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.
Major Mistakes While Making a Sales Compensation Plan for SAAS
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 in additional perks.
Ignoring Major Metrics
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.
Perks and Incentives
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. Recruiting top talent and then offering low starting salaries that don’t accurately reflect the value of the role.
Paying commissions based on annual revenue instead of quarterly or monthly earnings can encourage a focus on “today” vs. a focus on long-term goals and company strategy.
In conclusion, it is important to avoid making these mistakes when designing a 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.
I guess you found this article helpful. Comment below if there are any missing mistakes that can occur while preparing a sales compensation plan for a SAAS team.