“Pretty much everybody has challenges building sales compensation plans and strategy.” Graham Collins
In a recent survey by QuotaPath, all 450 respondents reported struggling to create compensation plans that are effective, motivational, and business aligned. To help shed light on this complicated process, QuotaPath teamed up with RevOps Co-op for a 2 part workshop where you’ll learn how to build a plan that is equitable, transparent, and helps you achieve your most important metrics.
To get started on building the foundation of your compensation plan, you first need to answer 3 questions:
There are two components for deciding how much to pay. The first is setting your on-target earnings (OTE), which is how much someone can expect to earn if they hit 100% of their target.
The other component is your pay mix, or what percentage of OTE is base salary and what percentage is variable compensation. Both of these components can vary by role, location, experience, industry, and company.
What exactly are you paying your reps to do? First, set your quota amount, which is the amount of revenue or quantity that reps are expected to contribute to the business. Next, set your quota frequency, which is how often quota attainment resets, like monthly or quarterly.
Most plans have 2 to 3 different commissions and/or bonuses. Commission is a percentage of a currency value that is paid out. It can be single rate or multiple rate (accelerator, decelerator, cap, cliff). You may also have bonuses, which are set amounts of money earned for doing something specific.
“If this was my quota, how would I feel about it? A gut check can help you decide if your comp plan is fair.” - Ryan Milligan
Oftentimes, companies set unrealistic quotas. Try looking at your historical quota performance first as you start planning for 2024. What percentage of reps hit quota over the last few years? What percentage of reps hit what percentage of quota and what was othe overall quota attainment? A typical recommendation is that 80% of reps should hit 80% or higher on their quota.
“Commission structures allow you to make rates more compelling and mouth watering for your team members.” - Ryan Milligan
Accelerators motivate and reward your team for selling beyond their quota attainment. Once they reach their quota, they can earn a higher commision rate on all new deals.
Decelerators encourage your team to race to quota faster. Decelerators can mean that reps won’t start earning their full commission rate until they get halfway to their quota goal.
Contract term multipliers reward reps for securing multi-year contracts. For a 1 year contract, the rep can earn a single flat rate. For 2 year deals, you apply a higher single rate. For 3 year deals, it’s an even higher single rate.
Now that you understand how to design the foundations of your compensation plan, join us for Part 2 of this series, Comp Planning 201: Mastering Advanced Strategies in Compensation Planning. Register today!
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