Too many founders make their very first sales comp plan … too confusing. It shouldn’t be. Remember:
- It’s fine if your first 1-2 sales reps just cover their costs — at first.
- Ultimately, sales reps just have to bring in 3x-5x what they cost
- Don’t overstress nominal “on target earnings”. Bonuses do have to be earned.
A few basic thoughts:
1. Start with the Basics: Just Pay Market Rates
You can’t underpay sales reps and expect results. A typical structure is 50/50—50% base salary and 50% commission, which together make up their On-Target Earnings (OTE). For example, if the OTE is $140K for a U.S.-based mid-market OTE, the base would be $70K, and the commission would be $70K. Same with an SMB rep at $80k OTE. This is standard and ensures you’re competitive enough to attract good talent.
2. Set a Revenue Target That’s 3x-5x OTE, At Least After an Initial Period That’s Easier
The math has to work. If you’re paying a rep $140K OTE, they need to bring in $560K-$700K in revenue annually. For SMBs, you might get away with 3x, but for mid-market or enterprise, it has to be closer to 4x-5x. Ultimately, 5x for big enterprise deals. This ensures the rep is profitable for the business. But, you don’t have to be that efficient in the very early days, for a rep’s first few months at least. See point 3.
3. Make It Easier For Your Reps To Make Money in the Early Days
In the first few months, don’t expect reps to hit 3x-5x. They’re ramping up, learning the product, and building their pipeline. In the early days, I paid my reps 100% of what they closed the first 60 days to help them get started. It’s not sustainable long-term, but it’s an investment to get the engine going. It’s fine to overpay bonuses on the first 1-2 deals or in the first 30-90 days. Just do it. It also builds confidence.
4. Align Commission with Cash Flow — When Cash Flow Matters
If you’re in B2B and customers pay monthly, you might want to align commission payouts with cash received. For example, many only pay bonuses once cash is received. Reps don’t like this, but if you tell them the policy is only until you’re bigger, in the end they’ll be OK with it. Many also pay commission monthly as the customer pays, but here you may need to be a little more flexible so reps can pay the rent and eat. Either way, when you’re more stable, you can pay the full commission upfront on the annualized contract value (ACV).
5. Focus on New Sales
Most SaaS companies pay commissions only on the first-year ACV. Renewals are usually handled by customer success teams or paid at a much lower rate. This keeps reps focused on closing new deals, which is where they add the most value. Keep them being closers.
6. Don’t Sweat Small Negotiations
If a seasoned rep wants $150K OTE instead of $140K, don’t waste time haggling over $10K. What matters is whether they can close $600K or $700K in deals. If they can, you’ll be happy to pay them more because they’re accretive to the business.
7. Motivate with Over-Attainment
Build in accelerators for over-performance. For example, if a rep exceeds quota, their commission rate could increase. This keeps top performers motivated and ensures they’re rewarded for going above and beyond. This doesn’t actually work with mediocre reps. They just want to work the least they can to hit their financial goals. But it really works with your very top performers.
8. Keep It Simple
Don’t overcomplicate the plan with too many variables. A straightforward structure—base + commission on ACV—is easier for reps to understand and for you to manage. Complexity kills motivation.
And finally, whatever you do — only hire early reps you’d honestly, truly, really buy your own product from. For real. Do that, and they’ll almost certainly be accretive.
Cut a corner here, they almost certainly will fail. No matter what comp plan you build.
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