A Very Simple Sales Comp Plan For Your First Sales Reps

 

Q: 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, $5k 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 the deal churns / lasts < 12 months, you can claw back a proportionate amount of the bonus. 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 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 $700,000 over the course of a year (5x), or 116 total deals over the year ($700,000/$6,000 ACV) … i.e., close about 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.

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

And a deeper dive here:

A Framework For Your First SaaS Sales Comp Plan

Published on March 8, 2021

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