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 this month:
Part I: Designing Rep Comp Plans
Who’s involved in comp plan design
Getting the split right: Base vs Variable
Quota to OTE ratio
Baselining achievement
Accelerators
Paying sales managers
A case study: Salesforce’s early comp plans
What counts as a booking?
Comp plan flaws
Part II: The Art and Science of SPIFFS
Why do spiffs succeed or fail?
When’s the best time to run a spiff?
How should you structure spiffs?
What do common rewards look like?
Part III: Commission Rate Benchmarking
What commission rate should an Account Exec (AE) make on a deal?
What does the total commission stack look like after you factor in everyone else?
Things that can push the rates higher
A long standing point of debate between sales teams and finance teams is how much a rep should get paid as a percentage of the deal they sign.
We here at Mostly metrics have decided to change our name to Mostly Meta World Peace and unite those who pay and get paid, once and for all.
CFO trying to give sales team a hug
What commission percentage should an Account Exec (AE) make on a deal?
A company can pay a rep more per deal depending on how long the customer is estimated to stick around, AND what it costs to maintain the account over time.
From the cohort of CFOs and VPs of Sales Ops that I surveyed, the highest average AE payout reported was 14%, while the lowest was 6%.
Taking a step back, other than Customer Lifetime and COGS, a third factor you need to consider is how much support you are giving the rep to do their job. From a go to market perspective, are they sourcing the deals themselves? Are they getting fed warm leads? Do they have their own system engineer and BDR?
That leads us to our second piece of analysis - the total stack…
What does the total commission stack look like after you factor in everyone else?
As much as I like to rely on the 4x to 5x Quota to OTE ratio as a rule of thumb (which we talk about at length in our first post of the series), if we’re giving a rep 5x more marketing and sales coverage, their quota should be higher than one without that assistance. And this all links to Customer Acquisition Cost.
The “pod” of surrounding resources (BDR + SE + Manager + VP + CRO …) each get a bite at the apple. If a company has a 3:1 AE to BDR ratio, that should reflect differently than if it’s 1:1, and each AE gets a minion sourcing and qualifying deals.
I’ve also worked at places where it was 100% channel driven - meaning every deal had to be provisioned through both a distributor and a reseller. This factors into the level of “support” a rep gets, as well as the company’s CAC. Now, not all software companies have a channel component, but most do have some ecosystem layer - whether that be a marketplace (like AWS) on the high end, or an informal partner referral program on the lower touch end. Those layers aren’t free, and need to be contemplated in your total cost add up.
From the CFOs and VPs of Sales Ops that I surveyed, System Engineers and BDRs were straight down the fairway, and relatively consistent across the board, closely linked to pod ratios. The biggest point of debate was how much should go to the “management” layer. The lowest I heard was 2% and the highest I heard was 5%. The “right” answer will depend on your sales org’s span of control. More on overlays below.
Stuff that can push the stack higher
Accelerators: The full year will most likely be higher in aggregate when you factor in accelerators (up to ~5% more than what’s shown above)
Multi Year: The same thinking applies for multi year uplifts (factor up to 2% to 3% more)
Clawback provisions: These safeguards help the company get comfortable paying out more on big deals, and making rep rewards immediately gratifying, if CFOs know there are protections against churn and non payment.
Overlays: More management can make the stack a little higher, but ideally it’s the same aggregate percentage, just split over more people. I generally group all “management” together since Manager / Director / VP / CRO is all the same in theory - they’re all overlay supposed to make the AE more productive.
Thanks to all the great finance and ops leaders (who asked to remain anonymous) for their input. It’s a big service to the FinStratOps community we are empowering.
Relevant Listening:
And thank you to the President’s Club members below who helped inform this series:
Brett Queener, Founding Partner of Bonfire VC (and early Salesforce)
Ethan Schechter, VP of Sales at Snyk
Ryan Walsh, Founder of RepVue
Sid Kumar, SVP of RevOps atHubSpot
