Revenue Operations

How to Compensate SDRs: A Calculator to Guide Your Process

Your SDR compensation plan is a leading indicator in determining whether or not your team will be successful. You have to incentivize the right behaviors and provide enough compensation to make the job worth their effort, while also balancing the needs of the rest of your organization. It's not easy! We recently spoke with Blake Kendrick, Revenue Operations Manager @Thankful on the right way to think through this challenge.

SDR Compensation Demystified

In RevOps, there’s a lot of data and number work involved. They say that the best decisions are driven by data, and as a RevOps Leader, you must reinforce that expression wherever possible. 

That being said, there is also an element of educated guess work—especially when you’re trying to plan for compensation for your different revenue generating teams. The RevOps Co-op has teamed up with one of our members to provide a helping hand. 

With this calculator from Blake Kendrick of Thankful, you’ll be able to quickly calculate and do the math to find the best compensation plan for your SDR team.

Why Competitive Compensation Matters

With inflation rising and the GTM job market exploding with new opportunities, the job market is naturally becoming more competitive. If you add the fact that the next generation of workers are pushing for more transparent salaries, things are getting even more difficult for business leaders. More and more SDRs are leaving their current companies for greener pastures elsewhere. How do you keep your rising star of an SDR happy when their success brings a plethora of new job offers at competitive firms?

That’s where competitive compensation comes into play.

Competitive compensation is one of the main elements that makes your job “worth it” to a sales professional. Low compensation is one of the main reasons that the average SDR turnover rate is 34%, with two-thirds of those SDRs choosing to leave voluntarily. These aren’t underperforming SDRs hoping to restart elsewhere, these are the top performers realizing how the market for their talents is rebalancing in their favor. 

So how can we protect our organizations against this trend? And, how can we ensure that these roles which are vital to organizational growth are incentivized fairly?

Blake Kendrick has the calculator to help you understand how.

SDR Compensation Basics

If you’re new to sales compensation, let’s start with the basics. Sales comp is made up of the following:

  1. Base Salary - This is the overhead cost of your SDR. On their end, it makes the position attractive and gives them a place of stability with which to start. This will be paid out to the rep regardless of quota attainment.
  2. Variable Compensation - This is the performanced based part of the compensation plan, and the main topic we want to cover today!

When it comes to variable compensation, most companies provide compensation to SDRs based on two outcomes that they are expected to produce. 

  • Setting Meetings with Sales Accepted Leads (SALs)
  • Conducting Meetings with Sales Qualified Leads (SQLs) 

This variable compensation element is typically paid monthly, with some companies having longer deal cycles opting to pay out quarterly, or even annually. 

There are other elements of compensation that we will not get into here. Such as health benefits, 401(k) matching, and even equity. Explore these options as a way to beef up a compensation plan that is low on the salary / variable compensation ranges. In this article, we will be focusing on the variable compensation element more commonly known as ‘commission’.

The SDR Compensation Calculator

Here is a Link to Blake Kendrick’s SDR Compensation Calculator. Feel free to make a copy of this calculator for you to experiment with on your own. We’ll provide a brief breakdown below:

Column 1 (Targets)

Yellow cells in this column and throughout the calculator are used to indicate inputs or entry points. These are the numbers that you can change and update to test out different models. 

Base Salary - This is the salary you have set for this role. Feel free to use industry benchmarks as well as your own company’s budget to set this number.

SALs/SQLs Target (per month) - Here is where you set the number of SALs or SQLs this SDR would have to generate in order to hit quota for the month. This will be higher for lower deal sizes and shorter sales cycles. Also, keep in mind that the SQL goal will always be lower than the number of SQLs goal since not all SALs will convert to SQLs after speaking with sales. 

Bonus for SALs/SQLs Target Attainment (in-month) - This indicates the amount of commission that the SDR will receive if they hit 100% of their goal for that metric. This does not have to be an ‘all or nothing’ goal. Some companies choose to provide a fixed rate per meeting. Some offer a tiered approach where (for example) 50% of quota attainment gets you 50% commission, but anything less gets you 0 commission. Choose the one that fits your organization and team best. A senior rep might not flinch at a 50% cliff, but someone new to sales may need to see compensation coming in on a per meeting basis to help keep confidence up.

Bonus per excess SAL/SQL (in-month) - What happens when an SDR exceeds quota? The best practice is to add a kicker on top of their normal per meetings bonus. This way, SDRs are being further incentivized to perform well above expectations and not simply hit the target every month. In this example, we are offering an extra $50 on top of the regular commission for every SAL that a sales rep generates in a given month over the goal of 13. 

Bonus on won revenue - Some companies offer compensation to SDRs for all closed deals that they generated. It is an open question as to whether this is the best practice or not. As always, test out different models and get feedback from your team and others in the industry before deciding to offer this bonus.

Column 2 (Projections)

SALs/SQLs attained (in-month) - Use these cells to test out what different levels of quota attainment will do to change commission amounts. In this example, we have our SDR hitting 100% quota for the SQL & SAL goals, while not contributing any Won Revenue in the same month. Meaning they would receive the full $2,000 laid out in column 1 ($1k for SALs & $1k for SQLs).

Column 3 (Payouts & Scaling)

Here’s where it can get much more complicated. Use this column to adjust the payout timelines for each individual element of your compensation plan and set up your tiers. For this example, we have Base Salary being paid 2x monthly (standard), with SAL, SQL, and Commission bonuses paid out monthly. Your Finance team will be the one to talk to about this piece as they will have a heavy hand in deciding when things are paid out based on their own Accounts Receivable (AR).

Pay special attention to the “Target Attainment Scaling” section. This is where you set up your tiered system. For this plan, SDRs receive 80% of the $1,000 target if they are able to hit 50% of that target and 100% of the $1,000 target if they reach 80%. Use the bottom 4 cells to change the scale above. 

Closing Thoughts

Remember that through a compensation plan, you are trying to incentivize the behaviors that lead to your preferred outcomes while also making this job competitive in the larger job market. The best way to ensure that your plan fulfills those two ambitions is to compare what you’re offering to others in the industry.

Feel free to reach out to Blake directly to get his thoughts on your current plan. Alternatively, you can visit our RevOps Questions channel in the Co-op Slack group and ask for feedback from our amazing community members. Be flexible in your compensation planning and open to input to all involved stakeholders (especially the reps) and good luck!

 

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