Set sales comp and a career path for reps

1. Two kinds of team, two ways to pay

Experience here suggests starting the thinking on pay for salespeople from two points, set by the kind of team you run.

A team that generates its own business. The case given is home services, where reps go out, knock on doors and bring the work in. That team is paid pure commission. The reason given: the pay is basically your cost of getting a customer, fully loaded, since there is no marketing spend behind it. Whatever you pay the rep is what a customer costs you. Those reps earn the most, since the job is one of the hardest going.

A team you feed with leads. This is any kind of lead generation at all: content; an outreach team that works prospects online, enriches the leads, then sets and closes; paid ads that take people through a funnel to buy; affiliates who send you business, or whatever else it is. Wherever reps close leads that you generate, one practice here, and one that is liked, is to pay half as salary and half as commission.

The split comes from a private-equity firm that had run a lot of big analyses. Those analyses are just believed here, and the split has reportedly worked well for the business using it.

Why not commission alone for this team. On pure commission, these reps find stability in their lives very hard to come by. One bad month and there is no commission; then it is as if the job is not one they can hold. So the aim is for the base to cover their basic needs, and for the other half to pay for the way they live.

Working out the most a customer can cost you, and pricing an affiliate's commission from it, is SOP 47 — Price affiliate commission off acquisition cost.

2. On-target earnings

The split sits on top of what is called OTE: on-target earnings. Every sales role should have one. It answers this question: if this rep turns as many leads into sales as they ought to, how much should they make? That amount is the role's on-target earnings.

3. Pay tracks the level of skill a role calls for

Next comes how to turn that figure into pay. It is set by the level of skill it is believed the role requires, because that decides what sort of person the pay has to draw in. The idea is said to hold for any role, not only in sales. For sales, it is thought that a sale of a given caliber needs a salesperson of that same caliber.

The chain runs like this. The more your selling runs on process, the less skill a rep has to walk in with. The less skill they need, the less you have to pay. Paying less makes the business more profitable, and that lets you reinvest, grow, scale and so on.

What your business has	Who you need to sell
No process whatsoever and no marketing skill	A rainmaker: someone exceptionally good at sales who can take a person from completely unaware all the way to a close
An amazing brand and offer, and an amazing process for educating the buyer	Someone who just asks whether they want it, and then you transact

A lot of people ask for the perfect comp structure. The answer here is that it comes down entirely (a hundred percent) to this test: can you put this pay out and draw people at the level of talent the role needs, at that price point? That is the whole of it.

Pay plans for higher-level people, including how market pay varies by industry (step 3 of its section 2), are SOP 160 — Build advanced compensation plans. Setting what a hire earns you against what the hire costs to get is section 6 of SOP 200 — Treat a supply constraint as demand for talent.

4. What to base commission on, and the only change vouched for

Beyond the half-and-half split, the only other point given on pay is this. Should commission be a percentage? The view here: it does not matter; what counts is that reps do the actions, and you could build it on total deals or you could build it on total deal volume, in a hundred different ways.

Link commission to the cash you collect up front, if you can. It is, one owner would say, the single change to sales-team pay made in that owner's teams that reliably raises the quality of closes and pulls cash forward, which is seen as a good thing.

A small commission bump for show rate, with the rewards that are not money beside it, is section 4 of SOP 88 — Pay and rank reps on show rate.

5. What to pay: an answer on ranges

A range is called very hard to give, so start from the hypothetical extremes.

• An extreme. A real estate agent gets 6% of a building worth $20 million. That is their pay for the sale.
• The opposite extreme. Someone selling car washes has 200 cars a day going past and tries to upsell each by a couple of bucks. Each upsell might bring in a dollar, but there are 100 at-bats. (Both numbers, 200 cars and 100 at-bats, are given one after the other.)

So pay very widely depends on skill, on what kind of transaction it is, on the product's ticket size, and on the process a rep has to go through to close. Standing still while cars go by and saying the same six lines takes little skill. Getting six decision makers at an enterprise to buy a three-year license for software at $500,000 a year takes more.

Then, generically speaking, and noting that it also depends on markets, comes what is called the roughest possible estimate:

Role	The rough figure	What goes with it
Sales development reps (setters)	75,000 on-target earnings	Half base, half variable
Closers	150 on-target	Not established on this page.
A super-specialized closer	200, 250, sometimes 400	It just depends on the degree of specialization, the price of what is sold, and in some ways the stakes of a loss

A lot of it still turns on how easily they can be replaced. The stakes might be high, but if somebody else can do the job, then somebody else can do it.

6. A career path in small steps

The career path matters to almost every one reading, it is thought, and especially to anyone setting out to build a sales team. The titles are just placeholders. At bottom it is a progress matrix: a junior, the title itself, and a senior.

One team's path starts with the setter rungs, Junior SDR, SDR and Senior SDR, with SDR Manager above them. The closer rungs follow on the same pattern: Junior Closer, Closer, Senior Closer, and then Closer Manager. Past Closer Manager, the other career paths open up.

Why it matters. This reportedly took a long time to work out. It matters especially where roles are repeated: support, editors, salespeople, roles that many people in the business hold. Those roles should have several tiers of title, and you can put small changes in pay between them, so that people get reinforcement at regular points and have things to look forward to. Roles like these typically involve a lot of repetition, and breaking it up with small changes to title and pay can make a huge difference.

