Founder Q&A Series: Incentives and Compensation Structure
The GTM Newsletter
Another summer week in the books ☀️
This week, we’re continuing our Founder Q&A Series.
Real questions asked by real founders and answered by some of the sharpest GTM minds in the space.
Thanks to everyone who sent through their questions last week, we’ll try to get through a few over the coming months.
And just because, here’s some good vibes 🎶 for your sunny July weekend:
Anyway, let’s get into it.
We’re officially running a GTMfund Summer Giveaway: Share your favourite piece of our content (Newsletter or Podcast), tag us, and you’ll be entered to win a pair of exclusive GTMfund Airpod Pro’s.
“I’m an early stage founder looking for resources / templates / examples of SDR and AE enterprise commission and bonus structures that have successfully worked. Any tips?”
Noah Marks, VP GTM Strategy & Operation at Udemy:
SDR: 70/30. Measured by qual opportunities per month. Spiff budget for monthly incentives/contests (keeps it fun). Cost of living limits incentive %.
AE: 50/50. 5x+ quota to OTE (for cost to book). Then doubles and triples with accelerators. If someone goes 4x+ their quota, they should (IMO) earn 1M+. Bluebird clause and usual to avoid the unearned commission. AE success attracts the best AEs. I always strive to get 1-2 AEs in 7 figures.
Stephen Farnsworth, Head of GTM at Stealth Startup:
SDR comp - commission should be 90+% based on things the SDR can control…booking a qualified meeting that is accepted into pipeline. I sometimes see companies put a large % on closed won revenue and I’m not a fan. I also like as few levers as possible to keep things simple, but am a fan of having accelerators when over quota to drive over-performance.
Farlan Dowell, Fractional VP Sales, Coach, Advisor at Upright Ventures:
Each moment that a rep spends on commission is a moment that she can't spend with customers or thinking about value proposition etc. Each layer of complexity added to a commission plan for a AE or SDR is time taken away from prospecting, selling, closing. That said, here is a plan that I have implemented at dozens of successful saas companies:
AE = 10% commission
SDR = $200/SQO
SDR split is 70/30 ish. 60k base, 30k uncapped commission.
“We are closing in on a CRO and I want to create an incentive (either cash or equity) on running an efficient revenue org and not just keeping incentives on Top Line growth given the macro environment. Do you have any suggestions for structuring an incentive package to optimize for sales/revenue efficiency?”
Kyle Norton, SVP Sales & Partnership at Owner:
I don’t actually think it makes a ton of sense to build this into a comp plan. LTV/CAC has SO many moving parts that it’s only partially influenced by the CRO. If their worth their salt and they’re a real CRO, they will manage efficient growth in this market by nature. IMO (and I’m not just saying this as a revenue leader), we should have revenue execs on significantly lower leverage plans so they can make smarter business decisions.
If you tie up 50% of someone’s earning on short term KPI’s then they are pulled into thinking short term.I had zero variable commission comp at Shopify at it was incredibly liberating to be able to make great business decisions without thinking about my comp plan. I was heavily incentivized to move the share price. This isn’t hollow/arm chair advice either.
My current comp plan is 80% base and 20% variable (plus stock). Might be hard to negotiate but I think it’s a great structure for both sides
Justin Holmes, CRO at Sterling Capital Brokers:
One structure I have seen before is: 50% on new (or net new) MRR and 50% on LTV/CAC or payback for the year. Incentivizes both top line but to do it efficiently. Have cash and equity for each.
Basile Senesi, CRO at Arc Technologies:
Agree with Justin. I've had my comp be:
50% Top line revenue growth
50% LTV/CAC target, with accelerators based on breaking above 2.5x/3x/3.5x...
I’d also caveat it seriously depends on stage: every early role I’ve been in, it’s my job as CRO to define the metrics that drive revenue (with CEO sign off and exec buy in of course) and set up the tracking (ie the tools and sales process that generate those signals). That means that the goals I have to track against have to be core level metrics.For instance in my role now I own S&M, including both budgets, and revenue generation for new and existing customers, and net retention. My comp metrics are related to annual top line revenue & S&M efficiency (LTV/CAC + Payback). I then get to decide how I allocate budget $ across both orgs, i have a 12 mo time horizon to solve for, and I have to be mindful of driving efficient growth above total growth.
Scott Gifis, CEO at NoFraud:
This is 50% "hire the right person" and 50% "work like an exec team" — if you're solving for incentive plans to ensure decisions are being made in the best interests of the company than you aren't hiring a CRO, you're hiring a sales manager.
Ultimately its about being clear about defining success and boundaries — metrics to be well defined and understood, measurement needs to be enabled, and team needs to review regularly to manage it. sometimes (like ~99%) people aren't willing to do the work to make it stick
Dan Shaw, CEO at GhostRetail:
The most common recommendation I see from boards re: CRO compensation is to keep them focused on top line. Then create checks and balances across rest of exec leadership team compensation around cash or cost side metrics (in addition to top line).
👀 More for your eyeballs:
Tomasz Tunguz explores the crucial metrics that startups should focus on during the Series A funding stage, emphasizing their importance in evaluating company growth and attracting further investment. He provides insights into specific metrics such as annual recurring revenue (ARR), customer acquisition cost (CAC), and net dollar retention (NDR) to help founders navigate this critical stage of their business. Check out the full article below👇
👂 More for your eardrums:
This week’s GTM Podcast with Elena Hutchison, former Executive VP & Chief Strategy Officer at Medallia 👏 , shares her career story and journey going public with Medallia.
Another one! Bonus episode this week with the GTMfund’s Principal and Platform Director, Mr Paul Irving. Discussing the general trends in the macro environment, predictions and paving the path forward for today's economy. Tune in🎧
🚀 Start-ups to watch:
Another exciting product launch by ✨ Stotles AI ✨ They announced their 🤖 Outreach Builder this week, creating tailored outreach emails in seconds👀
🔥Hottest GTM job of the week:
Manager, Account Manager at Gorgias, more details here.
See more top GTM jobs here.
Now get out of your inbox and enjoy your weekend.
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Appreciate you.
Barker✌️
Your reflections on compensation structures speak to a wider conversation we need to have in the business world.
It's true, an overemphasis on short-term KPIs can lead to a myopic approach, encouraging decisions that might boost immediate results but compromise long-term success.
Just as Steve Jobs focused on creating innovative products with lasting impact, it's critical that our compensation structures also motivate employees to think and act for the long-term health of the business.
Imagine a structure where individuals are not just workers chasing after the next commission or hitting the next KPI.
They are rather seen as integral parts of a grand narrative, contributing to the overarching success story of the company. It's about playing the long game, where every decision counts towards a shared, enduring vision.
In such a compensation plan:
Base Salary: Constitutes a significant part of the total compensation, providing financial stability and allowing employees to focus on their work without the constant worry of hitting short-term targets.
Variable Component: Comprises a smaller proportion and is tied to longer-term goals and the overall success of the company. This ensures that employees' interests are aligned with the long-term growth of the company.
Stock Options: These are an excellent way to further align the interests of the employees with those of the company. When the company's performance improves and the share price goes up, everybody wins.
After all, we are in it for the long haul, aren't we?
The goal is to build a sustainable business that delivers value to all stakeholders - customers, employees, and shareholders alike.