Erik Charles: 3 Ways to Build a Killer Sales Comp Plan

Welcome to Go to Market, a podcast for RevOps, sales, and marketing leaders to dive deep into industry insights and best practices. Go to Market is sponsored by Fulcast, the go-to-market cloud. My name is Amy Cook. It's a pleasure to introduce you to Eric Charles, who is a true expert in everything go-to-market and a good friend. Eric, how are you today?

Ah, it's a beautiful day. Things are going well. Been talking to 3 or 4 clients already today, and each conversation has ended fairly positive, which is always a victory.

It's always— that's always the win. I love that. Well, thank you so much for having a meeting slash podcast slash conversation with me because ever since we met, I feel like I have been the beneficiary of this relationship. I'm like drinking like a fire hose from you. And so when I started this podcast, I thought, you know, I want to invite all of the best and the brightest. And I just really feel like you are the best and the brightest in many areas. Today, I'm excited about talking to you about comp plans, because one of the things that I find very interesting is that you're a fractional CMO. You're a go-to-market advisor, you're a sales leader, and to be able to have that breadth of experience and understand how the whole go-to-market strategy works from all aspects, I think is really fantastic and a super interesting perspective.

Thank you. I'm very happy to be here. It's really a fun conversation.

Well, thank you so much. All right, well, so let's just kind of like talk about your conversations today. Like, how do you construct a killer comp plan? Let's just start there.

I— it's interesting. I start with the customer, and, and by that I mean the person, not the customer they're selling to, but the person that's hired me to do the design. And I actually have a very early question I ask, because in the smaller companies especially, I'm typically brought in by the CEO. You know, they just want to get more, you know, they've grown out of that path of selling to friends and family or early adopter sales where it's highly evangelical style selling. Hey, you've never heard of me. You've never perhaps even realized there's a solution for this. Please buy from me. You get past that point, you've got, you know, 3 to 5 referenceable customers like, oh, it's time to build a professional sales team. And at some point somebody decides, well, we need a, we need a commission plan for them. And so that's when I come in. And one of the first questions I ask is, let's say it's you, Amy, if your number 1 rep makes more in cash off their commissions this year than you do, what is your reaction?

My reaction is hallelujah. There's lots of sales happening right now.

About 1 in 5 says, oh no, that would be ridiculous. That's a bad plan. Giving too much money away. They're not worth it. And I walk away from the contract.

Interesting. That's like your non-starter.

That is my non-starter. If you're not willing— now, it's not that there aren't bad plans and bad plans that can give away too much money. There are. But if you're not willing to realize that incentive plan drives behavior, and if it drives a lot of behavior, you might sell a ton of product. I don't want to work with you. It just doesn't work. So, so that's where I always start. Then It's interesting. There's a couple of different directions you can go. And early on I had to get away. Luckily, I cut my teeth with a consulting firm right out of college, and I was doing sales incentive pay and executive incentive pay at that firm. And so we would have to look at market. What is the market? How do you decide what is the market on target earnings, salary plus the variable?

Right.

Right. Now that we know that, how much are we willing to pay in variable? And, you know, if it's a man— luckily I start with like manufacturing companies there where there truly is a cost of product development. You know, you can't cut your margin to nothing in commissions, right? But you can't make it up in volume. And I mean, plenty of startups are happy to do that just to buy market share. And there's nothing wrong with that, by the way. That's a great strategy. And I've helped companies build buy market share strategies as well, understanding that sooner or later they would have to tighten it up in other ways.

Right.

