8 ms·

Simple Math to Set Up a Sales Team

177 points by panabee 6y ago

raiyu 6y ago
I know from a mathematical perspective this works in order to ensure that the company can be profitable at some point but a part of me wonders if it’s really necessary. I’ve never had a positive interaction with a sales person. But I’ve had countless positive interactions with customer support reps. One is over paid, the other under paid. If companies just created a sales team from their highest performing customer support reps and didn’t give them quotas or bonuses I think the model would still work as well from a revenue perspective, drastically reduce costs, and also lead to less irritated customers as no one i know looks forward to any sales call, ever. Ok, broad generalization but you get the idea.
- csa 6y ago
  I’m not sure what line of work you are in, but I will humbly suggest that you probably have not worked with a good sales person. Good sales people (perhaps mostly from good orgs) are typically very welcomed into an org because they will help solve problems or point you to solutions if they don’t have it themselves. These are the sales people I know who make the most money, and it’s fairly effortless for them since they know their business well.
  - raiyu 6y ago
    I get the general premise but in reality when it comes to software or hardware sales I’ve never experienced that personally. Cofounder of Digitalocean, so I’ve gotten pitched by hundreds of sales folks on the tech side of things. On the consumer side I did happen upon one or two great car sales folks that followed that model of a great sales person.
    - npsomaratna 6y ago
      Question: how do you guys structure this at DO?
      - deleted 6y ago
        [deleted]
      - raiyu 6y ago
        Don’t get me wrong I get that many companies do this and it’s the industry norm when it comes to enterprise sales but on average I think the incentive structure leads to a number of issues and sure there can be stand out sales folks that aren’t selling but really aligning with the customer, but can’t go based on exceptions, have to look at the average sales person to see what kind of an individual that incentive structure creates. I also think you can augment the customer success team to take care of that especially if you have a wide variety of customer profiles. There is massive potential inside of companies customer support organizations that go unrealized. They know the product, the customers, the bugs, they are the front line for down time, or bad deploys by engineering. I think the sales model is an old model that will eventually get up ended. Customer Support > customer success > inbound leads And if you do customer success right the customer will naturally grow with you or you find the limitations of the platform and that’s critical product feedback. Btw, your description of a great sales person also works equally well for a great customer success individual.
        cjblomqvist 6y ago
        I'm not sure I follow. How do you approach sales at DO? Do you do sales the traditional way using customer success people or how do you bring in new customers?
        molsongolden 6y ago
        Sometimes being too close to the product can hurt the person’s ability to make sales.
        antupis 6y ago
        I think this concept is pretty similar what Peter Thiel suggested at Zero To One “Like acting, sales works best when hidden. This explains why almost everyone whose job involves distribution— whether they're in sales, marketing, or advertising— has a job title that has nothing to do with those things. People who sell advertising are called 'account executives.' People who sell customers work in 'business development.' People who sell companies are 'investment bankers.' And people who sell themselves are called 'politicians.' There's a reason for these redescriptions: none of us wants to be reminded when we're being sold.”
  - tweetle_beetle 6y ago
    Like in any trade, I'm sure that the best are great at what they do, but I suspect I'm not alone in finding that the vast majority of my interactions have not been with a good sales person (and maybe by your definition not with good orgs either). I've never been told that I might be better off going elsewhere. Many times I've been told that whatever problem I describe, they can handle it, or my problem isn't what I think it is and they can handle it. I feel like short term incentivisation tends to promote dishonesty - most organisations don't seem to have feedback mechanisms to deal with a poor sales process. And like most trades, I'm sure the answer is to take it more seriously, train better, invest more in the people, etc. But the reality is for most sales jobs, as a former colleague once told me, you're never more than 2 missed targets away from being let go.
