W2 Compensation Structures for Sales Reps

IMO more orgs should tie AE comp to what happens AFTER signature. I mean, your reps get paid at close. Then they tend to disappear. CS inherits an overpromised deal. Customer realizes 8-week implementation was actually 16 weeks. ROI projection was complete bullshit. 6 months later customer submits their churn notice and your rep's already spent their commish on a bunch of On Clouds and a fancy humidor. Comp plans reward the signature. Period. Doesn't matter if customer goes live. Doesn't matter if they hit their goals. Doesn't matter if they expand or churn. Just get the signature and move on. So that's exactly what your reps optimize for. You can easily set up a 4-tier commish structure that fixes this: Tier 1 - Base commission at signature: 8% of ARR. - Rep closes deal. - Gets baseline comp immediately. Tier 2 - Go-Live bonus (+1%): Total 9%. - Customer completes onboarding within agreed timeline. - Must be actively using core features. - CS confirms product deployment. Tier 3 - Success metric achievement (+1%): Total 10%. - Customer hits outcome from business case within 90 days. - Examples: cost savings target, efficiency gain, revenue goal, etc. - Must be documented and verified. Tier 4 - Expansion unlock (+2%): Total 12%. - Customer adds seats, upgrades tier, or buys additional product within 12 months. - Minimum 20% ARR expansion from original deal. - Rep also earns standard 8% commission on the new expansion ARR. So, what changes with this? Reps start asking different questions during sale: - "What does success look like 90 days after launch?"  - "Who's responsible for implementation on your side?"  - "What would cause this to fail internally?" They stop overselling. They qualify harder. They care about customer readiness because their comp depends on it. They stay engaged post-sale. They check in with CS. They help remove blockers. They build relationships that lead to expansion. An SA member we worked with rolled this out a bit less than 18 months ago. Churn dropped 22%. Implementation time dropped 31%. Expansion revenue doubled. Same reps. Same product. Different incentives. Some reps pushed back: "Why should I get penalized if customer doesn't implement properly?" The answer: you're not getting penalized. You're getting baseline commission at close. Bonus is for making sure they succeed. If you're consistently selling to customers who can't implement or won't see value, that's a qualification problem. Fix it. Best reps loved it. They were already doing this work. Now they get paid for it. Mediocre reps weren't huge fans. They were used to dumping deals on CS and running. Suddenly they had skin in the game. Three of them quit. Fine. Don't let the door hit you in the ass on the way out. If you pay reps to care about customer outcomes, they'll start caring about customer outcomes. Plus, your CS team will appreciate not inheriting disasters anymore.

Most founders set sales compensation too low at first. Then they overcorrect and overpay for talent. After hiring over 100 salespeople, I’ve found the compensation formula that actually works: Start with this principle: Your product's price must support the cost of sales. In other words, you can’t pay someone $100k per year to sell $1k SaaS subscriptions For B2B SaaS, use this simple math: - Annual quota should be 5x On-Target-Earnings (OTE) - Example: $500k quota = $100k OTE - Split OTE 50/50 between base salary and variable compensation - This keeps cost of sales at 20-25% of revenue (consider fully loaded costs) But the structure matters as much as the numbers: 1. No commission-only roles. Ever. 2. Pay "straight-line" up to 100% of quota 3. Add accelerators above 100% 4. Keep it simple - math should work on a napkin 5. No draw against commission for new reps For ramping reps, try this: Month 1: Full base + 100% variable (no quota) Month 2-4: Increase quota 25% each month Month 5+: Full quota Remember: Sales comp drives behavior. If you want to change behavior, change the compensation. Don't overthink it. Your future economics will wash out your current economics. Focus on getting good people and helping them succeed.