But then you go say, all right, if we know that this is how much a rep should be making, a good rep should be making in our industry, in our marketplace, And we know how much of that should be base salary. Is it 60%, 70%, 50%? And how much the leftover should be variable. Great. Do we have a cost of product that we can back into a cost of product and model it? But let's, let's say it's, it's good old software, SaaS software that has no manufacturing cost. Now what do you do? Well, now it gets interesting. How long is the sales cycle? I'll be asking them, what's the sales cycle like? What's your lead flow like? Is the marketing team bringing it in or do they have to hustle their own? Can they sell within the quarter, the next quarter, or sometime this year if all goes well? And then from there, how many deals can they handle at a time? Are these huge in-depth 100-page RFPs or are they a simple solution that's on or off that you can do quickly? Each one of these comes into play in the go-to-market side of things. And what I'm really trying to do is put myself in the shoes of a sales rep. Of what are they going through? And can I handle 5 deals in play at one time, or can I handle 50 deals? Is it— am I really an order taker where inbound calls come in and all I'm doing is getting a credit card number from somebody and turning, flipping a switch? Or do I have to walk them through it? Do I have to, you know, talk to them about what they've got on board? So all of these things are from the complexity of the sales, complexity of the rep. And this isn't just the comp plan. This is also helping them determine who to hire. What type of person? Do you have an onboarding policy? Have you even written up what it takes to sell this? Do you have a recording of you doing the demo? Oh, do you have someone to do demos? Are they going to be sales and sales engineers? Are you going to have engineers beside them?

Wow, this is so many variables. Do you normally, when you get brought into a company, do you normally already have salespeople that you have to create comp plans for, or do you normally work with the executive team to create the comp plan first before you hire?

I've done both, and I wouldn't create the comp plan before I'd hired. First, we create the job description and what the eventual sales organization should look like, say, by the end of 1 to 2 years. Or if you want to think about it, by the end of $1 to $2 million.

Interesting.

You know, so it's like, oh, when you get to this stage, well, you'll need a sales manager and a few reps. And like when I'm advising on that side, I've seen companies make the mistake of they go hire a very senior CRO And then they tell them to go hire 3 reps. And, but we need you to sell before that to get it going. You should know what it takes. And the CRO is like, I don't sell anymore. I've been in management for a decade.

Right.

And you run into that conflict. I usually say, go find yourself a really good first-line sales manager who's run a team of 5 to 10, or maybe a sales director. Although titles mean nothing in sales, as we know, you know, we make them up as we go along. But if they, if they've managed a small team and are willing to carry a bag themselves for a bit while they figure it out and then bring the team on, you'll do really well.

That's great. So let's say that you are at $2 million and you're ready to hire your first sales rep. Would you hire someone a little bit more advanced who maybe has managed a small team before, pay them a little bit higher and build people under them? Yeah. Or would you get somebody just real hungry and young?

I'll take the hungry and young if I'm willing to spend the time working with them because they're going to want to talk to some— they're going to be throwing out questions very— so do you have the time to answer those questions? Because you could do that. You can get somebody hungry and young and just have them be the closer. And I've seen this, like, really good developmental CEOs become the sales engineer for a while, uh-huh. And then that hungry and young person starts closing business, then you teach them to do the demo. And then they start doing it and you're allowed to step back a little bit. And once you've stepped back far enough, you might find that Hungry and Young is ready to test their ability to manage. But realize not all sales reps are good managers. And the number one sales rep does not naturally become the best manager.

That, that makes a lot of sense because I would imagine that there are different skill sets.

Very different skill sets. If you're in a large company, a simple rule is You want to promote somebody who's above the median.

Mm-hmm.

But if you had the choice between two people, one person that brought in a ton of revenue, but another person who had sold every product in the company catalog, I'll take the one that sells every product in the company catalog.

I see.

I have proven this through data and actually Alan Benson up at the Carlson School of Management did the work. I was a very light collaborator with him on that project. And that's what he said. It's like, actually, the person that sells the catalog gets more performance out of the team they manage than just the number one sales rep who went there just by selling a single product.

That makes a lot of sense because then you have a little bit more breadth to advise the team and you know enough to guide.

And I hypothesize you also are the person that goes around asking questions. Pulls a Ted Lasso, be inquisitive.

Uh-huh.

And those people are walking around the office and they know people from engineering, they know people from support, they know. People from product development and product marketing. And so they've talked to all those people and that's how they're able to sell all those products. It's a different personality type versus I'm just an amazing hard charger. I can walk through walls and close business.

That is so interesting. I totally agree with that. So at what point is it time to hire a CRO that doesn't sell?

That's an interesting one. Usually when you're a lot larger and what you're starting to do is you're having to balance your sales territories. You've got quota setting challenges. You might manage— you've got a fully built out SDR, BDR, ADR team, whatever you want to call them this week, inside sales reps, field sales reps, all of that. And you need someone who is keeping an eye on all those different teams while still keeping an eye on the forecast and the quarterly numbers.

