As the war for talent continues unabated in tech, especially in the Bay Area, employees are getting better and better deals in many cases. And in many cases, that’s a good thing.
But it’s possible to take things so far that the company is harmed. I’ve noted a trend lately with salesreps to give them … “everything”. By that I mean:
- Paying a full draw for 3+ months. I.e., they get their full OTE no matter how much they close.
- Paying commissions on deal signature, not on cash receipt. Very standard at scale. Definitely do this after $5m-$10m in ARR, and/or after a huge funding round. But it’s an unnecessary cash drain in most cases in early days.
- Very low quota attainment goals in the first 6 months. It does take time to scale. But if everyone only has to close 1x-2x their OTE, it’s hard to make money.
- No clawbacks or impacts for churn-and-burn deals. Matters in higher-churn environments.
All of these factors make sense in isolation. And some are easier to do later, when cash matters less.
But in the early days, if you pay sales reps a lot of cash upfront for monthly deals that take a long time to collect the cash, give them low quota attainment goals, a full draw, and more … i.e., if you give them all the stuff reps “want” beside their OTE … you can hemorrhage cash. Just hemorrhage it.
So do be sales rep friendly. Sales is tough. But make sure you understand the cash impacts of the various terms in payment, attainment, and goals. You’re better off in many cases paying higher commissions as a % of revenue, but aligning more on cash received. Put differently, pay as much as you can as a % of cash received … until cash doesn’t matter. But moving away from cash can get you in trouble.
Folks will tell you that you need to do all these things to attract the best reps. It does help, but they aren’t what really matters.
What really matters is reps believe they can make a lot of money, have fun, and be trusted. And the best way you can demonstrate that is by having 1-2 reps closing a ton of business, and making a ton of money doing it. That matters a lot more than any term.