Sales compensation for Saas companies can be a tricky balancing act. You want to make sure that you are rewarding your top performers sufficiently, but you also don’t want to break the bank. The best way to approach sales compensation for your Saas company is to start with a base salary and then add on commissions and bonuses as you see fit.
Intellectual Preparation for Planning
One thing to keep in mind is that commissions and bonuses should be tied to specific goals or objectives. For example, you could reward sales representatives with a bonus if they exceed their monthly quota. This will help to ensure that your sales team is working towards the same goals, and it will also motivate them to achieve more.
Another thing to consider is equity. Offering equity in your Saas company to top sales reps can be a great way to encourage them to work even harder, and it also provides an incentive for them to stick with you long-term. If you decide that equity is right for your company, the best practice would be to give out restricted stock units instead of actual shares of stock. This will help you avoid issues with vesting schedules and taxation.
As far as commissions go, 30% commission is typically seen as the standard when working in the SaaS industry. However, this percentage can vary based on each individual rep’s performance, or it could even be adjusted up or down annually. It all depends on your goals for your Saas business (and what type of revenue model you are using).
Use of Bonuses
Another consideration for SaaS sales compensation is the use of bonuses. Bonuses are a great way to reward your reps for exceptional performance, but they can also be costly depending on the type of bonus involved. For example, offering flat dollar bonuses or revenue share bonuses could hurt your bottom line if you don’t know what you’re doing. It’s best to stick with commission-only bonuses in lieu of these until you become more familiar with how commissions and bonuses work in general.
It’s important to note that your top performers will likely expect large amounts of incentive-based pay (commissions and bonuses) and equity. If this isn’t something that makes sense for your company, then it might be better to hire reps who are more interested in the base salary and long-term potential than they are about additional perks.
Mistakes To Avoid When Designing a Compensation Plan
When designing a compensation plan for Saas Sales teams, it’s important to avoid making the following mistakes:
1. A lack of attention to regional variations in compensation rates.
2. Failure to align compensation with market rates.
3. Providing no incentive for increased work productivity.
4. Not paying bonuses on time.
5. Creating difficult-to-understand bonus programs.
6. Communication breakdowns between the sales team and management.
7. Bonus payments for new hires must be provided without delay, often even immediately after being onboarded. This might cause a serious cash crunch. It’s also possible that the employee will not understand the requirements of the job and will thus be unable to achieve objectives and complete tasks.
8. Having insufficient data collection in place to make regular adjustments to objectives and quotas.
9. Using bonuses or base salaries to motivate employees rather than commission payments, which are more difficult to predict.
10. If staff are unable to satisfy sales targets due to market conditions or unforeseen circumstances at the business itself (e.g., product issues), then it may be difficult for them to find new employment without an alternative compensation plan in place..
11. Failing to track performance data accurately enough to determine who is most deserving of variable pay incentives.
12. Creating specific dollar-figure quotas that are too difficult for even exceptional performers to achieve; i.e., “Quota Busters”.
13. Including new hires (or any employees) in the bonus pool before they’ve contributed anything meaningful toward it.
14. Focusing solely on sales volume or revenue gained rather than metrics that indicate a deeper understanding of the client and account development such as new client acquisition cost (CAC), customer lifetime value (CLV), etc.
15. Using bonuses to reward behaviours that should be part of regular job duties; i.e., billable time vs. “selling” time, enforcing dress codes, requiring regular meetings regardless of necessity or usefulness, etc.
16. Not properly recognizing and rewarding high performers who may not be setting records but are consistently exceeding expectations in terms of meeting quota and consistently bringing in business while avoiding costly mistakes and/or disputes with clients.
17. Recruiting top talent then offering low starting salaries that don’t accurately reflect the value of the role.
18. Paying commissions based on annual revenue instead of quarterly or monthly earnings, which can encourage a focus on “today” vs. a focus on long-term goals and company strategy.
19. Not being willing to lose talented employees in order to avoid giving them a larger commission than they deserve.
In conclusion, it is important to avoid making some of the following mistakes when designing a sales compensation plan for Saas Sales teams. The company should take into consideration regional variations in compensation rates and align them with market rates.
They must pay bonuses on time while also creating easily understandable bonus programs that are communicated well between the sales team and management.
When recruiting top talent, one must offer competitive starting salaries that reflect the skills required by the job rather than lower ones which may not accurately represent or motivate employees who have been working hard from day one. One must use commissions over base salary as they incentivize employees to focus more on long-term goals and company strategy instead of “today”.
Lastly, employers need to be willing to lose talented employees if necessary so that they only pay the employees who deserve more for their contributions.