How to Design a Sales Comp Plan to Get You to $100M with Work-Bench, Movable Ink, MongoDB and Concert Finance.
This panel will speak tactically to various comp design options as a way for management to determine and promote ideal behavior in their front-line teams. This will include diving into the pros and cons of the various comp design models, including MBOs, detailed incentive structures and flat commission rate payouts, as well as the nuance between using comp design as a motivational factor but not as a substitute for good management. Depending on size and stage, variable compensation can be one of a company’s highest expense items, and a thoughtful approach is key.
Want to see more content like this? Join us at SaaStr Annual 2020.
Jessica Lin | Co-Founder @ Workbench
Michaela Lehr | Director, FP&A @ Movable Ink
Meghan Gill | VP of Sales Ops @ MongoDB
Sanj Sanampudi | Co-Founder & CEO @ Concert Finance
FULL TRANSCRIPT BELOW
Jessica Lin: All right. All right everyone, thank you so much for joining us today for our panel on how to design a sales comp plan to get you to 100 million dollars. My Name is Jessica Lynn. I’m a co-founder and general partner at Workbench. We are an enterprise VC fund in New York City. We invest in enterprise startups throughout the country and you know we live and breathe enterprise tech, by how much we nerd out on sales completely, with all of our enterprise portfolio companies. So I like to say that if sales is like a train, then sales compensation is the driver. As each of you have likely personally experienced, whether you’re a founder on sales, with each compensation lever you pull, there are inevitably behaviors on the sales team that get pushed. That make you either an Amtrak or a bullet train. So that’s what makes sales comp I think so fun.
Jessica Lin: There’s more art than science. There’s no one right answer. Unless you’re Jason Lemkin, and that’s also why we’re going to talk through the four different stages of sales today. So all the way from founder led sales to growth stage sales. The different road signs you should be looking out for and also the tracks that you need to lay for your growing sales team. Our goal is that there will be at least one new tactic you can take back and try with your teams tomorrow. So please join me in welcoming our terrific panel of sales comp gurus. First step, we have who has worked with a number of SAAS companies in New York City as a CFO, and is now CEO of Concert Finance, a sales commission platform. In addition to sales comps go to super power is a mean karaoke rendition of, Since You’ve Been Gone.
Jessica Lin: Next up we have Michaela Lairs, senior director of finance at Movable Ink, a digital marketing platform, and also a veteran of top enterprise startups in New York City. If Michaela were not a sales comp whiz, she’d crushing the Great British Bake Off with her cinnamon squares. And last but not least, Megan Gill, VP of sales ops at MongoDB, a public database company in New York City where she used to run marketing, run marathons and now runs around chasing after her one year old daughter. So with that, I’d love to jump into our four stages of enterprise sales.
Jessica Lin: All right, so first off, founder led sales. I’m sure many of you in the room have survived this stage, often known as the lone wolf salesperson. This is generally the first zero to $1 million in ARR, with the founder trying to find product market fit and getting those very first customers. So I’ve asked each of our panelists, what is the number one driver in compensation that they think is most important at this stage? So let’s have our panelists flip their cards now. Drum roll. All right, we got that. Why don’t we actually go down the line? We’ll have each of the panelists read their card out loud and then just share some of what they’ve seen in their experiences. Either work or not work.
Sanj Sanampudi: Great. I’ll start because I’m living this right now, and where we’re contract value. Originally we started thinking about our sales in terms of logo acquisition, because we’re looking for reference-able customers. You’re doing something that is brand new. So you want a lot of people onboard. We switched to TCV because of the cobra effect. So for those of you who haven’t heard this story, when the British were in Delhi, there was a huge problem with cobras in the city. So they paid a bounty for every cobra that was killed. What happened was people started raising cobras and having cobra farms making tons of money killing cobras.
Sanj Sanampudi: But once that was discovered, the bounty ended and people released the cobras into the city. So there were more cobras to begin with and why you wanted, and what I found as I was interviewing for the head of sales was really that logo acquisition was essentially building Cobra farms. So all these customers who might not have been a great fit. Instead of doing what I want this head of sales to do, which is really build me a map, show me where the opportunity is for what we do today and what we need to build to capture in the future.
Jessica Lin: I see lots of nodding heads probably the cobras of new logos. So Michaela?
Michaela Lehr: So mine says to learn ballpark contract value and figure out the pricing that the market can bear. I think that we would probably all agree that there is no one more motivated than the founder in the founder led sales stage to get sales, cross the line, and when it comes to comp design, there’s really no big comp design to be had if the founder’s the one closing the deals. But what you’re trying to learn at this point is not just what your go to market fit is, and working very closely with your product team on that. But also what is my go to market motion? What does that look like? What are my sales cycles and what is my ACV? Just like I say on my big index card.
Jessica Lin: Great, Megan.
Meghan Gill: My commentary is pretty similar to what Michaela is saying, which is at the early, very early stages you’re really not trying to optimize a whole lot. You’re just trying to survive and live to fight another battle, another day. So I’m sure many of you read the essay that Paul Graham wrote called, Do Things That Don’t Scale. So this is the stage where you’re doing completely unrepeatable types of things to acquire those early customers. And the purpose is you need to understand what are the sales cycle lengths, what are the ASPs, what are the right use cases to target, what’s the right messaging?
Meghan Gill: So it’s really not a phase where you’re trying to optimize sales comp, you’re trying to find product market fit.
Michaela Lehr: Right, and I think that you’re taking those learnings so that when you do cross that one million ARR threshold and you hire a sales team, you can take those learnings and give them to your teams so that they can go forth and do it.
Meghan Gill: Yeah, building on that. Then the one thing I would say you make sure to do at this stage just to be collecting as much data as you can because that will feed into the next stage.
Sanj Sanampudi: I would add at this stage, don’t feel bad if you’re a founder that needs to hire a salesperson. I’m a CFO, like literally no one likes talking to me. So to do that outbound motion doesn’t come really naturally, but I learned a lot more about my view of the product versus maybe a sales head’s view of the product through this head of sales.
Jessica Lin: All right, so at this stage, founder led, keeping it pretty simple. We’re going to start adding some fun things with each stage. So next up an early sales team. So this is quickly going to devolve into an Animal Planet panel because we have swans. So this is really when a lone wolf adds a few folks to their herd. So we see a few million in ARR now, things are cranking, landing those customers. But at this stage there’s still repeatability and a sales playbook to really nail down. So what is the number one driver for sales comp with an early sales team that folks need to be aware of? Have we got our cards? All right, it’s on, we still have TCB from you.
Sanj Sanampudi: Yes, I’m still on total contract value and it’s really because that’s still kind of where you’re at. You haven’t really figured out all the right go to market channels. What you find at this time is maybe this TCV needs to be a little bit more nuanced. I think of it in terms of the time when I’ve seen in companies, people forget that you need to renew your customers. Like you need to start paying a team on renewals, and focusing them on that sales motion. Which is different than like a new business sales motion, which you might have to start segmenting by territory, however you decide that makes sense for your company.
Jessica Lin: Yeah, and actually I’m going to skip to you Megan, because you also mentioned TCV.
Meghan Gill: Yeah, I mean I totally agree. At this stage you really want to keep it simple, and if you want to be able to hire salespeople, you don’t. This is not the time to have a comp plan that requires a PHD to understand. At the early stage of MongoDB, this is how we paid and a lot of the early stage startups that I talked to and advise just pay on the total contract value. Again, still gathering that data and that information to figure out what are the data points that you can use to start building a more nuanced comp plan.
Jessica Lin: So are there downsides to TCV? We chatted a little bit. I mean, how do you keep sales reps around? I know that’s something that we hear sometimes often.
