Optimal sales compensation plans are the secret sauce to not only hiring great reps, but also motivating them to peak performance. A great compensation plan can keep your best reps happy and motivated, but in order to keep reps performing at their best, it’s crucial to ensure that they know what is expected of them. Your comp plan needs to establish clear goals and guidelines. Only then can managers effectively work with reps to keep them sure-footed on the path to success.
If you’re new to structuring sales compensation plans, you almost certainly have a lot of questions. Some common questions managers ask about sales compensation plans include:
- Are my reps being compensated fairly?
- How should I weight a rep’s base salary versus their bonus?
- Should SDRs be compensated based on opportunities, won revenue or both?
- Is a rep’s on-target earnings (OTE) compatible with industry trends?
- Should I include activity quotas in my compensation plan (such as calls per day and emails per day)?
The good news is that structuring sales compensation plans doesn’t have to be complicated. For most sales reps, simple compensation plans can often deliver the best results.
The Three Essential Parts of a Sales Compensation Plan
- Base: The amount reps see in their paychecks that is unaffected by performance
- Bonus: The additional amount reps receive based on meeting various goals
- Kicker: Any additional bonus that is tied to closed won deals or competitions
The 40/60 Rule for Bonuses
Several of OpenView’s portfolio companies are using a 40/60 rule when it comes to SDRs’ bonuses. 40% of their bonus is tied to appointments, while 60% is tied to opportunities. This rule prevents reps from setting appointments with unqualified prospects just to hit an appointment quota. Rewarding SDRs with a kicker for opps that close is another great way to motivate SDRs to source quality opportunities.
OTE Breakdown: Base Vs. Bonus
So what’s the best way to set on-target earnings in comp plans? It’s important for many reps (especially younger, unseasoned ones) to be able to rely on a regular salary in order to pay their bills. Bazar therefore recommends a plan that is weighted toward the base: 70% base and 30% bonus. More seasoned inside sales reps and managers, on the other hand, may prefer a salary with less of a base and a bigger bonus. When hiring account executives, this is always an important conversation to have.
SDR Comp Plan Example
So tying it all together, for a newly hired SDR, a comp plan could break down like this monthly:
- Base Monthly Salary: $2K
- Potential Bonus: $1K monthly payout
- Goals: 16 appointments, 8 opportunities
- Payout: $25 per appointment and $75 per opportunity
For more information on sales compensation structures, download our free ebook!