Creating Commission plans from scratch

Our philosophy on commission plans is distilled down to aligning 3 major parts to a plan:
  1. Choosing the right plan type for each role
  2. Picking your primary revenue goals as the major metric for the plan
  3. Choosing the right secondary goals to incentivize behaviours and keep reps motivated

Also, we will cover profitability as a metric to the compensation plan so that you can get this approved by your finance leaders as well (ka-ching!).

First things first: For which role are we making the plan?

Sales Development Representative
Junior & Senior
Individual Contributor (IC)
B2B SaaS
Business model
Subscription Business

Success metrics for the role

Before choosing the plan type and metrics, it is important to understand that each role has a specific set of goals critical to the overall business objectives. Reps of junior or senior levels are usually at the firing line and need to stay razor-focused on their goals. Their compensation needs to be as simple as possible without many variables outside their control like your leaders. Hence, we usually narrow their success metrics to two engines.

  • Activities and Lead generation : Lead Generation Engine
  • Pipeline Generation: Deal Value Engine

Choosing the right Commission plan type

Now that we have understood the success metrics for this role, we need to choose the right plan type that goes with your revenue goals. There are usually only 2 main structures of commission plans for SDR/BDRs. The Plans are usually aligned to one of the 2 structures or a mix of the two

  1. $ Payout per SQLs/SALs  and associated activities - Most Commonly seen
  2. Commission % against Pipeline generated or revenue Closed - Less Common

Type 1 - Tiered kicker based model

In this plan the Reps get a fixed dollar payout for every Sales qualified lead /Sales accepted Lead/Meetings scheduled. For example,  if you hire a representative with a fixed pay of $40k and an OTE of $80k at an annual rate. The incentive pay in this package is around $40k and the quota allotted is 200 SALs per year. In this case, the base commission rate for the rep would be $200 per SAL. ($40k divided by 200k).

But, if you stick to the base rate for all SALs the rep would receive no incentive for generating any more post their quota attainment. So, after hitting their targets, they sit back and simply push the upcoming meetings to the next quarter, where they will be incentivized for them. This particular occurrence can be avoided via tiered commissions plans.

Type 2 - Rate based model against Commissions generated

In this structure Reps are paid% share of the pipeline generated and in certain cases where SDRs are allowed to close low value deals they can be paid similar to AEs as a percentage of the Deal value.

This component is less common but is picking up in popularity as it also helps identify SDRs who are capable of moving on to the AE roles.

For Eg. if your win rate is 1 out of 3 (which is common range for B2B SaaS) then for an SDR looking to influence $600K of revenue annually would have to generate a pipeline of roughly $1.8M (600 times 3). Since the goal is based on pipeline and not on actual revenue the % Commission will be lesser compared to AE roles ( Typical range 8%-12%) and will be in the range 2%-4%.

Choosing the primary success metrics

Now that we have covered compensation structures and commission plans, it’s time to optimize for your SaaS product, representative type, and the ACV of your customers. In general, we can classify SaaS sales models into 4 broad categories:

Self-served models don’t require a lot of sales compensation optimization. It is usually straightforward and the compensation should be based on deal velocity metrics that we’ll get to in the next section. Of the four models, High Velocity and High ACV products are extremely rare while High Velocity and Low ACV and Low Velocity and High ACV are the most common.

High Velocity and Low ACV - SMB

This Model may apply to your org in 2 ways:

  1. Your product is designed to be DIY and is very easy for customers to self evaluate.
  2. Your product has a low ACV and sales cycles times are less than a month.

In either of these cases, the components you will use to measure and compensate your SDR  teams will be one of the following, 

Activities metrics
  1. Contacts Responded - No of Mails sent out to the assigned list of Contacts/ Companies within the SDRs territory. 
  2. Calls Made/ Chats Taken - This is self explanatory.
  3. Meetings Scheduled- These are usually discovery calls and are a leading indicator to opportunity generation and should be tracked regularly.
Pipeline metrics

While activities are leading indicators, opportunity generation is the final outcome for the SDR role. These criterias should drive focus on how to turn interested parties to prospective customers

  1. # SQLs generated: This should be primary criteria for the SDR teams. Qualified leads are what feed the sales engine to keep moving forward.A robust qualification framework is also necessary to keep all both sales and SDR teams on the same page.
  2. Conversion rate: This component can be a bit tricky as there are multiple reasons why opportunities are lost. Many of the reasons are not related to effectiveness of the SDR. Hence this may be a minor component on the plan but is useful in keeping the sales and SDR teams working together as a pod.
Low Velocity and High ACV - MM/Enterprise

This sales model apply to your company in 2 ways, 

  1. The Product is requires extensive configuration and a guided onboarding/ implementation for customers
  2. You are a MM/Enterprise only product and in general, your deal velocity is low and is high ACV in nature. Ex : Planning tools,  Compensation tools. 

In either of these cases, the components you will use to measure and compensate your SDR teams will be one of the following,

Activity metrics
  1. Account based engagement - When dealing with MM/ enterprise customers there may be many stakeholders involved in deal closure.Hence activities must be aggregated at an account level and then evaluated. 
  2. Meetings Scheduled: This is the same as with high velocity section.
Pipeline generation metrics

For high ACV businesses measuring the only the number of opportunities is not enough 

  1. Pipeline generation targets - For companies with longer cycles (6-9 months), it is imperative to generate pipeline in advance to ensure that you have a healthy revenue outlook. Hence, reps usually carry a quarterly pipeline target. 
  2. Revenue Goal for Smaller ACV deals - In the case of High ACV business SDR have the authority to close smaller acv opportunities themselves. This is usually a small portion of their compensation. The benefit of having this criteria as its builds a path for growth for the SDRs and can act as the Pipeline for AE headcount.

Choosing the secondary success metrics

The base components that we looked at the earlier section will only address that you have planned for. But, there are other goals that you want to address and reward on to make the sales engine more efficient and to address more focused goals. These are all optional and only make sense if reps are already doing numbers. We don’t want to distract them with too many bonus components as part of their base plan. 

We would rather do a temporary SPIFF program to address short term behavioral changes. You can look at our SPIFF blog here to learn more about how to use SPIFFs to your best advantage. 

The following are some of the bonus components, 

  1. Flat bonus - A flat one-time bonus of a fixed $ amount for hitting their quarterly target. This can also be a % of a rep’s incentive plan. 
  2. Consistency bonus - If reps are able to consistently perform over a threshold for multiple periods.for eg If a reps is able to achieve there targets for 2 consecutive quarters then an additional bonus may be paid  out to them. This can help keep the momentum going for performing reps.
  3. Multi-product deals - In companies where selling a suite of products is more strategically important, you can add a special markup where reps are able to generate opportunities which are multi-product . 


Let’s go over our journey till now and look at what we have learned about designing a perfect compensation plan for your teams:

  1. Understand your conversion ratios to set the right goal - both Pipeline to revenue and SAL to closure
  2. Choose the right commission plan based and goals. 
  3. Plans with Tiered rates keep the Reps motivated to keep delivering.
  4. Different types of primary success metrics can help you decide what works best for a high velocity  team and a low velocity team.
  5. Secondary success metrics like flat-deals might help drive specific behavior in reps.

We’ve also made a shareable image of the summary. Check it out: