Commission… a necessity or a nuisance?
Commission structures are seemingly simple until you get started. They are vital and can result in company success, but are difficult to get right. According to Spiff, “companies using an incentive program reported a 79% success rate achieving goals when the correct reward was offered”. They stated that creating the right commission structure can motivate SDRs to take action to achieve their targets, while the wrong one can “wreak havoc on your revenue and pipeline goals”.
There are many SDR commission plans out there, with no one-size-fits-all plan. At SaaSLeads we work with many companies and many variable commission plans. So, we put together our considerations on how to navigate the process and create a plan that meets your business needs.
A checklist for success
As reported by Gartner, companies miss out on 10% of revenue from lost opportunities. They explained this is “due to ineffective processes for defining, assigning, and managing territories, quotas, and incentives and compensation plans.” Before creating and implementing your compensation plan it’s important to contemplate what you want to achieve, to eliminate any inefficiencies.
Hubspot defined the purpose of a compensation plan as a way to “encourage positive behaviours across your team, set expectations and standards for compensation”. To help you get started Salesloft outlined a few SDR compensation principles to keep in mind during this process:
– Be consistent with business strategies and financial objectives.
– Reward directly-controllable performance.
– Make your plan simple and aim to have no more than 3 KPIs.
The correct base salary is just as important
A sales base salary is the amount of pay that you receive before the commission. Hubspot stated that many companies offer compensation that’s “split between base salary, commission, and bonuses”.
Generally, SDR salaries are a combination of base salary and variable earnings. Gartner stated that performance accelerators “should be based on the number of qualified leads generated per month (not quarterly or annually).” Finding the right balance can be tricky, as if your base salary is too low, SDRs may lack the motivation to achieve their goals, but if the base salary is too high, SDRs won’t have the drive to meet and exceed quota. The Bridge Group reported that “the national average is 64% base salary and 36% variable earnings”.
Closeriq found that many SaaS companies have a base salary that’s close to the national average, but this may not be the most appropriate compensation structure for all companies. They recommend companies with a short cycle and a high amount of transactional sales have a “lower base salary and high variable earnings potential” but if the “product has a long sales cycle (and thus fewer opportunities for SDRs to close deals), a higher base salary is necessary.”
Rewards leading to retention
Performio believes that compensation plans play a major role in SDR recruitment and retention, and “on-target earnings (OTE)” is one of the best ways to incentivise your SDRs to perform well and create more sales-qualified opportunities.
While “over 35% of SDRs are compensated for deals won, on top of opportunities and meetings” Bloobirds believe that meetings booked remain King of KPIs. Alternatively, SaaSLeads CEO and Founder, Will Koning, observed that companies who implemented a revenue closing commission worked well for them, especially businesses with a short cycle. It’s important to “strike a balance between company goals and an SDR’s skills” when deciding on commission, so here are other activity-based KPIs to consider:
– Meetings booked
– Meetings held
– Opportunities created
The key piece of the puzzle
Outbound people believe that all plans should start with the environment they’ll fruition from and when implementing an SDR Commission plan you “must be honest with the SDR [you] want to hire and promote a collaborative attitude”, where SDRs can get involved, learn, and grow. Many businesses have “internal promotion plans to allow SDRs to grow within the sales development organization instead of looking elsewhere”, as well as give SDRs the momentum to hit their targets and achieve commission.
Bloobirds believe it is vital to create a company structure that is transparent and objective, with a compensation plan that reassures SDRs that their targets are both attainable and fair and having a plan that aligns both company and employee objectives are common denominators in the best commission plans”.
Hubspot stated that to create a sales environment where SDRs can flourish, there needs to be trust and respect instead of toxicity or judgement. To achieve this it’s essential to “foster friendly competition” and “effectively collaborate and share knowledge.”
While a compensation plan is vital it will vary from company to company. At the SaaSLeads Academy, we train SDRs in the fundamental tools needed to successfully outreach and reach their sales goals.
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