Who do you want to hire?
A) on target rep, crushing quota
B) Rep that's looking to ninja bomb before their new quarterly review?
If you want to hire on target reps, you need to compete with their On Target Earnings - not their base.
But that's tricky. How do you pay them the portion of their compensation which is meant to be tied to revenue? The part you can only afford if they are generating revenue?
I call this a small business loop. There are many of them that are keeping you from scaling. This is one of many.
In early-stage SaaS startups, the challenge of meeting sales quotas during the initial quarters is a common hurdle. Seasoned Account Executives (AEs) won't leave their target and commision to go back to base.
Below are some compensation plans to explore to address this issue and attract top talent, each with its own set of considerations.
Guaranteed Quota
Opt for offering a guaranteed quota for the first one or two quarters to alleviate the risk for new AEs
This approach is often favoured in enterprise sales scenarios with complex selling cycles, where momentum is slow to build.
Ramping Quota
For short sales cycles, you can opt for a ramped quota. A smaller quota during the onboarding quarters, gradually increasing it as the AE builds their pipeline.
This is more suitable for transactional selling cycles but needs strong frontline management.
Higher Fixed Compensation
Offering higher fixed compensation during the initial quarters (similar to guaranteed quota)
Draw Against Commission
Some firms provide full commission during the first quarter, with a clawback mechanism in place for the second half of the year.
This shared-risk model allows AEs to earn a significant portion of their On-Target Earnings (OTE) upfront, repaying any advance against the commission from earnings made in subsequent quarters.
Performance-based Incentives
Have OTE for the first two quarters based on leading indicators (KPIs) such as pipeline building, prospecting, and account mapping activities.
Equity Grants
Small equity grants can foster a sense of long-term ownership and alignment with the company's success, further motivating AEs to contribute beyond their sales quota. Particularly useful if they are moving from a no equity to your equity grant. They might take a cash hit for ownership.
P.S These strategies are when you need to compete for top talent already at the level. It is easier to mitigate if you hire someone who is stepping up. (going from a $100K/$200 OTE to a $160/$320) is still easy
Conclusion
Each of these approaches requires a careful analysis of the startup’s unit economics, sales cycle length, and existing cost of sales per seller. The choice between these models could significantly affect the startup’s ability to attract senior AEs and consequently, its growth trajectory. Incorporating a mix of short-term and long-term incentives, coupled with clear and measurable KPIs, can create a balanced, motivating compensation structure that aligns the interests of both the startup and the AEs. Moreover, engaging AEs in broader value-creating activities such as customer success, business case studies, and analyst relations can contribute to the holistic growth of the startup.