    - brobdingnagians 6y ago
      I've had hardware stores tell me where I could get the solution that I needed at their competitor, because they didn't have it. Those are the interactions I have been most impressed with from any organization. It makes me want to buy stuff from them just to reward their honesty and helpfulness. I must admit that I haven't really had that experience from many tech companies or "professional" companies.
    - Aeolun 6y ago
      > But the reality is for most sales jobs, as a former colleague once told me, you're never more than 2 missed targets away from being let go. That sounds... fair? It’s like having a programmer that cannot program. If your job is literally to sell, and you’re not doing it? I guess it doesn’t have to be black and white as long as you bring in more than you cost though.
      - watwut 6y ago
        I can tell with certainty is that I was never ever under such pressure regarding my programming ability. I was never close to being fired and I seen only one company where people were often close to being fired due to temporary slip. Even under pressure, programmers don't really get to have hard to reach targets else they will be fired.
  - necheffa 6y ago
    Just about every sales rep I've interacted with couldn't solve their way out of a wet cardboard box. Instead, they'll sing whatever lie they think will get you to buy a product, up to and including promising functionality that later when you get the lead engineer on the phone you are informed "it was never designed to do that".
- jhowell 6y ago
  > One is over paid, the other under paid. If companies just created a sales team from their highest performing customer support reps and didn’t give them quotas or bonuses I think the model would still work as well from a revenue perspective Overpaid in commissions from finding new business? Sounds like a happy SaaS.
  - LunaSea 6y ago
    Who else gets paid in commissions in a SaaS business? Seems like there really shouldn't be any reason for being paid in commissions.
- bjarneh 6y ago
  That's a really good idea. I cannot help to think that this is connected to the horrid economic theory about "cost" and "profit" centers. The sales team create income, and the customer support is just a cost, so why spend any money on them? Why even have them here, can we move them to India?
- twic 6y ago
  The one place i workd with customer support people, they had a commission structure similar to sales, but based on retention. Is this not normal?
  - cosmodisk 6y ago
    We used to have this. The retentions/QA team was under sales and would do a closed loop feedback system back. They were also paid commissions on 'saved' customers. Apart from retaining the revenue that would have gone otherwise, it was good way to fix some ongoing sales issues ( gaps in the pitch) and provide necessary feedback to the marketing on how to position the product.
- jasode 6y ago
  >and didn’t give them quotas or bonuses I think the model would still work as well from a revenue perspective, Maybe our intuitions and idealism on what motivates salespeople don't match reality. E.g. The CEO of Pluralsight tried to remove commissions and quotas for salespeople and he even wrote an article about it[1] -- but he later changed his mind. You can read latest Glassdoor posts from salespeople about being paid commissions and there was also a post on HN.[2] In other words, if you assigned the role of sales to customer support reps, they may not be persuasive enough to close future sales and you lose revenue. This means there won't be any money to pay a salary to the customer reps to continue acting as "salespeople". It really depends on the product. If it's a popular consumer product like an Apple iPhone, the Apple store employees can be passive "order takers" instead of commissioned salespeople. But if it's a B2B SaaS, you'll most likely need traditional monetary incentive structures to motivate salespeople. [1] https://www.inc.com/aaron-skonnard/why-sales-commissions-don-t-work-in-the-long-run.html https://www.inc.com/aaron-skonnard/why-sales-commissions-don... [2] https://news.ycombinator.com/item?id=15234762 https://news.ycombinator.com/item?id=15234762
- Geee 6y ago
  Salespeople are paid to get punched in the face. They are failing at their job most of the time, so the commission is needed to keep them motivated.
- tarsinge 6y ago
