Jason Calacanis recommends a super-high commission to the point where a
real pro can literally walk off with $500k for one year of work... even if
it eats up half your gross revenue and means that you have negative
cashflow. These early sales are essential/ irreplaceable, and give you
instant credibility in your market.
Very experienced (40 years) corporate,securities and real estate attorney.
Good salespeople can be worth their weight in gold to any company especially a start-up. Set targets. x% if they make y sales, a higher percentage if they exceed it. That gives the start-up a little room to cover costs when the volume is still low.
Sales at Mast Mobile - Simplifying mobility, start-ups, connector, karmic agent
I have seen comp models where the base is 20% of take home and 80% commission. This is not ideal for a SaaS startup so a 50% base and 50% commission setup is best. Not knowing details of number of deals that you all close monthly, 20% of profit in commission that is projected to get them to OTE is what I would recommend. Biggest point I would share is keep your sales goal and attainment realistic and take ownership of your sales person's satisfaction in these early stages. You can find lots of comp models online by googling as well.
Two major factors that affect the answer are:
1. What role (if any) will the commission sales rep play in a) setting up
the customer once signed, and b) helping service the customer over time to
ensure they are satisfied?
2. How much of the marketing and lead generation will this rep do on
his/her own? Do you have to create the leads for him/her to close?
The answer to question 1 drives how much to pay up-front versus as a
percent of the monthly fees from the customer they sold to. The more you
can shift to % of monthly fees the better, because now your sales rep has a
stake in attracting long-term customers and keeping them happy.
Lead generation can be expensive - perhaps half the total marketing and
sales cost. The more the sales rep does for him/herself the more they
I have noticed that many subscription services end up spending six-to-nine
months of revenues on customer acquisition. That is something of a rule of
thumb -- although unpleasant news for many. Depending on your margins it
often means getting no profit margin from a customer for the first year (or
eighteen months). That gives you an idea of the extent of the marketing and
sales "pie" to divide up with your sales rep.
Steven Lamont ::
[removed to protect privacy] :: Lamonaco.com :: Twitter
Jason Lemkin wrote a great blog post about this a few years back.
TL;DR. Give your sales rep a guaranteed salary (that they have to cover with their commission before any extra commission is paid out). Commission is set at 25% of 1st year customer value.
So if your sales rep gets $4k guaranteed, and get 6 new clients in the first month at $2500 ACV, then that month their salary will be $4K.
Next month they get 12 clients at the same ACV, their salary will be $7500
Full blog post:
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
There are a few other FD threads on commissioned sales comp. so be sure to search. sales compensation depends on a number of factors (experience, industry, earnings history, learning curve, length of sales cycle... the list is long), but at the end of the day it is whatever it takes to have your sales people/person getting out of bed each day doing super-human things to bring profitable business in the door. You BOTH need to spend time together to build a detailed sales and revenue model. You have to do this, no getting around it, and there's no time like the present. Designing a commission/comp plan sounds easy, but setting things up so you incentivize good behavior and discourage bad behavior takes considerable effort. In terms of strictly commissions, If you think this person is 'the one' then you could start with his/her earnings history and go from there. Next find out what the 'industry norm' is for your industry. if the 'industry norm' in the restaurant market is $150k/yr (i have no idea) for a 4 star sales rep and $300k for a 5 star, and your person has been consistently hitting $200k then you have a reasonable starting point. If 'industry norm' includes a base salary of (again, just for example) $80k then you know you need to adjust for risk (his/her risk that you won't be around to pay), ramp up time, learning curve (product), foundation work (someone has to create all the sales tools), company support (can the company deliver on his/her sales?), etc. So factoring in all the multipliers needed to adjust your package to that of an established company you will likely be looking at not only commissions, but equity as well. for argument sake, lets say $200k x 1.5 for various risk factors = $300k/yr if this person and the company does everything right. If this person is truly an accomplished sales person s/he will already have grilled you on all your numbers and built a model that will tell them if this is realistic or not. If not, i would 1) question this person's skills and 2) sit down and do it yesterday. For example: @ $150/month gross revenue/customer plus $x set up fee can s/he realistically hit $300k in commissions and how long will it take her/him to ramp up? Lets say the setup fee is 10x the monthly fee (absolute WAG) so each deal (assumes no price break for multi-site deals) = $1,500 plus $1,800 ARR = $3,300/sale/yr. IF we assume a 50% sales commission on GROSS (you can look at net too) that means s/he needs to hit $600,000 annually (= about $50k/month) = 182 closed, delivered and paid sales (it sounds like you are not able to pay until the company gets paid?). That's 15 sales/month = 3.8/week. Remember that's at a 50% commission and assumes an 'industry norm' of $200k for a 4-5 star sales person working with a salary for an established company that has some marketing and sales support behind them, adjusted for his/her risk. You and s/he need to factor in all the activities to produce those sales including producing/procuring a prospecting list, prospecting, building a sales pitch/script, sales/marketing materials, CRM activities, followup, presentations (if you can afford the time), face time, etc. You both need to scrub through these numbers and start this relationship with your eyes wide open - it will be damaging to both parties if you are not both being realistic in your expectations. good luck.
I think @jason's advice is right, if you go down this track.
Personally, I'd either pay a flat salary (and build a proper team) or do it myself until I could afford to build a salaried inside-sales team. Commissions make management very difficult -- particularly for someone without a background in sales.
My approach is to pay a really good salary and make performance non-optional. But then I'd ensure that salespeople had opps queued up for them and, consequently, did nothing but sell (30 meaningful conversations a day).
Revenue hacker for startups - journey to the $1 of revenue
I have written a lot of sales compensation plans. The last few companies
have been associated with the service model. What works in early stage
should be a focus on signing up customers. That range could 2 - 3 months of
monthly charge. There are other governing factors but I have to understand
your proforma, break even point and cash on hand.
Before you hire this person I hope you have clear knowledge of your
customers, how to sell to chef's and the sales cycle. The last thing you
want is to hire someone and then they quite because the process was too
hard and/or not ironed out.
Hope this helps.
Mar 30, 2016
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