Meghan Gill: Well, I mean you touched on it. This is a stage where you might actually start having some renewal opportunities that need to get closed. If you have a team of hunters that might not be the sales motion that they’re used to. If you’re paying on total contract value, that can also have a negative effect of having reps wanting to close large multiyear deals, and those are good in some way if you’re acquiring new customers and you’re locking them in for many years. But that means as your product is very quickly evolving, you may not be able to capture price increases, new features and functionality that you’re adding. Because you know many upsells are going to happen on renewal. So then you have to start thinking about, what are the negative impacts of paying just on a very simple sort of TCV based plan.
Michaela Lehr: One of the things that I would also think about there is, and this is coming from my my finance hat, but if you are collecting the entirety of the TCV upfront, then I think that paying on TCV makes a lot of sense. The thing that makes me a tiny bit nervous is if you have a two year contract, and after the first year the contract gets terminated or turns out, and they want to get out of their contract for whatever reason, and then your deal economics kind of suffer a little bit. So that would just be the one thought that I would put in from the finance side.
Jessica Lin: Awesome. And how about you? You have new acronyms.
Michaela Lehr: Sure. So yeah, ICR. So I agree with Megan. It definitely needs to be very straight forward. The straight forward individual commission rate without any built in incentives, the quota should be determined top-down by the founder, best guess that can be iterated upon in case it’s grossly wrong. That simple comp design needs to be married with a very simple understanding of what it is that you are actually incentivizing and paying on. My CFO, John Herman likes to say that good comp design is like being a porpoise. For those who don’t know, because I didn’t, a porpoise basically a dolphin with a smaller mouth, something like that. We have a lot of animals. You need to go high, which is the porpoise can swim on top of the water, dive deep, get into the weeds and then come back up and swim on top the water again. In the same way with comp design need to understand high level, what am I incentivizing?
Michaela Lehr: What am I trying to optimize my reps toward for the next year? Get into the weeds, define that metric. What is my operational rollout going to look like? And then get back up and say, what are the deal economics and unit economics of this comp design that I’m putting together? So to apply that to a specific story, in a company that I knew in a prior life, the reps were given the directive to maximize the MRR if their deals. And one specific deal was sold for months for $120,000. Had an early renewal for $150,000. When accounting came in to calculate the MRR of the new deal, and the commissionable amount of the new deal, they decided to define it according to gap revenue standards. Pre ASC 606, and if anyone wants to know the nuances of this, I’ll be getting beers later. We can talk about all the accounting stuff.
Michaela Lehr: Basically what accounting came back with is that the deal was a down sell, and the sales rep is sitting there like I just went from 120 to one 150, 12 month contracts. This doesn’t make any sense. And so that required leadership coming in and saying, “What exactly am I looking to incentivize here?” And as they thought about it more and more, what they realized was that 120, 150 annual contracts is a good thing. What they’re incentivizing is ARR. So the ARR had to be defined so that 120 with an early renewal to 150 is always an upsell. So that marriage between going high and going low and then going back high again, was the thing that really brought the comp design together.
Meghan Gill: At this stage, this is where you’re looking for all of these kinds of gotchas, like what are the outliers, or what are the strange things, strange behaviors you’re encouraging or discouraging with the comp plan that you have?
Sanj Sanampudi: I think related to that is just kind of how you’re paying out your reps. When I was hiring my team to run comp plans, I would always tell them a quote that Tyra Banks said, “Don’t mess with a girl’s pay.”
Michaela Lehr: So true.
Meghan Gill: So true.
Sanj Sanampudi: So inspirational in so many ways. But what that really meant to us was that we were going to change her reps payout from billing to booking. The reason we did that was because we were finding that our reps were chronically under achieving their quota. So most of our reps weren’t hitting their quota. Even though it was a pretty straight forward number to hit. We found out that they were actually spending more cycles collecting payments from customers, trying to figure out new billing schedules with customers, that the customers would actually sign up for, so that they maximize their own earnings. We wanted to focus them on successfully completing their sales motion. Anything around collections, anything around having customers apply on time is really a company and process problem that needs to be solved. Pushing that on your rep is is bad practice, and really my only advice at this stage is pay your reps faster. If you think paying on collection is the best he can do, push yourself to pay on billing. If billing’s what you can do, push yourself to booking. It will pay off. It will focus on the right behavior.
