A Very Simple Sales Comp Plan For Your First Sales Reps

Dear SaaStr: What is a good model for SaaS product sales commission? The average package price is USD 500 for subscription/month.

At the end of the day, most SaaS companies pay their reps all-in (base + bonus) from 20%-25% of what they close in total comp — base + bonus. Often at roughly a 50/50 ratio.  Sometimes for very transactional, low ACV sales, the percent can be lower.  But for deals at, say, $10k and up that’s a pretty standard model.

$500/mo is $6,000 a year so that’s a big enough deal size to support a traditional SaaS inside sales rep:

• Pay 20% of the expected ACV (annualized contract value) in total comp — but that might mean less commission until they’ve covered their base cost for the month. If the rep is on a “50/50” plan then roughly 10% of that might go to their base, and 10% to a bonus on top of that, until they’ve booked a certain amount each month or quarter. So the commission might be, say, $600 until they’ve closed enough revenue to cover their base. Ultimately, it should all solve out to, say, 20% of the bookings goes out to sales comp, one way or another.
• If a month-to-month deal churns / lasts < 12 months, you can claw back a proportionate amount of the bonus.  But it won’t matter that much. But unless churn is high, you’ll see it doesn’t matter that much in the long run. By all means, have a clawback in your sales comp plan (it helps remind everyone of the prize of happy customers), but realize any money you claw back in commissions won’t move the needle.
• If cash is an issue, you can pay reps monthly commissions on monthly deals instead. But try not to do this. E.g., you could pay a $50/month commission for 12 months. Reps don’t love this, but sometimes it’s OK in the early days, and over time, the commissions compound, and reps get OK with it. But it’s a lot of accounting and not really worth it once you are at any scale.
• To make, say, $140,000 — they’d need to close $560,000 over the course of a year (4x), or 116 total deals over the year ($560,000/$6,000 ACV) … i.e., close about 8-10 deals a month. That’s pretty do-able for inside sales. An AE should be able to close 10+ deals a month fairly easily if the leads are there.

Net net, the smaller the deal size, the more of each deal reps tend to take home.

And net net, be more generous in the early deals — for reps that can close.  Most won’t be able to.  Make sure they can eat at first.  And later, make great money.  That will inspire the rest, and the best.

A bit more here: The ultimate guide to SaaS Sales Compensation Plan | SaaStr

And a deeper dive here: