? The winners know they can continue to win. But even the pretenders eventually have one good quarter. One good bonus. And buy the $10k watch. But not the $100k+ car. Because they know it was luck, or at least, that they aren’t good enough to sustain it. So these folks always want a (x) big guaranteed base salary plus (y) a draw for 5-6+ months. Avoid them.
Can you judge the rep by the watch? I know that’s superficial. I know it sounds lame. I know there are many exceptions that make the rule.
But sales is about money, especially at the individual contributor level. Earning it, chasing it, closing it, living it. And often, flexing it.
"Do not hire a sales rep that doesn't like money. They gotta really, really want to make money." @lennysan + @jasonlk pic.twitter.com/RTX0Hq1i2e
— Jason ✨????????SaaStr LDN June 4-5✨ Lemkin (@jasonlk) May 24, 2024
And run from reps that don’t care about money. It doesn’t have to be all they care about. But they have to love to sell. And making “big money” is part of it. So this seemingly superficial tell, who has the big purchase around 12 months into a new role? I think it’s pretty telling.
A related post here:
(note: an updated SaaStr Classic post)
Can’t wait to see your comp plan and compare notes.
Jason, I love your blog, but I think you watched Glen-Gary Glen Ross one too many times. (“Winner gets a brand new Cadillac…Second prize is a set of steak knives…Third prize is you’re fired.”) I have built more than a few successful sales teams and I understand that a true ‘rainmaker’ is rare and wonderful thing. When you find one, it’s worth the effort to hold on to them. And in my experience, it WILL take a ton of effort. The majority of sales ‘rock stars’ are inherently unbalanced. Their EQs are off the charts but usually at the expense of some other key trait. Some can’t understand a spreadsheet. Some have questionable ethics. Most have little tolerance for rules or process. Sometimes it’s all the above. But since they have that magical ability to make revenue appear you look the other way and try hard to manage around them. At the same time though, you need to balance their needs with the needs of the rest of your team. It’s similar to a pro sports team trading for a superstar. With the right person, managed the right way it can work out great (think Peyton Manning in Denver). With the wrong person managed the wrong way it can bring down the entire team (Think Alex Rodriguez in TX or NY).
Actually I 100% agree. Maybe my post wasn’t clear enough. My only point was in the early days … you want a first sales comp plan where the best rep makes a ton of money AND has the confidence he/she will continue to make a ton of money. If everyone is making a ton of money, that’s probably a problem. If no one is … that means either you don’t have a good sales process or people at all, OR you aren’t paying people right. But if you design something so the best guy can and will drive an M6 Convertible … I think you have the start of a decent 1.0 sales comp plan …
Chad and Jason, I think your perspectives are not mutually exclusive. The data I have seen over my career shows that in more mature organizations sales plans should be built to incent the middle of the pack to try and get an extra 20-30% (which is attainable), rather than skewing a comp plan for the very elite. The impact on the business overall is far greater when you get your masses to lift their game by 20-30%, rather then having a handful of rock-stars kill it while everyone else is meddling along.
This is not true however for very early stage companies, which Jason is describing. I completely subscribe to his perspective that in the early days you need to create legends and the elite A-Players back themselves to go into early stage companies and make coin. These early $/customers are so valuable to a new business that the COS should be a secondary consideration.
I am sure we all have examples of A-Players who have gone from say Ariba, to Salesforce to Workday etc as an early hire, secured lighthouse customers, cleared $1m W2 and then moved on to the next hot start-up. They help us cross the chasm and take down our early elephants and we need comp plans to attract and retain them for the crucial early years.
I think that’s right. I’m really only focused on the first 5, 10, 20, maybe 30+ reps here. Not when you are 10x bigger.
I’ve been in the white convertible M6 you’re talking about. Looking forward to the comp plan.
Reminds me of a favorite business quote: “Never settle for average. It’s just as close to the bottom as it is to the top.” Lots of different versions and supposed authors of this quote can be found on the web; a great one nonetheless.
Good points Matt and Jason. I just get nervous about putting too many chips on a single “rock star” who easily move on to greener pastures when the going gets tough. I completely agree that the value of these early customers is huge and it is worth paying a high price to anyone who can bring them in.
Is this 25% commission on the recurring revenue, or just on the initial one year payment? If recurring, do salespeople get to keep it for existing customers even after they leave?
This model is only going to work if you pay it on Y1 payment. Otherwise, you need to dial the % back to accomodate the impact of paying more on a net basis. Almost no SaaS companie pay on second year payments, no matter what the reps claim 🙂
True story, i think the panerai is a good match with a 997 turbo, but the M6 has the better sound.
There should be at least one rockstar in a SaaS StartUP Sales team. You hit the point!
In your opinion, is the first three months revenue in contracts that have an average lifetime of 3-4 years too much for sales reps? Circa 10-15k contract value.