  My take in B2B (private and public sector) is that a sales team is a necessary counterpart to how procurements works. Answering RFP, navigating orgs and finding sponsors, organizing meetings and doing presentations, customizing the contract and negotiating, etc. is a full-time job (source: bootstrapped and done that myself).
  - heipei 6y ago
    Exactly. Add to that that good sales people will build up a lot of "soft" knowledge about the orgs they will be selling to, like: When does their fiscal year start, what's their budgeting timeline, who has purchasing authority, am I talking to someone whose job it is to negotiate a discount, how long will the sales process take to close, should I try to go through a reseller for this deal, is the customer gonna nickel-and-dime every item on the quote, how anal is their legal department, etc. If you do it right it is indeed a full-time job for B2B enterprise sales.
    - ianmcgowan 6y ago
      To add an anecdata - I worked in IT at a medium-ish (10K people) company, and Microsoft, IBM and Oracle sales reps absolutely had a better understanding of the procurement process (and employees involved) than most people at the company. To everyone saying Customer Service can handle sales, there's a large misunderstanding of what enterprise sales involves - making the sale (getting to yes) is just the first step in a long slog to a signed purchase order.
- cosmodisk 6y ago
  I manage a CS team. Most CS reps are good at helping existing customers with particular problems but there's still a huge gap to fill in between CS and Account Manager. A good AM is skillful at finding out what's currently missing for existing clients,how it could be arranged and offered at the most suitable time. From what I've seen, these aren't the skills everyone's got or,more importantly,willing to get. I do, however agree, that some AMs are grossly overpaid. If I ask simple things during the initial call and all I get is 'let me check with my technical team', then it's a waste of time.Having said that, I've seen what a good sales person can do in really tough situations,where you'd think there's no way on earth anything cab be done now.
- costcopizza 6y ago
  How? I've done both. The reason people are in support is because it's a fundamentally different role. I don't have to try and push a single damn thing on anyone. It's the opposite, you are on the receiving end of the problem. Every interaction I have is because of a need, I don't have to try and create said need or make a prospect think there is even a need.
  - jonfw 6y ago
    I think the point OP is making is that a sales person shouldn't justify or create the need- they should identify an existing one and solve it. Which is similar to what a CSR does.
- specialist 6y ago
  Once you work with a talented sales, marketing, project manager, QA/Test, tech writer, graphics designer... It's hard to stomach the wannabes. But I imagine they all think the same of us programmers. Sturgeon's Law takes no prisoners. > countless positive interactions with customer support reps. Count me interested. Please share any wisdom. I've also wondered about fair compensation for CSRs. Early in my career, I did some "sales engineer" tasks, definitely played big (sometimes biggest) role in closing deals, but never got any of the cheddar, which sucked. Mid career, I managed some mature products where most revenue could be attributed to tech supp; our sales driven org had no cheddar for the tech supp dept, which begat a lot of resentment.
ZephyrBlu 6y ago
Is 10x base salary as a quota standard? It seems like a really high target.
- bryanrasmussen 6y ago
  It seems reasonable when you consider that 10x is revenue not profit.
- twic 6y ago
  Look at it the other way round: the company is bearing a cost 10% of revenue just in commission to salespeople. If all salespeople are exactly meeting quota, then the total cost of sales is 20% of revenue. The same applies to their manager, at 2.5%, for a total of 25% of revenue. The remaining 75% has to pay for everyone else in the company, and external costs!
  - jjmellon 6y ago
    It’s not 10% of revenue, it's 10% of the first year of ARR. So if the company is doubling revenue every year, it is 5% of revenue. Any slower growth, it's a lower percentage.
  - kingnothing 6y ago
    I've worked places that approach paying 100% of year 1 revenue to sales. We had a relatively cheap B2B SaaS product with a higher barrier to exit. It really depends on what the LTV of your customer is as to what percentage you should pay sales people.
motohagiography 6y ago
