Just another practical sales rep comp plan
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Just another practical sales rep comp plan
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Re: Just another practical sales rep comp plan
#2Perhaps I’m just not in sales and haven’t seen how complicated it gets. But they start the article with keep it simple and end up with a stepwise function with two different slopes and an excel spreadsheet to calculate it.
Re: Just another practical sales rep comp plan
#3Perhaps I’m just not in sales and haven’t seen how complicated it gets. But they start the article with keep it simple and end up with a stepwise function with two different slopes and an excel spreadsheet to calculate it.
I’ve been at companies where managers had to book hour long meetings to explain changing comp structures — with internal presentations. They had to explain what target is, how target is calculated, how revenue is attributed, what the performance bonus is, things like additional performance incentives past target, special incentives for individual products… they can get much worse
Re: Just another practical sales rep comp plan
#4No. Decelerators and deals that pay $0 are demotivating and unnecessary. You can achieve the same net effect by properly setting OTE and quota without the demotivation.
Re: Just another practical sales rep comp plan
#5Perhaps I’m just not in sales and haven’t seen how complicated it gets. But they start the article with keep it simple and end up with a stepwise function with two different slopes and an excel spreadsheet to calculate it.
I’ve been at companies where managers had to book hour long meetings to explain changing comp structures — with internal presentations. They had to explain what target is, how target is calculated, how revenue is attributed, what the performance bonus is, things like additional performance incentives past target, special incentives for individual products… they can get much worse
I worked in tech sales (sales engineering) for quite a while, both as an individual contributor and as a manager. It isn't unusual for plans to be way more complicated than what is described in the article, and for sales reps (and managers) to not really understand their comp plan. It is also common for them to shoot themselves in the foot by structuring a deal in such a way that they lose a lot of money because they didn't take the time to understand the comp plan. It is also true that they don't take the time to understand the plan because they think it will change every year (it probably will) and that every change is designed to screw them out of commission dollars (probably also true.)
Also, the comp plan described in this article is absolutely terrible. Reps on 60/40 quotas. Having the sales VPs more levered than the reps. Not having a linear base commission rate to 100% of plan (you make sure you get to the company revenue goal by a) setting a realistic goal and b) incentivizing the reps to get past 100% of plan, not by penalizing them until they hit plan.
Re: Just another practical sales rep comp plan
#6I've only been in low stakes sales roles (outside of personal projects) so this comes from someone with very little "professional" sales experience:
The good: setting a target comp that is realistic and explained (e.g. "I expect you to hit $200K 4/5 times with this plan.")
The bad: plans with complicated rules (x% up to $Y in sales with a kicker + incentives for certain deal structures) can be demotivating and incentivize the wrong sales behaviors
The ugly: some high-intensity salespeople might thrive on the chaotic and unpredictable nature of comp structures. I don't love the idea of hijacking the "gambling/variable reward" centers of the brain to get what you want out of your people. Be fair and simple.
Re: Just another practical sales rep comp plan
#7Earlier quoted context omitted.
I’ve been at companies where managers had to book hour long meetings to explain changing comp structures — with internal presentations. They had to explain what target is, how target is calculated, how revenue is attributed, what the performance bonus is, things like additional performance incentives past target, special incentives for individual products… they can get much worse
I worked in tech sales (sales engineering) for quite a while, both as an individual contributor and as a manager. It isn't unusual for plans to be way more complicated than what is described in the article, and for sales reps (and managers) to not really understand their comp plan. It is also common for them to shoot themselves in the foot by structuring a deal in such a way that they lose a lot of money because they…
I have a tiny bit of sales experience, certainly less than you. My understanding is that these things end up so complicated for two reasons.
In part it can be a reflection of the real-world complexities of an organisation’s financial incentives. It’s easy, especially not being in the sales org and looking in at it from outside, to expect things to be as simple as “more revenue == better”. But then typically businesses of a certain size will have more nuanced incentives. It’s less expensive to sell service x over y in some opaque hard-to-quantify way. Direction has come from upstairs to push more of product z to keep a supplier happy. Blah blah.
But it’s just as much poor system design from whoever is devising the comp structure. It’ll suffer from the same issues as the income tax system in many jurisdictions. Layers and layers of tweaks to incentivise behaviour x or y for opaque reasons until you end up with a kludge of…bleh.
And this is all setting aside comp structures that actively seek to banboozle sellers into losing out, by way of insane complexity. Reminds me of buying a used car.
Re: Just another practical sales rep comp plan
#8I get the importance of hitting targets and all, but it seems like horseshit to me that the employee earns no commission between 0-20% of the target, and at 99% of target is at only 80% commission.
Maybe someone with more of a sales mindset than I’ve got would thrive on this, but it feels to me a bit like a “heads I win, tails you lose” outcome for the company. Doesn’t really seem like you’d lose the motivating factors either by opting for a policy that errs toward the super generous in significant upside scenarios.
Re: Just another practical sales rep comp plan
#9I've only been in low stakes sales roles (outside of personal projects) so this comes from someone with very little "professional" sales experience: The good: setting a target comp that is realistic and explained (e.g. "I expect you to hit $200K 4/5 times with this plan.") The bad: plans with complicated rules (x% up to $Y in sales with a kicker + incentives for certain deal structures) can be demotivating and incent…
A plan that is x% up to $y in sales with an accelerator structure is a pretty simple plan. The x% up to $y sales thing is just a side effect of having a structure where you pay people based on attainment against a quota. If someone is supposed to make, say, $200k at plan, and is a sales rep on a 50/50 plan, then their base commission rate, the percentage they get paid for every dollar of sales, is $100,000 divided by their quota. By definition.
The only simpler plan I've ever heard of is just a straight percentage of gross margin, but then the commission management scams move away from the comp plan and into expenses that eat into gross margin...
Re: Just another practical sales rep comp plan
#10I get the importance of hitting targets and all, but it seems like horseshit to me that the employee earns no commission between 0-20% of the target, and at 99% of target is at only 80% commission. Maybe someone with more of a sales mindset than I’ve got would thrive on this, but it feels to me a bit like a “heads I win, tails you lose” outcome for the company. Doesn’t really seem like you’d lose the motivating facto…
Sales plans are often a mess of percentages and edge case goals, mostly meant to attract folks by showing a large hypothetical "on target earnings". Then if you do really well you might hit accelerators which can be exponentially more.
The reality is these quotas are typically created to be either crushingly hard to achieve or the best a financial model predicts your territory can do. Either way, the deck is typically stacked against you, even if the math seems favorable.