Michaela Lehr: At this stage, I do agree. I think later on when you get more nuanced because you can negotiate your payment terms in the contracts, and this is for a later stage, paying the report when you expect to get which will in a sense disincentives Net 90 payment terms, is something that is helpful. But I totally agree in this particular stage, keep it simple.
Meghan Gill: I would add also at this stage it’s okay to vastly over pay your sales reps, because one of the most challenging skill set to hire for is enterprise sales. So if you have reps that are making a lot of money, that is the best possible recruiting that you can do. So why would you prevent … Go ahead and overpay a little bit. It’s going to pay off in the long term in terms of enabling you to build sales capacity.
Jessica Lin: Cool, fantastic. So should we move on to our third stage? Again, this is where we’re starting to layer things. I think these are again, the things that folks might not have seen yet or are just starting to think about. So at this point, we’re at our third stage, a sales team that’s scaling 10 to 50 million dollars in ARR. This is really exciting. You’ve got a sales engine that’s humming, a herd of ducks out hunting and at this point you’ve got pretty discreet roles, You’ve got your STRs, your AEs, your CSMs. What are the comp lovers that folks can start experimenting with, to continue scaling and to systematically drive growth? So you’ve got more cards, cards up. He’s nothing if not consistent.
Jessica Lin: Yeah, exactly. Let’s talk through these because I think this is where we can get into some of the really interesting nitty gritty stuff that again, it’s a little bit more complex and drives behaviors that you might not expect. kick us off.
Sanj Sanampudi: Sure. You know I am all for keeping it simple and consistent. What you’re going to find is territory design matters a lot more now and the metric itself per se. So I think keeping a simple TCV metric makes sense. But you have to be really smart about how you’re designing your territory. Everything that you’ve done to this point, breaks. Intensive 50 million actually breaks like two or three times in my experience. The things we’re adding-
Michaela Lehr: The company or the comp plan?
Sanj Sanampudi: The comp plan.
Michaela Lehr: Agreed, hopefully not the company.
Sanj Sanampudi: You’re adding more go to market strategies, and you’re focusing people around those. You’re adding territories, you’re adding currencies. Every single thing that you did to start paying people will no longer work, because you’re trying to pay 50 people on time every month and that’s really hard.
Jessica Lin: Well so tell us a little bit more about territory? So I think this is the first time we’re hearing about it. What works well with territories? What are some red flags when you’re actually building out this plan?
Meghan Gill: Well I think at this stage, you know I had a slightly different take from , which is this is the point where you might start segmenting your salesforce. Where you might have a team that’s focused on new business. It’s going to be comped differently than a team, like a customer success or an account management team that’s trying to retain, and maybe upsell existing customers. So that’s going to be sort of an inherent decision about how you assign your accounts. You may also need to start thinking about who owns the renewals, is that a dedicated team? Do you have a chance … Again, this is why collecting data is so important. If you’re upselling consistently on renewals, you probably want a rep assigned to those accounts, and maybe you don’t want an account manager. If you’re one and done, it’s probably good to transition that off of the reps plate and give it to a dedicated team. So these are all the things you need to start thinking about and thinking about which are the different elements that you would be paying different types of salespeople on.
Jessica Lin: What are some pain points that you’ve seen, again, for folks in the audience once they start doing these optimizations and transitions, are there things that you’ve seen that you can advise folks to either avoid or lean in on Megan?
Meghan Gill: Well, I would definitely go to your most … I’m trying to think of a nice way to put it. Go to some of the sales reps that you know game the system, and when you show them the comp plan you need to ask them, “How would you make a lot of money on this comp plan?” And figure out what the holes are and what are the weird behaviors that you’re encouraging with your comp plan. Because that’s what they’re going to target. I mean they reps will spend time reading terms and conditions, finding a place that they can make a lot of money and that may be an unintended consequence.
Jessica Lin: How much time do you give your plan to really test before you change these weird … Change the plan to address the weird behaviors?
Meghan Gill: We issue annual plans and we typically spend like, so our fiscal year just started, so I’m in the thick of it right now, but we probably spend a good quarter just going through and iterating on, these are the behaviors that we want to drive, this year versus last year. These are the types of incentives that we want to include in the comp plan. Then you show it to one group of people and they say, “Well this is what I would do, and this is the behavior I would be worried about.” Then you show it to the next person, group of people and you just keep iterating on it. So I would give yourself at least a quarter to do it.
Michaela Lehr: Yeah, I totally agree. One of the things that I think about is as you get to this stage and you have a nuanced view of what you want to accomplish as a company for the next 12 months, you want to layer those incentives into your plans. But I totally agree with you Megan, you need to think about, if I incentivize one side of the machine, what happens to the other side? And how do I keep those pieces balanced? If I can expound on that Jess, one of the companies that I’ve seen do that really well and not just because I work there is Movable Ink, where the sales machine is a really finely tuned machine and that’s largely because the leadership and the VP of sales have a very clear and crisp directive that they give to their team on, “This is what we are looking to optimize in this next year.”
Michaela Lehr: And the sales comp is just a numerical expression of that. To give an example of an incentive that I thought worked particularly well as a lot of SAAS companies do, as Movable brought new products to market over the course of the years, some of the incentives that they brought on were related to bringing those new products in and to having that initial traction. One of the organic motions that a lot of the sales reps did, was that they would then cross sell those products into the existing base. Which is great because that means that they have a good relationship with the customers and the customers want to buy more of our product. But what we also thought about as we did that was, what does that do to the net new machine? And how do we make sure that that keeps humming, because that is the lifeblood of the company next year and the year after, and the future upsell opportunities.
Michaela Lehr: So as we created these incentives, to Megan’s point you need to control for, well what does it do if I pull this one lever? What happens to the other side of my comp plan? One of the people who actually talked about this, unbeknownst to her and who did a really great job at it was Alana’s Morissette, who was talking about the balance of upsell and net new. And she said, “If you have too much of one, it’s like 10,000 spoons when all you need is a knife.” You need the full culinary set to eat your meal, and you need both upsell and net new for your business. You need to think about the levers you’re pulling, and what the flip side of the coin is.
Jessica Lin: Just double click on your example. What did a Movable Ink do at that point to correct for that behavior?
Michaela Lehr: Yeah. So one of the things that we thought about was, how do we layer in multiple incentives and at what level, to ensure that it makes sense to still bring the new product to market, cross sell that into your base. That’s great for our net negative churn. But then we also have an incentive on ensuring that the net new machine keeps pouring and it’s an arithmetic exercise with some assumptions, right? So you have to come to a number that you think make sense in both those categories.
Meghan Gill: I would also add that if you’re at a fast growing company or constantly releasing new products, always try to keep some money in your back pocket for spiffs for new products, because it can take a long time for the sales reps to learn that sort of muscle memory of cross selling or talking about new products, and spiffs are really effective way to do that. You have to have some reserves so that you can incentivize that behavior. I would say just sort of building on that, typically you start with a carrot, here’s a spiff. Sell the new product. Over time you might decide you need something more like a stick, like whether it’s or a product specific quota in order to make sure that they’re selling it.
Jessica Lin: I think we could just even talk about spiffs for just a minute. So again, another acronym, just break it down for folks who might not have introduced them yet to their teams.
Meghan Gill: Sure. Spiff very basically it’s a bonus, a kicker, or an extra incentive on a certain behavior that you’re trying to drive. So the simplest one might be, you’re selling a new product, you get an extra point or two or whatever it is for selling it. Or you get a certain dollar threshold, like a dollar amount bonus for bringing in a new logo because you’re trying to drive new logos. So maybe in the case Michaela gave, if you happen to over optimize your plan for cross sell and upsell, and you’re like, “Crap, we have a new logo acquisition problem.” That’s a great time to introduce a new logo spiff, and basically pay the reps to try to get new customers in the door.
Michaela Lehr: Right. And you’re trying to anticipate the two sides of the behaviors as well, and that’s one of the ways to solve for it. I would also focus on deal and unit economics. Sorry, I just keep bringing that same finance hat on. But just make sure that that stays in line as you bring those spiffs to market to ensure that it’s a sustainable solution.
Sanj Sanampudi: And I would just add here, this is where you’re seeing people added a lot of different levers, and that means people are going to start building cover farms. That’s really when this is going to happen. The flips side of that is just as dangerous. So Forester wrote a study recently that estimates 40% of commissionable people don’t actually understand their comp plan. So you might have the opposite of the cover farm, which is inaction, because they don’t actually get with all all of these levers mean. So this is a great opportunity to really explain, “This is the company goal, this is what we’re trying to incentivize you to do.”
Meghan Gill: The other thing I consider is like you might decide, okay I’m rolling whatever, a new logo spiff or something along those lines. You have to think about, am I going to get incremental deals from this? Because if you’re just going to be paying people for something they’re doing anyway, then you’re just throwing money out the door. So you really have to pair whatever spiffs or incentives you have with sales enablement, and with other initiatives to really get them to change their behavior. So I think that aligns to what saying. And it’s not just about the commissions, it’s also about setting the vision for what the company’s trying to achieve.
Michaela Lehr: Yep, agreed.
Jessica Lin: That’s why Michaela, I’d love to dig in just a little bit on your card because they think there’s different things that you can be creative with. So you’ve got you products, you’ve got multi year contracts, you have specific industries and verticals. To your point, how many should you layer on before it gets so confusing? Should you be testing a few at a time, see how they work?
Michaela Lehr: Yeah. So the way that I would think about it, and one of the first things that I made sure to say is that there has to be a clear and crisp vision of what exactly you’re incentivizing for the next 12 months. So if that means that you’re creating 18 different levers, I mean that’s not a clear and crisp mandate. So first I would practice saying it in front of the bathroom mirror, and if it takes you more than 15 seconds to say what you are optimizing for, you’ve got too many levers.
Meghan Gill: Keep in mind that when you’re designing the plan it’s like, it’s always easy for me to understand the plan because I’d been living in the spreadsheet. You’ve got to go test it with real sales people to make sure that they’re not like “Whoa.” If they can’t repeat it back to you then you got to go back to the drawing board.
Michaela Lehr: And I think that your sales reps respond well to logic, right? So just level with them as human beings because believe it or not they are. The things that you’re trying to optimize for should make sense to them intrinsically, everyone wants the company to be successful. So being able to communicate with them on that human level I find really helps a lot.
Jessica Lin: Cool. any other red flags or war stories at this stage?
Sanj Sanampudi: I would say mine is really focus the process on paying them correctly and on time. This is really when kind of the opposite of what Megan was saying at the last stage of overpaying people to improve your recruiting. If you’re missing payroll cycles, if you’re paying inaccurately, you’re really going to lose a lot of credibility with your team.
Meghan Gill: You also mentioned that this can create weird behaviors. If you’re paying on bookings versus billings, you start paying your reps incorrectly, they’re going to spend a lot of time poring over their paycheck and that’s time that they’re not on the phones.
Michaela Lehr: Selling, right. One of the worst stories that I guess I have in a company that I knew in a past life again was, the the company brought out a new product, and they really wanted to get that initial traction. They told the reps, “Go sell this product. It could be for $0. And we’re going to pay you a flat amount per sale.” So one of the sales reps had a large mid market base that doesn’t have the same gating structure that some of the enterprise companies do in procurement, and she just went and just sold a ton of that free product, got them to sign the paperwork and made a huge paycheck. The implementation wasn’t there. The actual followup wasn’t there and the company didn’t get that thing that they were hoping for, which was feedback on the product. So you have to be very thoughtful about the way that you designed the comp and the way that you pay your sales reps to ensure that you don’t create those bad behaviors.
Jessica Lin: Cool, terrific. Well, we are at our last stage, our growth sales team, this is last but not least, I tried mixing up my animal term. 50 to $100 million in ARR. Again, a fleet of sales people very specialized in their roles. So not only the SDRs, the AEs, the solution architects, but you’ve got presales, postsales. What comp levers do you folks need to focus on your to continue turbocharging their sales growth?