Great article. This has real implications for SaaS pricing. e.g. If your market is SMBs, your JR AE sales person costs ~$50k/y with a reasonable expectation of selling 10x their salary in ARR, your pricing needs to be proportional to the number of customers in the top of your funnel / sales salary. It seems obvious, but often we think about price from a user and individual work perspective, with no sense of why it's worth $50k/y for a subscription to a SaaS tool.
- dhimes 6y ago
  Guessing a bit here— correct me if I'm wrong. This jargon is utterly foreign to me: SMB = Small to mid-sized business (not server message block) JR = Junior rep? Jr? AE = Account executive ARR = Annual recurring revenue
  - cosmodisk 6y ago
    All correct.
  - motohagiography 6y ago
    No need to guess, they're in the table in the article. The question I have is whether it makes sense to add a team commission variable where instead of just Geos, Verticals or Round Robin, there is a ~%5 redistribution of the sales commissions to provide a co-operation incentive for assists. In a strictly competitive team, assisting on another sale comes with an opportunity cost against your own quota and commissions, where if you are going to get a few points for keeping your eye on the aggregate number it adjusts the incentives. I once turned down the opportunity to move into a sales eng role because sales engineers didn't get a commission cut and it seemed like a dumb deal. In general, do sales eng's get sales commissions in your companies?
    - dhimes 6y ago
      He should add "ARR" to the glossary. I know a lot of others here, like me, scan the comments to see if the article is worth reading, so translations help us.
cosmodisk 6y ago
Having sat in some meetings where these structures get discussed/decided, I've got to admit it's not easy. Even territory assignments alone can have huge differences in how all the theory falls flat pretty quickly.
goatherders 6y ago
This is really well written and helps make plain something that can get pretty dicey quite quickly. The main thing I would spotlight to new companies looking to add sales people: make their comp exactyl the same and use a formula (this one is pretty good) to structure the comp. It is easy to find yourself in a position where an attractive candidate is wanting to negotiate for a little more salary or better accelerator...resist the urge. Stick to the formula. You can find a good candidate eventually.
goatpkr 6y ago
This was a fantastic read!
nimbix 6y ago
The standard rate might be at 10%, but from my experience it still varieas a lot. I know of two B2B companies that deviate a lot: * Company A has a product that practically sells itself - it has been joked that sellers are "just accepting orders" from prospective clients. At that company the commision rate is just 4% (used to be 8%). Most sellers are fine with that because it's easy money. * Company B is not having such an easy time selling their product - at that company the commision rate is a whopping 30%. While it's great to have some ballpark figures, you also need to realize that you may need to (or be able to) pay your sellers al lot more/less, depending on your specific situation.
TacoToni 6y ago
As someone who works in Sales Commissions this was a great read. We do things quite differently such as yearly targets vs quarterly. These suggestions are great and straightforward to calculate until you have a large sales team. I wonder how many companies use a system to calc commissions vs using excel. We personally use excel and it can be daunting at times, but allows for more plan flexibility.
cletus 6y ago
This is a great article. I'm an engineer and not in sales. I know from experience that areas other than my own have developed frameworks and ways of thinking about things to solve their particular problem. In a pretty short and information dense article I feel like I at least have an inkling of the _language_ used in (SaaS) sales.
boringg 6y ago
Do sales ever get incentivized with equity? Couldn't that be a good long-term arrangement? Incentivize the original sale and over time as the client remains on platform unlock stock - make sure there is continuity with client. I recognize that is a different model and the inbound sales team hands off the client internally.
- stephen_cagle 6y ago
  That is an interesting idea. Issue I can spot with it is that you would still be incentivized to sell "short term" as you still get equity. The equity isn't becoming more valuable due to your sales (which don't act as recurring revenue), but your equity does increase in value from the other (more honest) salespeople who are doing "long term" sales. Still, I think it is a neat idea.
Flowsion 6y ago
Fantastic article and read. It would be really interesting to see something like this for online advertising and selling ad campaigns.

