Sales Compensation For Growth Stage Companies ($10M - $50M)
To scale your go-to-market team, you need to specialize roles
Part Two > 📌 You are here.
After overcoming the initial challenges of growing your business from scratch, you may consider expanding your sales department to accelerate growth and revenue. However, implementing a successful compensation plan requires other factors to be taken into account, such as restructuring the organization and roles to ensure your team is set up for success.
To Scale your Go-to-Market team, you need to Specialize Roles
Hybrid reps that source, close, and support their own accounts may work in the early stage but not for scaling. Start by hiring customer success representatives to manage post-sale maintenance, renewals, and upselling, allowing Account Executives to focus on closing new business.Â
If you already have customer success, add Sales Development Representatives (SDR) to generate high-quality leads. SDRs are generally paid for setting up high quality appointments that meet leadership's predetermined criteria, even if the deals don't close.Â
Note that breaking down new business acquisition into multiple roles may not be cost-effective for every business. Take a good look at your unit economics and determine how many transactions with your average annual contract value must be completed to make adding the SDR role viable. Â
Territory design
In the $0-$10M phase, companies generally take any deal they can get. However, as your team grows, you need to establish boundaries for prospecting and selling. Territories can be defined based on geography, verticals, or both.
When designing territories in the early stages, keep it simple:
Identify the verticals and geography where your team has traction today
Determine whether doubling down on existing verticals or geography would provide enough sales pipeline opportunity to justify dedicating sales reps to it
Determine the narrowest territory possible that still provides ample opportunity for each sales rep you hire
Tighter territories are better, even though sales reps tend to request larger ones. Narrowing territories provides compounding benefits such as lead management, marketing focus, referrals, sales nuance during discovery/pitch, reduced channel conflict, and lower travel costs.
Business Operations Analyst
When it comes to putting together a compensation plan, the founder or early Head of Sales is typically the one to do it. However, once you have sales performance data, analyzing all that information may fall outside of their area of expertise.
To set up the next compensation plan, it's a good idea to collaborate with an analyst who is skilled with data and is more analytical. This individual could be a former consultant from McKinsey, Bain, or a similar company. The goal is not to outsource the planning process, but rather to work with someone who can help you think through assumptions and refine the models.
Here are some key topics to discuss with your analyst:
Start by working backwards from your annual/semi-annual revenue goal to determine headcount planning
Determine the cost to acquire a client
Estimate the ramp-up time of each new sales hire
Calculate the payback period of each acquired client
Look at your company's cash burn rate to determine how much can be invested into the next cohort of sales team creation
Create compensation bands for each sales role
One Simple Accelerator
An accelerator is a milestone in the compensation plan that incentivizes sales reps to hit a specific target, resulting in a higher payout. Accelerators are unique to each company and it's important to tie these accelerators back to your company's north star metrics.Â
When it comes to accelerators, it's important to overpay for high performance. Excite hungry sales reps by creating a generous accelerator.
Example Scenarios:
A sales rep has a quota of $100k and receives 10% commission of everything they close, but if they bring in $200k within a specified time frame, they receive 25% commission on everything they bring in.Â
A sales rep has a quota of 3 transactions and receives $2k for each transaction. If they bring in 7 transactions within a specified time frame they receive $3.5k in commission on each transaction
By limiting the number of accelerators to one, you keep things simple, and leadership can easily understand the maximum payout for each deal.Â
Systems
Effective tracking and improvement of any process requires proper measurement. However, moving from spreadsheets to customer relationship management (CRM) tools or other data storage systems can be a complicated and messy process. In larger companies, these systems are usually owned by the Revenue Operations (RevOps) team, which I believe is the most overlooked part of effective scaling.
Here are a few key points to keep in mind at this stage:
Have one reliable source of truth for all your data
Centrally track your entire sales funnel from inbound leads to meeting show ratios to close rates
Establish a process to analyze sales performance and pay people on time
Don't overlook accounts receivable, even if it's typically handled by finance teams or outsourced bookkeepers in earlier stages of growth. Take collecting your money seriously
Create a dashboard of success metrics
I know the critical importance of these systems from personal experience. I recommend looping in a RevOps specialist from the RevOps Co-op community to analyze your existing systems, make recommendations, and help set up everything from the phone lines to the chat features to the CRM. Do everything you can to avoid tech debt here because ripping systems out down the road is painful on multiple fronts.
Disclaimer: I am an investor in RevOps Co-op. I’d be happy to make introductions to their team upon request.
Titles & Pay
In the early stages, startups often lack compensation bands or set titles for their first employees. However, once you commit to scaling, it's essential to create these structures. Collaborate with your analyst to establish compensation bands for Base/OTE, equity for each role and create a sales ladder to ensure consistency across the organization.
As the company scales it’s important to push the sales team to be laser-focused on selling vs other activity that pops up in the earlier stages of company growth. Many startups move from a higher base salary to a lower base salary with a higher variable compensation outcome. The standard is a 50/50 or 60/40 Base to OTE split.
Offering a large base salary with limited upside variable compensation can lead to underperformers staying longer. Sales reps with more variable compensation are more motivated to close deals and less likely to get distracted by other projects.