Sanj Sanampudi: No one’s going to guess this.
Meghan Gill: Surprise.
Jessica Lin: This is where we found we got a lot of other variables and layers to add in here. So, take us home.
Sanj Sanampudi: So my choice of TCV at this level is really about alignment. In one of my previous roles, we had eight reps on 12 to 15 different metrics. So no one in the company could actually say, are we having a good year or a bad year, because it depended on what you did. That reconciliation became finally referred to in our executive team meetings and board meetings as the slide of shame. The kind of one artifact that showed that as a company we actually weren’t aligned. So the choice of TCV is not like you’re paying everyone on every single deal that closes. But it’s actually you’re paying on the same metric, and you’re carving out your territories in a more credible go to market driven way.
Sanj Sanampudi: I think related to this, another thing to acknowledge at this stage is you’re actually 50 to 100 million, you’re running a couple of different businesses that are at different stages. So one business might be really mature, but you might have new regions or new products that actually look more like the founder led or the early stage sales. Yeah. So you’re running a few different organizations and you need to figure out, how can you make all of them speak the same language?
Jessica Lin: Yeah. Well go down. Now we’ve sweeteners, now we’ve got incentives, Michaela?
Michaela Lehr: Tiered accelerators and flavors of acceleration. So at this point your sales org is pretty well built out, and what you probably have is something resembling a normal distribution of your sales reps. So you have your winners on one tail, the people you need to manage out on the other tail, the unwashed masses in the middle. And what you really want to do is you want to double down on your winners, and you want them to be really successful, not only to motivate them and the rest of the sales team, but also it’s a great recruiting story. So one company I thought did this really cleverly and what they did was they had quarterly and annual accelerators that were tiered. So they had a specific acceleration routine, 100-110, 110-125 etc.
Michaela Lehr: And what they also did that I thought was even more clever was that it wasn’t just about getting to your quota and then getting beyond, but also then they had a different flavor of acceleration that depended on how you got to your quota and beyond. So one of the things that they did was they then had different acceleration numbers, if you got to your quota with a specific product mix. So if you had a sweet product mix, then you were getting slightly bigger kickers and each level. And then yet a better one was product mix and mix of industries. Then you got even better kickers at each level. What this got down to was the company was advanced enough that it understood where it got the best LTV to CAC, and which deals are the optimal sales motion. What this created was not only telling people that, “I want you to get your quote and beyond, but I care how you get there.”
Michaela Lehr: But then it also created a conversation within the company around what does an ideal sale look like and why? Why are these industries better than others? so I thought that that was a really clever way to package up this doubling down on your winning reps.
Meghan Gill: Yeah. And all the data that they must’ve been able to collect, so valuable.
Michaela Lehr: Yeah. And getting that LTV to CAC by industry and truly understanding what my use case is in those industries that it solves, and why some are stickier than others is also a great feedback side goal for your product. Right. So there’s I thought, a lot of really clever conversations that came out of a thoughtful comp design.
Speaker 5: Cool, Megan?
Meghan Gill: I think my answer is similar to Michaela in that this is the point where you probably have a lot more data about your customers and about which customers are growing, which customers are churning, what kind of behavior you’re encouraging among your reps. So you might think about kickers. So we talked about spiffs. You might think about gates, which are more of a sort of stick versus a carrot. So as an example, we find that our customers that buy services, they grow much faster. So we have a gate around services. You can’t just sell software, you have to sell the services with it. So our customers are going to have success. That’s kind of related to the story you gave where the rep sold a bunch of deals, a bunch of product into a customer, and the customer never got off the ground. Once you start to understand your customer behavior and your rep behavior, you can start adding those kinds of incentives into the plan.
Jessica Lin: And do you find that your sales reps like these gates and kickers?
Meghan Gill: Well, they like kickers. They don’t like gates. But I mean, I do think you have to think about how much carrot versus stick you have in your plan. You you might have some stick, but you have to balance that with things that are gonna get them really excited. With things like, carrots or some kind of incentive.
