Best Sales Compensation Plan for SaaS & Professional Services

Effective sales compensation plans not only reward high flyers and motivate those who need to up their game, but they also put in measures to ensure sales is doing the right thing for your customers.  

Although there are countless sales compensation plans and models to pick from or even the flexibility to create your own unique model, we have released what we believe to be the best simple sales compensation plan for SaaS and professional services.  Let’s break down what sets this sales compensation plan apart from the rest.

1. It incentivizes people to close as much as possible every month.
2. It eliminates any reason to sandbag the sale. Reps want to get to the quarterly number as fast as possible because after they hit the number, they make a much bigger percentage. 
3. It teaches and incentivizes reps to close the RIGHT deal for the customer and not worry about squeezing out every dollar upfront and hurting upsells, renewals, and the relationship.

Incentives

Research has proven that effective incentive programs can increase employee productivity by 44%. It’s also shown that “90% of top-performing companies utilize incentive programs to reward their sales associate.”  

But not all compensation plans are created equal – or even adequately effective in incentivizing salespeople to close as much as possible, every month. That’s exactly what the best simple sales compensation plan does by combining monthly, quarterly, and upsell and renewal targets.

Eliminate Sandbagging

If you’re not familiar with the term “sandbagging,” it basically means that a salesperson tries to hide or delay deals to limit expectations placed on them. If they have a stellar month, that may become the new expectation, requiring them to work even harder to meet or exceed that goal the following month. So, by sandbagging, they might postpone closing a sale until the following month to maintain the status quo while being one step closer to meeting the goal next month.

With our best simple sales compensation plan, we have integrated a strategy in which sandbagging is eliminated because the faster a salesperson achieves their quarterly goal, the quicker their bonus increases. This keeps the business operating at a high level and ensures salespeople won’t prevent the company from exceeding monthly goals.  

Closing the Right Deal

Often, salespeople might feel the pressure to squeeze every dollar out of a client upfront, which might mean that the company is not best serving the client, rather it is best serving the salesperson. This is likely to lead to an unhappy client and potential business loss in the long run.

However, if rolled out correctly, sales compensation plans can teach and incentivize reps to close just the RIGHT deal for the customer at the RIGHT time with opportunities to earn more with upsells, renewals, add-ons, etc., later.

The RIGHT sales compensation plan takes this potential obstacle into consideration. It has built-in ways to incentivize salespeople to not oversell upfront at the risk of damaging the client relationship and potential growth opportunities. 

Frequently Asked Questions About the Plan

Our simple sales compensation plan is very clearly laid out in a spreadsheet with mock numbers distributed across 12-months to help you see potential implications. 

Not only does it offer scenarios in which the salesperson meets 100% of their goal, but it also demonstrates what exceeding goals (120%) and performing below expectations (80%) might look like.  >> Take a look now if you haven’t already.

After reviewing the plan, you may have a few questions about it. Don’t worry – so did other professionals we shared it with, so let’s address what you might also be thinking:

Q: This shows a base rate of $170K. Is that realistic?

A: The numbers in this model are just examples. We know that salespeople’s potential revenue can range significantly based on products, locations, and sales support. We also know that high-quality talent is worth the investment. But, we encourage you not to get hung up on the dollar amount and plug in your own financials as you see fit. 

Q: Are the monthly goals spread evenly throughout the year, or is seasonality factored in since budgets don’t tend to be linear?

A: Because there is a flat % monthly, the salespeople can recoup losses in other months, and with quarterly incentives, you don’t need to factor in seasonality, but this really depends on your business.

Q: Can you explain the rationale for increasing the monthly new business quota throughout the year?

A: This model is showing goals for a new hire who is still ramping up. Ideally, these numbers would smooth out over the next year. Remember, this model helps you see how compensation could play out, but the numbers are essentially placeholders.

Q: How long do you suggest for a ramping up period for new salespeople as they come on board? 

A: This was an excellent question and depends on the sale’s complexity and the quality of onboarding a rep receives. Honestly, most companies underestimate both and offer an arbitrary number of three months, but it depends on so much more. Also, consider the average sales price and the sales cycle. 

Use this ramp calculator to see what revenue you’re missing with delayed ramp. (You’ll need to scroll down a little.)

Q: Is creating sales compensation plans like this necessary, or just one more thing to try to manage?

A: It is absolutely necessary. This is one component of having clearly defined roles and processes that increase productivity and increase revenue. It also ensures that your sales team is aligned with your buyer journey, creating trust and professional relationships among your clients and your team. Finally, setting clear expectations for your sales team enables them to set personal goals, adjust their sales techniques, and nurture their pipeline. In the end, this is their livelihood, and we owe it to them to have agreed-upon metrics for success. 

Ultimately, sales compensation plans are just one of many factors affecting your company’s bottom line. From hiring the right people to onboarding to incentivizing to supporting, organizational alignment must be geared for success across all variables and processes. 

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