177 points by panabee 6y ago

I know from a mathematical perspective this works in order to ensure that the company can be profitable at some point but a part of me wonders if it’s really necessary. I’ve never had a positive interaction with a sales person. But I’ve had countless positive interactions with customer support reps. One is over paid, the other under paid. If companies just created a sales team from their highest performing customer support reps and didn’t give them quotas or bonuses I think the model would still work as well from a revenue perspective, drastically reduce costs, and also lead to less irritated customers as no one i know looks forward to any sales call, ever. Ok, broad generalization but you get the idea.

csa 6y ago
I’m not sure what line of work you are in, but I will humbly suggest that you probably have not worked with a good sales person. Good sales people (perhaps mostly from good orgs) are typically very welcomed into an org because they will help solve problems or point you to solutions if they don’t have it themselves. These are the sales people I know who make the most money, and it’s fairly effortless for them since they know their business well.
- raiyu 6y ago
  I get the general premise but in reality when it comes to software or hardware sales I’ve never experienced that personally. Cofounder of Digitalocean, so I’ve gotten pitched by hundreds of sales folks on the tech side of things. On the consumer side I did happen upon one or two great car sales folks that followed that model of a great sales person.
  - npsomaratna 6y ago
    Question: how do you guys structure this at DO?
    - deleted 6y ago
      [deleted]
    - raiyu 6y ago
      Don’t get me wrong I get that many companies do this and it’s the industry norm when it comes to enterprise sales but on average I think the incentive structure leads to a number of issues and sure there can be stand out sales folks that aren’t selling but really aligning with the customer, but can’t go based on exceptions, have to look at the average sales person to see what kind of an individual that incentive structure creates. I also think you can augment the customer success team to take care of that especially if you have a wide variety of customer profiles. There is massive potential inside of companies customer support organizations that go unrealized. They know the product, the customers, the bugs, they are the front line for down time, or bad deploys by engineering. I think the sales model is an old model that will eventually get up ended. Customer Support > customer success > inbound leads And if you do customer success right the customer will naturally grow with you or you find the limitations of the platform and that’s critical product feedback. Btw, your description of a great sales person also works equally well for a great customer success individual.
      - cjblomqvist 6y ago
        I'm not sure I follow. How do you approach sales at DO? Do you do sales the traditional way using customer success people or how do you bring in new customers?
      - molsongolden 6y ago
        Sometimes being too close to the product can hurt the person’s ability to make sales.
      - antupis 6y ago
        I think this concept is pretty similar what Peter Thiel suggested at Zero To One “Like acting, sales works best when hidden. This explains why almost everyone whose job involves distribution— whether they're in sales, marketing, or advertising— has a job title that has nothing to do with those things. People who sell advertising are called 'account executives.' People who sell customers work in 'business development.' People who sell companies are 'investment bankers.' And people who sell themselves are called 'politicians.' There's a reason for these redescriptions: none of us wants to be reminded when we're being sold.”
- tweetle_beetle 6y ago
  Like in any trade, I'm sure that the best are great at what they do, but I suspect I'm not alone in finding that the vast majority of my interactions have not been with a good sales person (and maybe by your definition not with good orgs either). I've never been told that I might be better off going elsewhere. Many times I've been told that whatever problem I describe, they can handle it, or my problem isn't what I think it is and they can handle it. I feel like short term incentivisation tends to promote dishonesty - most organisations don't seem to have feedback mechanisms to deal with a poor sales process. And like most trades, I'm sure the answer is to take it more seriously, train better, invest more in the people, etc. But the reality is for most sales jobs, as a former colleague once told me, you're never more than 2 missed targets away from being let go.
  - brobdingnagians 6y ago
    I've had hardware stores tell me where I could get the solution that I needed at their competitor, because they didn't have it. Those are the interactions I have been most impressed with from any organization. It makes me want to buy stuff from them just to reward their honesty and helpfulness. I must admit that I haven't really had that experience from many tech companies or "professional" companies.
  - Aeolun 6y ago
    > But the reality is for most sales jobs, as a former colleague once told me, you're never more than 2 missed targets away from being let go. That sounds... fair? It’s like having a programmer that cannot program. If your job is literally to sell, and you’re not doing it? I guess it doesn’t have to be black and white as long as you bring in more than you cost though.
    - watwut 6y ago
      I can tell with certainty is that I was never ever under such pressure regarding my programming ability. I was never close to being fired and I seen only one company where people were often close to being fired due to temporary slip. Even under pressure, programmers don't really get to have hard to reach targets else they will be fired.
- necheffa 6y ago
  Just about every sales rep I've interacted with couldn't solve their way out of a wet cardboard box. Instead, they'll sing whatever lie they think will get you to buy a product, up to and including promising functionality that later when you get the lead engineer on the phone you are informed "it was never designed to do that".
jhowell 6y ago