Five increments. You could go: junior, a pay change, the plain SDR title, a pay change, senior SDR. Counted that way, reward comes at five points, so something can improve for them like every 12 weeks. The change could be small; what counts is that it is enough to make them feel part of it. Together these make a career path, and it should be one you can explain to a person.

7. What earns each step: cumulative closes

Asked what the titles mean in terms of responsibility, the answer is that a lot of it is simply reps, counted cumulatively. Two illustrations are given, joined by "or":

• A simple version. After the first 20 deals closed, a rep moves from junior to SDR, and the title comes with a pay change.
• Or a stepped version:

Cumulative deals	What changes
The first 25	A junior SDR gets slightly higher pay and keeps the same title
50	Junior to SDR
50 to 100	A pay change; still SDR
200	SDR to Senior SDR, and maybe better hours and better leads

Perks with the title. There are always small things you can add with a title. If one had to pick, editors would get better content; for salespeople it would be better leads, or else better hours.

Manager is optional. Junior, the title, senior, and then a manager title if you want one as a fourth. One team is keen that not everyone should feel management is where they must end up; the numbers do not work. For a lot of people, stepping up to Junior Closer from Senior SDR is a big move in itself, if they earn it.

Where the best salespeople get the best hours and leads, and the best leads go only to the best closers, is section 5 of SOP 168, the page on specializing a growing business. The ladder ends with that as a reminder: another way to pay someone.

8. Hitting the number makes someone eligible

One of the key points about career paths: at any level, once someone hits the target (KPI) for the next step, they become eligible to be promoted. They are not owed it. Hitting 50 does not mean the move happens. Beyond the number, they must still contribute strongly to the team, fit the culture, and all these other things. One practice here: nobody on the team should feel they deserve anything or are entitled to it; everything is earned.

That excellence shown again and again is what earns a raise is section 3 of SOP 134 — Set pay increases.

9. Timing: an early win, then longer gaps

Why the steps matter. Where the work is relatively repetitive otherwise, small steps act as markers that let people see they are making progress. Think of what they will say at home to a spouse or their parents: they got a promotion; their family hears they keep moving up at work. If the only move is from Junior SDR all the way to SDR Manager, with two years between one jump and the next, people will leave. They need something in their line of sight to look toward.

How long for an average performer. One sales manager's answer: like six months per leap, and they try to make the first couple of leaps come faster, because then people get locked in.

Reinforcement loops. The path was designed, reportedly, kind of around loops of reinforcement. Especially when people are newer, the aim is a quick win early, by like week six to 12. Then, drawing on human behavior (this is said to be how you get someone hooked), each loop grows: the second loop can be twice as long as the first, and the third can be triple the length of the first. The gaps between rewards stretch out over time.

The steps are named (junior to SDR; SDR to Senior SDR; Senior SDR to Junior Closer) and given spans in turn:

Order given	Span	The hedge given
First	Six to 12 weeks	maybe
Second	Six, six-ish, six to 12 months	might be
Third	18 to 24, no unit given	might be, "whatever"

The spans are introduced with "each of these", straight after the steps are named.

The summary of how that team runs these moves: title and pay alternate, and cumulative closes drive each step.

10. Beside SOP 134

SOP 134 — Set pay increases says, in its section 6, that as a general rule a teammate typically gets at most a single raise per calendar year, unless a special circumstance, a promotion for instance, applies. The ladder above brings a step in title or pay as often as like every 12 weeks, and some of those steps change pay without any change of title. The paces differ. What each costs: the pace here gives a rep pay changes more than once a year with no promotion, which SOP 134 holds back for special circumstances; the yearly pace leaves a repeated role with long stretches and nothing to look forward to. This page does not settle which reading is right.

11. What this page does not decide for you

• Which illustration of cumulative closes to use. Both are given as examples (section 7).
• The pace. It comes as an improvement like every 12 weeks, as like six months per leap with the first leaps faster, and as loops that stretch each time (sections 6 and 9).
• The unit on the pay figures. This page gives no figure for the currency or period behind the numbers in section 5.
• What to pay in your market. It depends on the market and on the other factors in section 5; this page gives no figure for your market.

12. The checklist

Step	What to do
1	Name which kind of team you have: one that finds its own business, or one you feed with leads
2	For a team that finds its own business, pay pure commission
3	For a team you feed with leads, consider the preference here: half salary, half commission, with the base covering basic needs
4	Give every sales role on-target earnings
5	Set pay by the level of skill the role calls for, and test it: can you draw the talent you need at that price?
6	If you can, pay commission on the cash collected up front
7	Give repeated roles several tiers of title; small pay changes can sit between them
8	Tie each step to cumulative closes, and add small perks with each title
9	Add a manager title if you want one, and do not make it the goal for everyone
10	Treat hitting the target as eligibility for a promotion, not a promise of one
11	Give a first win early; later rewards can come at longer gaps

13. What this page does not cover

Pay for higher-level people is SOP 160 — Build advanced compensation plans, and raises in general are SOP 134 — Set pay increases. Choosing benefits is SOP 159 — Select and roll out employee benefits. Who gets the best leads is section 5 of SOP 168. Finding and hiring more salespeople is SOP 252 — Market for salespeople the way you market for prospects.

Wage law and employment law are not covered on this page.