This week I placed a sales rep in a new role and negotiated a $10K increase in their base salary. Before you say whoopty doo… $10K isn’t life changing money. Let me break this down. This individual is a sales rep who spent six years at the same company consistently driving revenue as an outside sales professional. For five of those years they worked remote and independently… coming into the office only for meetings. Then last year the company flipped the switch. Daily office mandate. Five days a week. You can leave only for scheduled meetings. 90 minutes of windshield time. Every single day. Autonomy… gone. The $10K increase in base was nice. The flexibility to work remote again was bigger. But the real win (the one most people miss) was understanding the compensation structure. At their previous company, they had to produce 5x their base salary before commissions even kicked in. Five times! They had built their book over the years, so they were hitting strong OTE. They assumed this was standard across the industry. It is not. The role I placed them in requires covering seat cost (roughly 1x base salary) before commissions begin. Do you understand how significant that is? If you move from a 5x hurdle to a 1x hurdle, your earnings don’t just increase… they expand exponentially. The barrier to commission drops by 80%. Which means: • Commissions trigger sooner • Cash flow improves dramatically • Upside accelerates • True earning potential escalates Same rep. Same talent. Same work ethic. Completely different structure. The irony? I first spoke with this rep nine months ago. They told me they were happy. Not leaving. Not interested. Once the mandate changed and autonomy disappeared… they reached back out. There are many facets to what makes someone fulfilled in their career: Autonomy. Flexibility. Compensation structure. Leadership. Growth. Freedom. I dig until I uncover what actually matters. Because sometimes the biggest raise is not the base salary. It is the environment. It is the structure. It is the elimination of unnecessary friction. And when you align talent with the right opportunity, the impact on someone’s livelihood can be extraordinary. If you are a revenue driver and you are not crystal clear on how your compensation structure compares to the market… that is a conversation worth having.

Too many companies are still using one-size-fits-all compensation plans for sales reps. But this doesn't account for the fundamental differences in sales roles. An SDR cold calling potentially unqualified prospects requires a completely different compensation structure than someone handling warm inbound leads who've already expressed interest. With inbound leads from paid ads or organic content (where prospects are raising their hand saying "I'm interested") you don't necessarily need a big base salary. A modest base of $500-750 goes a long way, but the focus should be on their On-Target Earnings (OTE). But if you're asking someone to do cold outreach? That's a harder job with more rejection and fewer opportunities for commissions. Your compensation structure is a signal to your team about what you value and understand. When you design it thoughtfully based on the actual work being done, it shows you respect their challenges. The best commission structures account for: • Lead source quality (inbound vs. outbound) • Sales cycle length • Average deal size • Control the rep has over outcomes When these elements align, magic happens. Your team feels fairly compensated for the actual work they're doing, and they're motivated to perform at their best. What's your commission structure really telling your sales team?

This AV sales rep’s commission was so unpredictable One quarter, he earned $1,200.The next was $34k Why? It was paid on completion of the project! This was a consistent, strong closer with a big pipeline. Last year, he sold $1.6M. But his income made no sense… One month, he’d earn $18K in commission. Another month, almost nothing. Yet, over that time, his performance never changed. The issue was the company's commission structure. He only got paid once projects were completed and final invoices cleared. It ultimately turned his paycheck into a reflection of operations instead of sales. Projects slipped constantly… Materials delayed. Subcontractors double-booked. Six-week installs turned into four-month projects. And every delay pushed his commission further out. He told me about one quarter where he booked $480K and earned just $1.2k because none of the installs wrapped on time. Then, the following quarter, he made $34K because several delayed projects finally closed at once. At one point he said: “I’m a salesperson. I sell.  Why am I being paid based on installs I have nothing to do with?” That frustration is what pushed him to leave. I placed him with a company that handles compensation differently. They offered a base salary 20% above what he earned and commission of 6% of project margin, paid the month after the deposit invoice clears. The deal gets signed → the client pays the deposit → the rep gets paid. Operations still matters.  But ops problems no longer come directly out of the salesperson’s paycheck. His first full month there was the highest-earning month he’d had in years. A lot of AV companies tie commission to project completion, thinking it inspires accountability. All they get is resentment. Because this isn’t a compensation structure that rewards. It punishes top reps for problems they didn’t create.