> One is over paid, the other under paid. If companies just created a sales team from their highest performing customer support reps and didn’t give them quotas or bonuses I think the model would still work as well from a revenue perspective Overpaid in commissions from finding new business? Sounds like a happy SaaS.
- LunaSea 6y ago
  Who else gets paid in commissions in a SaaS business? Seems like there really shouldn't be any reason for being paid in commissions.
bjarneh 6y ago
That's a really good idea. I cannot help to think that this is connected to the horrid economic theory about "cost" and "profit" centers. The sales team create income, and the customer support is just a cost, so why spend any money on them? Why even have them here, can we move them to India?
twic 6y ago
The one place i workd with customer support people, they had a commission structure similar to sales, but based on retention. Is this not normal?
- cosmodisk 6y ago
  We used to have this. The retentions/QA team was under sales and would do a closed loop feedback system back. They were also paid commissions on 'saved' customers. Apart from retaining the revenue that would have gone otherwise, it was good way to fix some ongoing sales issues ( gaps in the pitch) and provide necessary feedback to the marketing on how to position the product.
jasode 6y ago
>and didn’t give them quotas or bonuses I think the model would still work as well from a revenue perspective, Maybe our intuitions and idealism on what motivates salespeople don't match reality. E.g. The CEO of Pluralsight tried to remove commissions and quotas for salespeople and he even wrote an article about it[1] -- but he later changed his mind. You can read latest Glassdoor posts from salespeople about being paid commissions and there was also a post on HN.[2] In other words, if you assigned the role of sales to customer support reps, they may not be persuasive enough to close future sales and you lose revenue. This means there won't be any money to pay a salary to the customer reps to continue acting as "salespeople". It really depends on the product. If it's a popular consumer product like an Apple iPhone, the Apple store employees can be passive "order takers" instead of commissioned salespeople. But if it's a B2B SaaS, you'll most likely need traditional monetary incentive structures to motivate salespeople. [1] https://www.inc.com/aaron-skonnard/why-sales-commissions-don-t-work-in-the-long-run.html https://www.inc.com/aaron-skonnard/why-sales-commissions-don... [2] https://news.ycombinator.com/item?id=15234762 https://news.ycombinator.com/item?id=15234762
Geee 6y ago
Salespeople are paid to get punched in the face. They are failing at their job most of the time, so the commission is needed to keep them motivated.
tarsinge 6y ago
My take in B2B (private and public sector) is that a sales team is a necessary counterpart to how procurements works. Answering RFP, navigating orgs and finding sponsors, organizing meetings and doing presentations, customizing the contract and negotiating, etc. is a full-time job (source: bootstrapped and done that myself).
- heipei 6y ago
  Exactly. Add to that that good sales people will build up a lot of "soft" knowledge about the orgs they will be selling to, like: When does their fiscal year start, what's their budgeting timeline, who has purchasing authority, am I talking to someone whose job it is to negotiate a discount, how long will the sales process take to close, should I try to go through a reseller for this deal, is the customer gonna nickel-and-dime every item on the quote, how anal is their legal department, etc. If you do it right it is indeed a full-time job for B2B enterprise sales.
  - ianmcgowan 6y ago
    To add an anecdata - I worked in IT at a medium-ish (10K people) company, and Microsoft, IBM and Oracle sales reps absolutely had a better understanding of the procurement process (and employees involved) than most people at the company. To everyone saying Customer Service can handle sales, there's a large misunderstanding of what enterprise sales involves - making the sale (getting to yes) is just the first step in a long slog to a signed purchase order.
cosmodisk 6y ago
I manage a CS team. Most CS reps are good at helping existing customers with particular problems but there's still a huge gap to fill in between CS and Account Manager. A good AM is skillful at finding out what's currently missing for existing clients,how it could be arranged and offered at the most suitable time. From what I've seen, these aren't the skills everyone's got or,more importantly,willing to get. I do, however agree, that some AMs are grossly overpaid. If I ask simple things during the initial call and all I get is 'let me check with my technical team', then it's a waste of time.Having said that, I've seen what a good sales person can do in really tough situations,where you'd think there's no way on earth anything cab be done now.
costcopizza 6y ago
How? I've done both. The reason people are in support is because it's a fundamentally different role. I don't have to try and push a single damn thing on anyone. It's the opposite, you are on the receiving end of the problem. Every interaction I have is because of a need, I don't have to try and create said need or make a prospect think there is even a need.
- jonfw 6y ago
  I think the point OP is making is that a sales person shouldn't justify or create the need- they should identify an existing one and solve it. Which is similar to what a CSR does.
specialist 6y ago
Once you work with a talented sales, marketing, project manager, QA/Test, tech writer, graphics designer... It's hard to stomach the wannabes. But I imagine they all think the same of us programmers. Sturgeon's Law takes no prisoners. > countless positive interactions with customer support reps. Count me interested. Please share any wisdom. I've also wondered about fair compensation for CSRs. Early in my career, I did some "sales engineer" tasks, definitely played big (sometimes biggest) role in closing deals, but never got any of the cheddar, which sucked. Mid career, I managed some mature products where most revenue could be attributed to tech supp; our sales driven org had no cheddar for the tech supp dept, which begat a lot of resentment.

