Sales Rep Compensation Planning

Sales reps follow their compensation plan

A good compensation plan rewards sales reps for selling the right product, to the right people, in the right way. A sales reps compensation plan can set a company on the correct course or sink it. A compensation plan can motivate or demotivate a sales rep.

The variables included in all compensation plans are;

Base salary, Sales achieved, Commission, Draw, Accelerator, Spiff

However sometimes the variables are set to zero

Sales Rep Compensation Equations

For a sales rep who closes business, the compensation equation may be set up as follows;

Version 1

OTE = Base + {(Sales Achieved – Draw) *(Commission+Accelerator)}

Version 2

OTE = Base + (Sales Achieved – Draw) *Commission) + (Sales Achieved – Draw – Quota) * Accelerator Total Compensation  = OTE + Spiff

On Target Earnings, or OTE, is the amount of money a sales rep will receive if they hit their quota.

The Base Salary is the salary the sales rep will earn regardless if they close any business.

Sales Achieved is the gross amount of revenue the sales rep have closed in a given cycle.

Draw is the amount of money a sales rep needs to achieve before they earn a commission.

Commission is a percentage of the sale that sales rep earns.

Accelerator is a percentage added to the commission when a sales rep goes a set level above their quota (typically 10-15%).

Booking Rep Compensation Equation Example

For a sales rep who’s sole responsibility is booking discovery calls (eg SDR, TQL), the variables and equation would be similar as outlined below.

Base salary
Sales achieved
Bounty / SAL
Bounty / SQL
Draw
Commission
Accelerator
Spiff

Example

OTE = Base + (Meetings booked * Bounty / SAL) + (Meetings booked * Bounty / SQL) + {(Sales Achieved – Draw) *(Commission+Accelerator)}

The base salary is the salary the sales rep will earn regardless if they book any meetings

Bounty / SAL is the amount a sales rep will earn if they book a meeting and the meeting happens, where SAL is sales accepted lead.

Bounty / SQL is the amount a sales rep will earn if they book a meeting, the meeting happens, and the sales rep pulls the prospect into their pipeline. where SQL is sales qualified  lead.

Sales achieved is the gross amount of revenue the sales rep have closed in a given cycle.

Draw is the amount of money a sales rep needs to achieve before they earn a commission.

Commission is a percentage of the sale that sales rep earns for any business they helped close. This is typically far less than the percentage earned by a closing sales rep.

Accelerator is a percentage added to the commission when a sales rep goes a set level above their quota (typically 10-15%).

Nuances to compensation plan

As mentioned above, a compensation plan can drive the behavior of sales rep. For this reason changes to compensation plans can help direct that correct behavior.

For example- commission structure may be different for

  • verticals (eg x% for closing vertical A vs y% for closing vertical B),
  • Inbound vs. outbound
  • Referral vs. hunted
  • Channel vs. direct
  • etc…