📊 How Much Should You Pay Your Sales Reps? A Data-Driven Approach Pay too little, and you’ll struggle to attract and retain top talent. Pay too much, and your CAC skyrocket, eating into profitability. So, how do you strike the perfect balance between competitive pay and sustainable growth? By using a structured, data-driven approach that aligns sales comp with your company’s financial goals, market benchmarks, and long-term strategy. 𝐒𝐭𝐞𝐩 1️⃣ : 𝐒𝐭𝐚𝐫𝐭 𝐰𝐢𝐭𝐡 𝐂𝐮𝐬𝐭𝐨𝐦𝐞𝐫 𝐀𝐜𝐪𝐮𝐢𝐬𝐢𝐭𝐢𝐨𝐧 𝐂𝐨𝐬𝐭 (𝐂𝐀𝐂) One of the most reliable ways to determine a sustainable budget for sales compensation is by leveraging CAC. Why? ✅ It directly ties sales pay to business profitability. ✅ It ensures sales efficiency by controlling cost per deal. ✅ It provides a scalable compensation model as the company grows. Let’s say your company has the following targets & org: - 10 AEs - Other S&M budget = $3M - Average contract value = $25k - AE Quota = $750k (30 new clients/AE/year) - Goal is to have CAC < $18k 𝐒𝐭𝐞𝐩 2️⃣ : 𝐓𝐢𝐞 𝐀𝐄 𝐎𝐧-𝐓𝐚𝐫𝐠𝐞𝐭 𝐄𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐰𝐢𝐭𝐡 𝐐𝐮𝐨𝐭𝐚𝐬 & 𝐂𝐀𝐂 In such case, to respect your CAC goal, you might go up to: CAC = [3M+10*(AE_OTE)*1.3]/300 With CAC = $18k … this leads to AE_OTE = 185k In such scenario, paying your AEs 185k on-target-earnings (base + variable) would allow you to respect your CAC goal. So, as shown on the slide below, offering your AEs a 150k OTE should be CFO approved. 𝐒𝐭𝐞𝐩 3️⃣ : 𝐀𝐝𝐣𝐮𝐬𝐭 𝐂𝐨𝐦𝐩𝐞𝐧𝐬𝐚𝐭𝐢𝐨𝐧 𝐭𝐨 𝐒𝐭𝐚𝐲 𝐂𝐨𝐦𝐩𝐞𝐭𝐢𝐭𝐢𝐯𝐞 Even after using CAC-based calculations, you’ll need to benchmark against market salaries and adjust accordingly. If your pay is lower than market rates, consider: ✅ Increasing salaries or commissions to retain top talent. ✅ Investing more in marketing to increase lead flow and justify lower commissions. ✅ Keeping the structure as is if the current CAC is sustainable. If your pay is higher than expected, you can: ✅ Reduce marketing spend and rely more on outbound efforts. ✅ Improve sales efficiency by refining lead qualification and sales processes. ✅ Reassess customer acquisition costs to ensure long-term profitability. 𝐒𝐭𝐞𝐩 4️⃣ : 𝐎𝐩𝐭𝐢𝐦𝐢𝐳𝐞 𝐕𝐚𝐫𝐢𝐚𝐛𝐥𝐞 𝐏𝐚𝐲 & 𝐂𝐨𝐦𝐦𝐢𝐬𝐬𝐢𝐨𝐧 𝐓𝐫𝐚𝐧𝐬𝐩𝐚𝐫𝐞𝐧𝐜𝐲 Salary alone doesn’t drive performance, variable commissions do. But lack of transparency is a major problem: 📉 Only 40% of sales reps fully understand their commission structure. 📈 62% of reps using commission tracking tools exceed their targets, compared to just 30% using Excel or Google Sheets. Solution: Use commission management software (like Qobra) to provide: ✅ Real-time earnings visibility for sales reps. ✅ Automated commission calculations tied to actual performance. ✅ Reduced disputes and increased trust in the compensation process. How does your company approach sales compensation? Are you using CAC-based calculations, or do you rely on market benchmarks? Share your insights!