ZephyrBlu 6y ago

Is 10x base salary as a quota standard? It seems like a really high target.

bryanrasmussen 6y ago
It seems reasonable when you consider that 10x is revenue not profit.
twic 6y ago
Look at it the other way round: the company is bearing a cost 10% of revenue just in commission to salespeople. If all salespeople are exactly meeting quota, then the total cost of sales is 20% of revenue. The same applies to their manager, at 2.5%, for a total of 25% of revenue. The remaining 75% has to pay for everyone else in the company, and external costs!
- jjmellon 6y ago
  It’s not 10% of revenue, it's 10% of the first year of ARR. So if the company is doubling revenue every year, it is 5% of revenue. Any slower growth, it's a lower percentage.
- kingnothing 6y ago
  I've worked places that approach paying 100% of year 1 revenue to sales. We had a relatively cheap B2B SaaS product with a higher barrier to exit. It really depends on what the LTV of your customer is as to what percentage you should pay sales people.

motohagiography 6y ago

Great article. This has real implications for SaaS pricing. e.g. If your market is SMBs, your JR AE sales person costs ~$50k/y with a reasonable expectation of selling 10x their salary in ARR, your pricing needs to be proportional to the number of customers in the top of your funnel / sales salary. It seems obvious, but often we think about price from a user and individual work perspective, with no sense of why it's worth $50k/y for a subscription to a SaaS tool.

dhimes 6y ago
Guessing a bit here— correct me if I'm wrong. This jargon is utterly foreign to me: SMB = Small to mid-sized business (not server message block) JR = Junior rep? Jr? AE = Account executive ARR = Annual recurring revenue
- cosmodisk 6y ago
  All correct.
- motohagiography 6y ago
  No need to guess, they're in the table in the article. The question I have is whether it makes sense to add a team commission variable where instead of just Geos, Verticals or Round Robin, there is a ~%5 redistribution of the sales commissions to provide a co-operation incentive for assists. In a strictly competitive team, assisting on another sale comes with an opportunity cost against your own quota and commissions, where if you are going to get a few points for keeping your eye on the aggregate number it adjusts the incentives. I once turned down the opportunity to move into a sales eng role because sales engineers didn't get a commission cut and it seemed like a dumb deal. In general, do sales eng's get sales commissions in your companies?
  - dhimes 6y ago
    He should add "ARR" to the glossary. I know a lot of others here, like me, scan the comments to see if the article is worth reading, so translations help us.

cosmodisk 6y ago

Having sat in some meetings where these structures get discussed/decided, I've got to admit it's not easy. Even territory assignments alone can have huge differences in how all the theory falls flat pretty quickly.

goatherders 6y ago

This is really well written and helps make plain something that can get pretty dicey quite quickly. The main thing I would spotlight to new companies looking to add sales people: make their comp exactyl the same and use a formula (this one is pretty good) to structure the comp. It is easy to find yourself in a position where an attractive candidate is wanting to negotiate for a little more salary or better accelerator...resist the urge. Stick to the formula. You can find a good candidate eventually.

goatpkr 6y ago

This was a fantastic read!

nimbix 6y ago

The standard rate might be at 10%, but from my experience it still varieas a lot. I know of two B2B companies that deviate a lot: * Company A has a product that practically sells itself - it has been joked that sellers are "just accepting orders" from prospective clients. At that company the commision rate is just 4% (used to be 8%). Most sellers are fine with that because it's easy money. * Company B is not having such an easy time selling their product - at that company the commision rate is a whopping 30%. While it's great to have some ballpark figures, you also need to realize that you may need to (or be able to) pay your sellers al lot more/less, depending on your specific situation.

TacoToni 6y ago

As someone who works in Sales Commissions this was a great read. We do things quite differently such as yearly targets vs quarterly. These suggestions are great and straightforward to calculate until you have a large sales team. I wonder how many companies use a system to calc commissions vs using excel. We personally use excel and it can be daunting at times, but allows for more plan flexibility.

cletus 6y ago

This is a great article. I'm an engineer and not in sales. I know from experience that areas other than my own have developed frameworks and ways of thinking about things to solve their particular problem. In a pretty short and information dense article I feel like I at least have an inkling of the _language_ used in (SaaS) sales.

boringg 6y ago

Do sales ever get incentivized with equity? Couldn't that be a good long-term arrangement? Incentivize the original sale and over time as the client remains on platform unlock stock - make sure there is continuity with client. I recognize that is a different model and the inbound sales team hands off the client internally.

stephen_cagle 6y ago
That is an interesting idea. Issue I can spot with it is that you would still be incentivized to sell "short term" as you still get equity. The equity isn't becoming more valuable due to your sales (which don't act as recurring revenue), but your equity does increase in value from the other (more honest) salespeople who are doing "long term" sales. Still, I think it is a neat idea.

Flowsion 6y ago

Fantastic article and read. It would be really interesting to see something like this for online advertising and selling ad campaigns.