Magazine Article | December 1, 2018

You Get What You Pay For – Compensating SaaS Sales Reps

Source: Software Executive magazine

By Jennifer Doskow

The hard truth about hiring top sales talent is that compensation matters much more than the software those reps are selling, no matter how innovative your products might be.

Compensation is and has always been a hot topic for SaaS organizations, and it’s one that I’m happy to voice my opinion on whenever asked. Compensation plans for sales professionals have evolved over the years from 100 percent commission in the ’70s and ’80s, to small base salaries plus commission, and now in the software world most companies are offering substantial base salaries with an opportunity to double the base in commission.

In my 22 years of recruiting salespeople, compensation is always one of the first questions both the companies and the candidates want to address — and for good reason. Compensation is a crucial piece in the profitability puzzle for a company and the reward at the end of the rainbow for the sales professional. This is bottom-line advice I give companies: Pay your salespeople well, pay them fairly, and pay them on time. Ninety-nine percent of all of my sales candidates have chosen their careers in sales because they are money motivated, so if you are interested in hiring and retaining the best in your business, you absolutely have to get their compensation plans right.

YOU GET WHAT YOU PAY FOR

Let’s start at the beginning with determining the proper salaries for your sales teams. I typically refer my clients to companies such as Skaled, a consulting company whose focus is helping scaling startups and publicly traded organizations optimize their organizational design and sales process with modern sales strategies and technology. There are also great tools online, such as salary.com and Payscale, which are good starting points for establishing a baseline for comp that’s competitive in the market.

I have a couple of clients who are on the low end of the salary/total earnings for their industry, and the candidates I am able to bring to them are typically less experienced than a company paying at the high end. For companies that want to groom their sales reps and invest a lot of energy and resources in training and development, this is fine. For companies that want their sales team to come with a lot of sales training, sales skills, and a proven track record of success, it’s best to pay them a bit more in their salary and their total compensation, including stock options.

The most successful recruiting projects I’ve had are with sales leaders who understand that if a top producer costs a little bit more to lure them away from their current company, then they’ll have to do what it takes.

It’s important to understand that commission drives the behavior of your sales team. Many founders are so enamored with their own technical invention that they assume sales reps will be banging on the doors to get a chance to bring it to market. Unfortunately for these leaders, they quickly learn that there is a war for talent. Those same reps that they dream about are laser-focused on selling the technology of the company in which they are currently working.

"It’s important to understand that commission drives the behavior of your sales team. Many founders are so enamored with their own technical invention that they assume sales reps will be banging on the doors to get a chance to bring it to market."

A WAKE-UP CALL FOR FOUNDERS AND CEOS

I highly endorse the mentality that you want to pay your sales reps incredibly well, especially as you focus on acquiring new clients or more business out of your existing customers. The best CEOs and sales leaders I work with brag about their top sales representatives’ W2s. Some might see this as tacky, but I find it 100 percent acceptable for a few different reasons. Your sales reps’ total earnings are likely their most important intangible trophy. I was on a treadmill recently next to a seasoned sales professional who came right out and told me he makes $350,000 per year without me asking him more than “How’s business?” Success for sales reps is mostly defined by their paycheck, so keep that in mind if you want to retain the good ones. Sales reps want to pay themselves what they are worth, and their worth is measured in revenue and eventually commission.

Unfortunately, I know CEOs who will lower or even cap sales reps’ compensation plans if someone exceeds their quota and makes more than they pay themselves as the leader of the company. As my friend Jake Dunlap, CEO and founder of Skaled, recently commented, “CEOs need to stop worrying about the sales rep making $400K. That sales rep loves you, loves your company, and is your most loyal salesperson.”

Dunlap also points out that an organization should figure out what the sale can bare and spend approximately $1 for every $3 made (or even $1 to $1 depending on where you are in your growth arc). If the sales team is making money, that means you are making money. Additionally, if you keep your eye on your exit strategy, then you’ll see in the long run that the compensation you paid to hire and retain top sales reps will look like chump change compared to the millions your company will be worth.

IT’S A CANDIDATE’S MARKET

The most common reason a sales professional will start to look for a new position is when their total compensation opportunity has decreased. This happens when commission is capped, quotas are raised, commission percentages are decreased, or when territories are split. There are certain instances when changes need to be made because of circumstances beyond your control. However, modifications can create an unstable sales culture that can run you the risk of losing your flagship revenue producers.

"Ninety-nine percent of all of my sales candidates have chosen their careers in sales because they are money motivated, so if you are interested in hiring and retaining the best in your business, you absolutely have to get their compensation plans right."

In this day and age when the national unemployment rate is under 4 percent, software companies should focus on keeping their sales talent feeling as content and stable as possible. The second sales professionals become uneasy, they will reach out to headhunters, and the next thing you know they will be off to your competitor. This is a candidate’s market — and the messages top sales reps receive daily from recruiters is a constant reminder of this fact.

At the end of the day, the leaders of the company need to understand that taking great care of their sales team should be one of the highest of their priorities next to taking care of their customers. Well-paid sales professionals are loyal, focused on their company’s overall success, and are proud of the impact they are making as an integral part of their organization.

JENNIFER DOSKOW is the CEO of Edge Connection, which places sales, marketing, customer success, and professional service professionals with emerging SaaS/cloud technology companies. She has 20+ years of experience in recruiting and previously wrote a guest column for Software Executive titled “To Hire Or Not To Hire In Silicon Valley?”