When designing sales compensation, it’s easy to default to standard benchmarks such as 3x Quota-to-OTE for SMB/PLG, 4x+ for Enterprise. But the real art is in aligning pay with influence. For 2026 planning👇 𝗛𝗲𝗿𝗲’𝘀 𝘄𝗵𝗮𝘁 𝗜 𝘀𝗲𝗲 𝘄𝗼𝗿𝗸 𝘄𝗲𝗹𝗹 𝗶𝗻 𝟮𝟬𝟮𝟱: 1️⃣ 𝗗𝗲𝗴𝗿𝗲𝗲 𝗼𝗳 𝗜𝗻𝗳𝗹𝘂𝗲𝗻𝗰𝗲 𝗗𝗿𝗶𝘃𝗲𝘀 𝗣𝗮𝘆 𝗠𝗶𝘅 Enterprise AEs with high impact on deals → 50/50 base-to-variable. They manage complex relationships and drive long-cycle, strategic deals. SMB / PLG reps with less influence → 60/40 or 70/30. Shorter cycles and smaller deals justify a higher base. 2️⃣ 𝗤𝘂𝗼𝘁𝗮-𝘁𝗼-𝗢𝗧𝗘 𝗠𝗮𝘁𝘁𝗲𝗿𝘀 Enterprise: 4x–5x (sometimes 6x) reflects complexity and strategic responsibility. SMB / PLG: ~3x aligns with higher deal volume and simpler sales motions. 3️⃣ 𝗧𝗵𝗲 𝗕𝗶𝗴𝗴𝗲𝗿 𝗣𝗶𝗰𝘁𝘂𝗿𝗲 A well-designed plan balances expected revenue generation with risk and influence, incentivizing reps to focus on the right behaviors, not just activity. ✅ For FY26: don’t just copy benchmarks. Think critically about how much impact your reps have on deals and structure comp accordingly. Degree of influence on a deal matters. ✅ Key questions: what behaviors are you trying to align the organization to adhere to? What outcomes? ✅ Partner with finance, #sales, #revenueoperations to holistically think through business strategy, implications on recruiting/retention, unit economics, and role design Good luck out there Go forth and operate 👋

How to Build a Simple Sales Comp Plan (Without Overcomplicating It) Too many sales comp plans are way too complex. The best plans? Simple, clear, and motivating. Here’s an example of a clean structure I like to use for a software inside sales rep: 💰 Quota = $800,000 🎯 OTE (On Target Earnings) = $140K–$160K 🔁 50/50 Split → Base: $70K–$80K | Variable: $70K–$80K This gives you a commission rate of about 10% ($80K/$800K). You could keep it simple with a flat 10% on all revenue… But I prefer escalator commissions to push reps to outperform: • $0 – $300K → 6% • $300K – $600K → 8% • $600K – $800K → 12% 🔥 And yes, make it uncapped. Let your best reps win big. You can always layer in bonuses for big deals or multi-year contracts, but the core should be easy to understand. Because if your rep needs a math PhD to know what they’ll earn… you’ve already lost. How do you structure comp plans?

Often companies have a broad Sales Representative hiring profile. From the "up and comer" with 2-4 year's experience who has exhibited considerable early success, all the way up to seasoned vet who has every doc's cell # in their phone, and everything in between. One is not better than the other. Each bring something unique to the equation. And a diverse team, compiled of individuals from various points on the experience spectrum can have a compounding, synergistic effect. The question is, how do you pay them? Sales reps talk. If one rep gets one package, and another gets a different package, word will certainly get out. Without transparency and consistency, this can devolve into a hornet's nest. And, if the company only has one base salary and OTE package to offer, in most cases it will find itself trying to fit a square peg in a round hole. The "up and comer" may end up being over compensated based on their experience and capabilities. Conversely, the comp may be too light to get the attention of the seasoned vet who is on a first name basis with nearly every doc within their territory. In most cases I recommend my clients take a tiered approach. For example: Tier 1: Base Salary - $80K, OTE, $200K Tier 2: Base Salary - $110K, OTE, $235K Tier 3: Base Salary - $130K, OTE - $280K Having specific, objective experience criteria correlating to these various levels makes it easy to designate which comp package an individual will qualify upon hire. There should also be specific performance criteria which qualify an individual for promotion into the next tier. For example, "two years or 18 consecutive months of quota attainment" qualifies a rep to go from Tier 1 to Tier 2. This approach allows the prospective hire to understand why they are being paid what they are. It also provides incentive, with specific achievement targets to earn promotion into a higher compensation category. Sales compensation is always a bit of a game. The reps just want to know what the game is, and the rules of engagement. Consistency and transparency are key when recruiting and retaining the best of the best in Commercial markets.