Building Sales Comp Plans in 2024

You’d never guess it, but most salespeople are in sales because they like making money. It’s one of my favorite parts about hiring for the role. We’re able to be very honest. Salespeople are here for the money. Everything else is a cherry on top.

This email is going to cover:

1. The differences in how Engineers and Salespeople think about compensation plans
2. Building a comp plan for your SDRs
3. Building a comp plan for your AEs

The differences between engineering comp plans and sales comp plans

If you take a look at most engineering comp plans you’ll see:

Base salary + Bonus + Equity/ Stock = Total Compensation (TC). You also often see signing bonuses for engineers.

If you take a look at the average Account Executives comp plan you’ll see:

Base salary + Variable Compensation = On Target Earnings (OTE) + Equity/ Stock.

Here’s what those terms mean:

• Base salary - should be fairly self explanatory. In 99.9% of cases, software salespeople are being paid a base salary. The base salary is usually 50% of the OTE.
• Variable compensation - this is the additional income that reps get from closing deals. This is paid out incrementally and is usually the other 50% of the OTE. A rep should get paid 100% of their variable compensation if they hit 100% to quota. If you are an idiot, you cap your salespeople here. If you like keeping your salespeople (and rewarding them for being good at their jobs, this is uncapped, and the salespeople keep selling, and everyone makes more money)

Salespeople aren’t often paid a signing bonus - rather they tend to get paid a “ramp”, which is where they are paid their full on target earnings for a few months while they build pipeline.

In SaaS, quota is usually 4-5x a salesperson's OTE. So if you’ve got a rep with a $1m quota in net new business, they’re going to have an OTE somewhere in the range of $200-250k. You occasionally see ratios higher than this, but if you’re an early stage startup, you’re going to be competing against other companies that are at a 1:4 OTE: Quota ratio.

Equity / stock is an expected part of sales compensation at startups, but it’s a much less significant part of the conversation that it is when it comes to hiring engineers.

Variable compensation is usually paid out with payroll or every month. This is quite different to an annual bonus.

You don’t tend to see hurdle rates either - if we go back to our example of the rep with a $200k OTE and a $1m quota and they have closed $500k in the first six months of the year (they are at 50% to plan), it’d be expected that they have been paid $100k ($50k base, $50k in variable compensation).

Building an SDR Comp Plan

The building blocks of an SDRs compensation plan are identical to an AE with a few key differences.

Instead of a 50/50 split, SDRs make a lot more on their base salary - the ratio is usually in the range of 75/25.

Compensation packages haven’t moved that much in the last few years, with OTEs usually falling in the $80-90k range. Where you do see variation is the exact split - for example, you might see a company with a $60k base and a $25k variable, while another company has a $65k base and $20k variable.

Another big difference between the two roles is the difficulty of hitting the On Target Earnings. An SDR comp plan should be very attainable for a rep who shows up daily, and puts in an honest effort. An AE can lose deals for a whole host of reasons outside of their control (thinking back to the Strategic AE I spoke with in mid 2020 who’s list of <10 accounts included Delta, Hilton and Disney ☠️)

Account Executive Comp Ranges

The base and OTE for an Account Executive tends to depend on their deal size

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Some guidelines (and what I’m seeing in 2024)

All of these comp plans are assuming a 50/50 split

So, what’s next?

If you are at the point where you are thinking about hiring - be it SDRs, Account Executives or other sales talent, book a time to speak with me here and we can talk about what working together looks like

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