Cut the Check
Big commission checks should be fun to write
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When I sign a big FAT commission check I’m ECSTATIC.
Why?
It’s the best advertisement money can buy
To all our other reps: “You too can make a metric ton of money if you work hard and close game changing deals”
It means the company is more valuable
If your company garners a 10x revenue multiple (FANCY!), a $1M ARR deal roughly equates to a $10M bump in valuation.
There’s an archetype of the stingy CFO, angrily staring at a sales rep commission check before they sign it. A miser, counting their pennies and trying to hold a good man down.
But I firmly push back on that old world view. The great CFOs prioritize enterprise value over short term expenses. You’ve got to spend money to make money.
Reps Talk
I probably won’t win a Nobel Prize for this theory, but Sales reps talk. They talk a lot.
When someone crushes their quota, the other horses in the stable start doing the mental math on how much they took home. It’s a tale as old as SaaS.
Put simply, a big check helps with both retention and motivation.
Here’s a hypothetical “healthy” distribution of ten reps, from talking to Ryan Walsh, CEO of RepVue (link to pod at bottom):
1 rep totally crushing it (like 200%)
1 rep ahead of plan (like 120%)
4 reps hovering between 85% and 95%
2 reps hovering between 75% and 85%
2 below 75%
Either ramping or being managed out
At one company I worked at we had this Big Deal guru named Keith. He was a rainmaker in the Enterprise. No lie - the younger SMB reps made a fake shrine to him in the office, made out of empty Starbucks cups and Snus cans (Zyn wasn’t a thing yet). After he closed the biggest deal in the company’s history, they penned poems about his achievemenents. He was a living legend in the bullpen.
Keith made big commissions. Keith was an advertisement to the other reps. Reps wanted to try hard and be like Keith.
Valuation
Back in the COVID days, when high growth SaaS companies were receiving nonsensical valuations, I vividly remember a $1,400,000 deal closing, and the person next to me multiplying it by 50x on their phone. They showed it to me, an cackled.
Raise that valuation by $70,000,000, baby.
While this is an extreme example during a time of exuberance, it gets the point across - a CFO in that scenario should be PUMPED to stroke that rep a ~$140K check.
It means a lot to them. And it should mean even MORE to the company.
You can’t be myopic, focusing on what the rep makes. Each check you write is directly attributable to your culture and enterprise value.
Your Complete Guide to Sales Rep Compensation - Part III: Commission Rate Benchmarking
Welcome back to part three of our March series on Sales Comp. Today we’ll be looking at the typical SaaS Commission Stack, and how much reps should be earning per deal. As a refresher, here’s what we’ve covered for paid members so far this month: Part I: Designing Rep Comp Plans
What about guard rails?
From talking to Brett Queener, who ran Sales Ops (among other big time roles) at Salesforce in the early days for Marc Benioff:
“As a rule of thumb, if a rep achieves 2x their quota, they should take home roughly 3x their OTE.”
I believe guardrails should be in place to the extent it safeguards the business against bankruptcy and an ugly P&L. For example, a rep shouldn’t be able to sign a Fortune 10 company up for a 20 year deal and get commission on all of that today. It would break the bank.
But beyond those edge case scenarios, I don’t believe in annual caps if you have gone through the rigor of setting your comp plan right.
You got to line up the pins; they got to knock them down. And you should celebrate as a team when you collectively bowl a strike.
Any Drawbacks?
Well, yea, there’s one. It’s that reps become anchored to the “high point” of what they made in any particular period.
I’ve been burnt - I didn’t cap payouts during an opportunistic market shift, which resulted in a deluge of new leads, and wild overachievement. Reps got paid. We got more customers. We made a ton of revenue. It was AWESOME.
But in every period after that, reps held a distorted baseline for what making good money felt like.
Six months after that historic quarter I vividly remember a rep complaining to me that they weren’t making as much money as they used to.
Confused, I went back and checked the data - they were actually making 15% more than they made in the prior year month… but they were measuring success against the pinnacle of one time achievement.
Would I change how I operate as a result of this? No. I care more about enterprise valuation, and big deals lead to big upswings for those who hold equity.
So what’s the final lesson?
Podcasts referenced
Ryan Walsh, Founder of RepVue
Brett Queener, Founding Partner of Bonfire VC (and early Salesforce)
Mostly in Real Life
Hey, are you a CFO or Finance Exec in the NYC area? We’re planning our first Mostly Metrics dinner. To get a quick pulse check, what date would work best?
Run the Numbers
Apple | Spotify | Youtube
If you told kid CJ that he’d get to talk business with the head of the Celtics, he’d fall out of his seat. Rich discusses his journey in the NBA front office, and provides insight into the business models of an iconic American sports brand.
On this episode we cover:
How the Celtic’s business model has evolved over the last 20 years
How the team diversifies it’s revenue streams to mitigate it’s dependence on in game income
What the team’s cost structure looks like, and how player payroll factors into budgeting decisions
How the team relies on dynamic pricing to make the most out of seats, a fixed asset
Why the business of basketball is really year round
How the Celtics retain customers and build long term value by investing in the community
And what really happened to Paul Pierce in in the 2008 NBA finals
Quote I’ve Been Pondering
“Imagine you're on your deathbed, and standing around your deathbed are the ghosts representing your unfulfilled potential.
The ghost of the ideas you never acted on. The ghosts of the talents you didn't use. And they're standing around your bed, angry, disappointed, and upset.
They say 'we came to you because you could have brought us to life,' they say. 'And now we have to go to the grave together.'
So I ask you today, how many ghosts are going to be around your bed when your time comes?"
100%! Gotta spend money to make money. Don’t forget to spend money on mktg.