Sales Compensation Simulator

I can see why you’d need software to calculate comp, if your comp system is so complex!

As a case study in simplicity: our sales people get 1xMRR for each deal closed, or 2xMRR if the deal signs an annual contract. SDRs get a flat amount for each demo sat (doesn’t have to close, but does have to be accepted by the AE). The amount is equivalent to 0.75xMRR for a typical customer.

That’s really all you need in SaaS. This has scaled from less than 1M ARR through to… more than 100x bigger than when it started.

Interesting - I've only ever been on the buying side of this. How do you pay out? Do you pay out each month based on whatever was actually paid, or does the sales person get a chunk of money up front or yearly or whatever?

We pay out each month, but only for deals where the customer has actually paid us.

I think there’s a clawback if customers churn within 3 months or something like that. It’s rarely needed.

That seems very sensible. I come from the world of salesperson signs giant delivery deal, buys Porsche, turns up every 6 months to rally the troops. This seems so much better.

Helpful, thanks.

Plus I assume they get some sort of middle of the road base salary? How low is that if you don't mind me asking?

Yeah exactly. Can’t share exact numbers but it depends on city anyway.

Cool to see a response from someone else in Brisbane, thanks for the insight Alex

A simple salary + percent commission is a great model.

That said, this calculator was built to model/simulate the things that are super common in enterprise SaaS:

1. It takes sellers time to ramp up. Experienced sellers might be willing to jump to your company, but not if they are guaranteed to only get their (relatively) low base salary for 1-2 quarters.

2. If you decide to do a ramp, you have to make a choice about the OTE.

If you can avoid doing these things, that's great. Though whether that will fly largely depends on whether your sales cycle and target talent market supports it!

Needs to also model when to increase targets when it looks like Sales are in danger of hitting them /sarcasm

Thanks for sharing!

How do you incentivize sales to focus on deals that churn less instead of deals that close fast?

I really appreciate this comment, I'm actively trying to figure out a comp structure for someone doing some sales for my SaaS, and this was helpful.

Small nitpick ...

I see "Commission Rate (%)" as an input (when normally I see it as "Sales Target" as the input - which derives your commission rate)

Typically I see, $X is your Target Commission and $Y is your Sales Target.

(and when you divide those two figures, it equates to your % Commission Rate)

Wow for SDR, 0.75xMRR for each demo? So if your typical MRR is $1000, you'd pay $750 per demo?

My wife used to be SDR and I seem to remember she got paid much less, maybe like 0.1xMRR.

Obviously your economics work & scale, just curious to understand how - is your close rate really high?

If an AE closes an annual deal (worth $12k in this hypothetical), and there were 4 other demos that didn't close, then you are paying $2000 to AE and $3,750 to SDRs, or almost half of your revenue on comp.

I wonder if it would be reasonable to offer sellers a sliding scale to trade off their salary and commission rate over, say, ten graduations. Then let them choose whatever scale they want, maybe with some rules about how they can change it etc to prevent high frequency minmaxing.

Some companies do things like this, but I'd be cautious about it.

There's a few things I'd consider:

* If you have a bunch of reps, doing the periodic accounting to cut the right checks becomes more of a pain (though it's a pain anyways)

* When you give a choice, the employee might make what, in retrospect, winds up being the wrong choice. This can lead to pissed off sales people and regrettable churn.

OTOH, sales comp plans change every year anyways, so could just be renegotiated

“Sorry, the commission budget is out of money for this budget year. You sold way too much which made the company a ton of extra money. Sadly that means it’s your fault we can’t pay you the commissions you were promised.”

Yes your close rate needs to be 50% for this math to work. And you only pay for demos booked from a target account or ICP list.

But even with your numbers, a payback period of 6 months is very very cheap in b2b SaaS. You don’t pay commission in the second year the customer is with you and you expect customers to stick around for 5+ years (ideally much longer; it’s the inverse of your churn).

Don’t let people sell shit deals.

Yes sure, but how?

This is not a trick question btw. Genuinely curious.

Sure, it’s a great question.

This is the role of sales managers. They should be ensuring that known bad deals don’t happen. Mostly by auditing every deal. Usually it’s pretty quick and easy to tell if a deal is good or bad if you are trying to be objective.

If a salesperson won’t accept this rule - fire them.

Thanks. Sounds like the right thing to do!

I heard from some CEOs that they vest sales bonuses over a 2-3 year period to incentive longer contracts.

But that of course makes the whole incentive scheme more complicated!

I've never worked in Sales but that would send me round the absolute twist.

The most important part of a commissions schedule to be able to change it.

I'd say typically companies have 6-month or 1-year cycles, and each cycle company rethinks the compensations (usually numbers through quotas, not procedures).