How much do sales people make in commission?

In SaaS, you can start with a few very rough rules:

  • The average rep’s OTE (“On Target Earnings”, i.e. salary + bonus) is generally around 20% of the total amount of revenue they close each year, ideally. 25% max.
  • Base + bonus are usually split in about a 50%/50% ratio. Sometimes higher for base if the OTE is very low, oftentimes higher for bonus if the OTE is very high. But 50%/50% is a good place to start.

Now, things can diverge a bit. Well-funded start-ups will often pay more than 20% (they can afford it) for a while. And if you’ve based in a high-cost center (e.g., SF or NYC) and your deal size is low (e.g, say $3k), you may find the reps just can’t make enough with this formula.

But much more than 25% of the first-year ACV (annual contract value) going to a rep, for base+bonus, is not sustainable for a profitable business. And even that implicitly assumes relatively low net churn. If the churn is high, then even 20% of the first-year deal value may be too much going out the door to a rep, especially if your marketing / acquisition costs are high.

So …

If your SaaS sales rep can close $1m a year in deals, paying her $200,000 (20%) in the form of $100k base + $100k bonus is fairly standard and easy to justify. Everyone is making good money.

If she brings in “only” $500k a year, then $50k base + $50k bonus = $100k OTE / total comp using the same formula. This may be more than fair outside of SF, or if the deals are small and the rep is fairly junior.

But as you can see, both will likely be below-market in SF, especially for experienced reps. This is one of the reasons sales is so expensive in SF. Add high churn in your sales rep base, and you’ll quickly need a second sales base in another geography to scale fairly early in your journey. More on that here:…

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Published on July 3, 2018

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