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How to craft a perfect SaaS Sales Compensation Plan?

8 minutes read

Any company would prioritize their staff’s payments for reasons such as

  • Attracting the right talent
  • Retaining them
  • And motivating them to perform better

In the SaaS world, however, good salaries matter more than one can imagine. Especially when it comes to compensating the sales staff in SaaS companies.

Because in the SaaS industry sales hiring is done in an extremely competitive landscape. Just take a look at a few of these stats below:

  • Technology and software companies experienced the highest sales attrition rate at 67%
  • In 2020, 58% of companies experienced higher voluntary sales turnover
  • The average tenure for a sales rep is about 1.8 years even in the biggest ten tech companies
  • On average, it costs around 150-200% of a rep’s salary and nearly six months to replace a single sales rep

Several SaaS companies try to bypass these problems by leaning on a product-led growth strategy, assuming the self-service checkout style of sales will cut off their go-to-market dependency on sales (and marketing). But relying 100% on product-led growth is a mistake that hurts a SaaS company’s growth, especially if it is growing rapidly.

So what can you do? Paying your sales employees is a bit more nuanced than paying employees from other teams in your SaaS company. If you understand the intricacies of SaaS sales compensation, you will be in a much better place to compensate your sales reps in a way that will motivate them. And inspires their loyalty to your company. In this blog, we are going to discuss how to create a perfect SaaS sales compensation model

Various sales roles in a Saas Organization

In order to fairly compensate each and every sales employee in your saas organization, you must first understand

  • Their roles
  • Their experience levels
  • And the right ways to compensate your employees at various levels in the organization

So, here is a quick look at the different customer-facing roles that you must be having in your SaaS organization.

  • Sales Development Rep (SDR): These people are primarily responsible for prospecting. The positions in this role may range from a first SDR job (Junior) who is focused on inbound sales to a Senior SDR with one to four years of experience who calls on key accounts (Account Development Rep).
  • Account Executive (AE): Also known as Sales Managers (SM), these people focus on account acquisitions. Positions may range from a first AE job (Junior) to an AE with three to five years of experience (AE), or four to eight years of experience (Senior).
  • Customer Success Manager (CSM): These people are focused primarily on onboarding and enabling the clients to use the product and create recurring value. They often have one to three years of experience.
  • Account Manager: Account managers focus on the company’s key accounts or drive new/more revenue from existing accounts. These people, often come with three to five years of experience.

Now that you are aware of these roles, let’s see how you can craft a perfect SaaS sales compensation plan for all of these customer-facing teams.

Creating a perfect SaaS sales compensation plan

1. Basic Guidelines

As a general rule, there are some basic, practical guidelines that you should follow as you plan your sales compensation in your saas sales organization:

  • Keep it simple. Your compensation plan should be extremely easy to understand. Meaning, a rep in any role and with any experience level should be able to determine what action or result leads to earning what
  • Show causality. Make compensation directly related to the desired outcome you wish for the team member to achieve.
  • Think short-term. Keep the time between the activity/ result and the compensation less than 60 days.
  • Make it fair for everyone. All compensation must be fair and equal for everyone
  • Make it easy. Compensation should be easy to measure and easy to administer

2. Decide the compensation (fixed and variable) based on these parameters

You must take these factors into consideration while deciding the fixed and variable pay mixes for various employees

  • Market Benchmark: This should be your biggest consideration when setting your SaaS sales reps’ OTEs. You need to analyze and understand what is the standard OTE for various roles in the market for your industry. If your sales reps feel like they’re under-earning compared to the employees in the other SaaS companies who are in similar verticals and markets, you’ll have a hard time retaining talent on your sales team.
  • Role: Another important part of determining the pay mix comes down to how much influence your reps have over sales. If a rep has little to no influence over the outcomes, then his base salary should be a high percentage compared to his fixed earnings. However, if a rep makes or breaks the sales, his commission should have a higher percentage in his earning.

    For example: A “hunter” type of sales role will thrive on a 2p% fixed, 80% variable incentive structure. In contrast, someone in a more technical sales role presenting demos to your prospects and building complex proposals might be more productive with a 70% fixed, 30% variable plan.

  • Experience level: Begin by establishing three levels of roles within your organization:

    • Entry Level,
    • Baseline,
    • And Experienced/Top Performer

    Now pay the employees at these various levels according to their motivation, expertise, and excellence in their role. For example,

  • Employees at the entry-level want to see progress early on in their careers. So, small and frequent promotions at this level answer that request
  • And the employees at the baseline and experienced level expect more significant promotions and incentives
  • Business Territory: Depending on where your workforce is based, you may have to pay two people in the same role differently. Someone working in Atlanta can demand a different pay level when compared to someone who is working in San Francisco, even though both of them are in the same role and with the same experience level.

    Here is why: If you need a rep to build your business in a new vertical/ industry/ territory, the revenue targets might be lower (at first) compared with one of your more established markets. But this job is definitely ten times more tougher. So, you’ll need to pay this person a higher incentive for each sale when compared to paying a rep who is in one of your markets where your SaaS product is firmly established (even if your sales revenue in that new market will be lower at first).

3. Incentivize the right actions and business outcomes

When you decide which actions to incentivize, make sure they align with your long-term business goals and objectives. The most common performance measure for SaaS sales reps is pure sales volume calculated in terms of total revenue or licenses sold.

So, you need to ensure that your incentives should emphasize more on getting your sales representatives to drive ARR (annual recurring revenue) rather than short-term, “one-time,” or professional services revenue.

Sometimes, as a SaaS sales manager, you’ll want to provide an extra incentive

  • To promote the sales of a specific products or service packages
  • Or promote the sales of a newly launched product and make it a huge success in the market
  • Or to sell to certain types of customers
  • Or improve the customer lifetime value
Pro-tip: New products and services are often more difficult for your sales team to sell as
  • They will be not completely familiar with the product
  • They don’t have access to the right kind of sales enablement content pertaining to the new product
  • And there is no established marketing momentum for the product

So make sure that you provide a higher incentive for selling a newly launched product or feature or service

4. Plan payments to encourage top performers

Apart from encouraging all of your sales reps to hit their targets, your incentive plan should also encourage your top performers to go above and beyond and hit more than their set targets. So, make sure that you exponentially increase their incentives for their achievements after they hit their targets.

For example, let’s say your sales reps have a target of acquiring 100 accounts in a quarter. You can give them $100 for each account acquired until they reach 100 accounts. After 100 accounts, every account they acquire will bring them $200.

Final Words: Follow these four principles while crafting your SaaS commission structure. Also, consider what really motivated your employees in the past and do more of that by incorporating it into your plan.

Vola! You’ve got yourself a perfect SaaS sales compensation plan.

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Published on Wed Apr 20 2022

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