Jessica Lin: Yeah. Well, one of the things you and I discussed was just decelerators, right. So maybe we can talk a little bit about that concept here, of how you guys have potentially included those in some of companies you’ve seen in the past.
Meghan Gill: Yeah, we talked a little bit that it may not only be about the incentives for the behavior you want, you may want to build in disincentives for behaviors you don’t want. So for example, at the very beginning, talked about the cobra story. So if you know you’re acquiring a certain kind of customer that is not a good customer, that’s going to churn and you understand that, you can consider putting a decelerator into the reps plans to disincentivize them from doing those kinds of deals. Another way to do it is we had a more junior team and we wanted them to on our cloud products. So we said, “You can sell our on prem product, but you have to do a split with a more senior rep.” Guess what? They stopped doing deals on prem product. It got them to focus on the product that was a better sort of match for their skillset. So there are ways that you can build in those kinds of ways to focus the reps into the comp plan.
Sanj Sanampudi: I would say I think decelerators tend to be something that’s trying to control behavior, and comp design shouldn’t really control a behavior. It should drive outcomes. I would say in that regard, if you have reps that aren’t selling to the right types of customers or right types of deals I kind of turn it back to the sales managers and say, “Manage the personnel, create different performance metrics, but don’t mess with their paycheck.”
Michaela Lehr: That’s a really good point because comp design is not a substitution for good management. If you have a rep who is performing well say, but is not displaying the right behaviors, then that’s a management problem, not a comp problem. You need to address it as such.
Meghan Gill: I agree. I mean I think these are all things you can explore, but at the end of the day you can expect what you inspect. So if your managers, especially your frontline managers are truly managing the deals and understand what the reps are doing, that should control a lot of the behavior. But certainly the comp is going to drive you the behaviors, right?
Michaela Lehr: I mean that’s definitely a stronger stick. Yeah, that’s a stronger statement.
Meghan Gill: Yeah. You have to have both. And the managers had their own comp plans, so you have to derive the manager comp plans from the rep comp plans. So they’re going to be motivated for the same things that the reps are motivated towards.
Michaela Lehr: Yeah. Actually to that point, that’s a good point. I think at this stage you also want to get slightly more nuanced in your sales team lead comp plans so that they’re not … Before this you want to keep them relatively straight forward. At least what I’ve seen in the past is that you get creative with the rep plans before you get creative with the sales team lead plans. But then at this stage you want to align them at least on the things that are the most important. So you start to get more creative with the sales team lead plans as well.
Jessica Lin: All right. Any final words of advice for our sales comp designers out in the audience?
Meghan Gill: This is our final words of wisdom?
Jessica Lin: This is it.
Michaela Lehr: Ultimate words of wisdom, no pressure.
Meghan Gill: I guess my final words of wisdom are, always test your comp plan with, with real reps that are going to be …
Michaela Lehr: Honest.
Meghan Gill: Yeah. Well get the honest feedback, and make sure that you don’t need a PHD to understand the comp plan.
Michaela Lehr: Yeah, I would say very clear on your metrics and what you are incentivizing on. Think through as Megan said, game theory your own plan. Tried to understand what levers you’re pulling and what things you may be uncovering by doing that. Like I said before, and I will double down on this, understand your metrics, look at them, stare at them, define them clearly. Make sure the organization is educated on them because these are the things that are going to drive success for the business going down a year or two years, three years.
Sanj Sanampudi: Yeah. All of that. I would add one point on, make sure it fits your culture. So the company that you individually are a part of has its own culture, and you can’t have a comp plan that is at odds with that. Then he next thing is, follow Tyra’s wisdom. Remember that this is some girl’s pay and don’t mess with it. Pay them quickly, pay them faster than you think you should.
Jessica Lin: Awesome. Well with that we end our sales comp and planet earth game show. Yeah, remember to pay your elephant herd, and have pay them well. Can I get a huge round of applause for our amazing panelists? Thank you so much.