That makes sense. So does your comp plan change over time? You mentioned that at some point you want to give away some things, you want to buy some market share, and your comp plan would reflect that in the beginning, correct?

Right, right. Like, you might pay just a flat amount for bringing me logos instead of a percentage of the revenue. Just say, hey, look, as long as this is the minimum size company we'll do business with, if you can sell it and I have the right to put their logo up on a PowerPoint slide or on our website or on a banner at a trade show, go, go, go, go, go.

Mm. I love that.

You know, and then later you go, oof, now we need to start growing revenue. The board's really happy. We've got 100 clients or whatever it is. Now we need to actually bring in larger deals. So suddenly we go from a flat amount regardless of the logo, and maybe somewhere in between you went from a flat amount plus a percentage of the revenue. Then you go on to just a percentage of the revenue. And after that, you start looking at a percentage of the revenue and say, oh, but we want multi-year deals. Or want pay up front, or we want you to build in an inflation adjuster in the contract for price changes every year, or we want you to sell additional products into that client because product just spent a bunch of time creating product number 2, still sell product number 1, but we have to test the market for product number 2. So I'm going to pay you a lot more if you sell both into the account instead of just one. So each one changes the company strategy. Company's up against. And the idea of building a plan in Q4 that triggers in Q1 and not touching it for another 12 months is insane. The market does not operate on a calendar. Well, I mean, there are markets that operate on the calendar, but your business challenges do not pay any attention to what month it is. They will just suddenly pop up and you need to change, you need to adjust.

Oh, now that's very interesting. So I'm assuming that from the way that you're talking about it, most salespeople are used to having their comp plans changed over time. Is that right?

They're used to once a year changes.

Okay.

Adjustments mid-year can be dangerous and you have to be very careful about doing them. And this is where you run into one of Eric's rules, which is the first sale is to the sales rep. Hmm.

Yes.

Hey, I've got an amazing opportunity for you to make some coin.

Uh-huh.

That's your first sales pitch. And your second one is, and this is why the territory I'm assigning to you— territory could be geographic, it could be a vertical market, it could be, you know, a variety of things. It could be a part of the market, SMB, mid-market, enterprise. So after you've convinced them the plan is good, you got to convince them that their territory is amazing.

What happens if people are not very happy with their territory?

You don't, obviously didn't have enough data put together to sell it to them.

Yeah. Do you have to go back and like try to convince them or do you make changes if they push back hard enough?

Well, you should walk in with enough data that says, hold it, marketing's done their work. They've looked at our TAM and they've looked at the type of companies in the territory I've given you. We already have 3 clients. Let's say in a perfect world, we've already got 3 referenceable clients in your patch. Matter of fact, you're going to become their besties. Matter of fact, here's $500 to send each one of their champions a present from you in advance before you start asking them to take another call. Great. Now here's the first 20 accounts we've already identified. Matter of fact, we've got some intent data coming out of our systems tracking these guys are actually hitting our website or hitting the websites of our competitors right now. So I promise they're there. And by the way, here's all the companies that we also think might be good buyers for us in your territory. And you show them all the research you hopefully did when you decided to expand into that territory, hired additional rep, or carve it up that way.

Sell it to the rep. That makes sense. One of the things that I love about you, like I mentioned before, is that you have such a broad perspective and you understand that marketing is responsible in large part for selling that. In many companies, marketing doesn't engage. Marketing is seen as a flow-down-the-stream type of activity, and that sales strategy and RevOps are responsible more for the TAM. What's the right way to do that?

It's classic teamwork. Marketing should sit next to the bullpen. I mean, if you want to have product marketing sit next to engineering, I get that.

Mm-hmm.

But the rest of your marketing team, if you're in an open office and you got rows of desks, marketing should be right nearby, right? Because one, they'll just hear what your pitch is over the phone, or they'll hear you muttering about something. Make them part of the conversation. You cannot keep them separated. Marketing should sit on sales calls.

I love this so much. It's just music to my ears. In one of the companies I worked at many years ago, I went so hard to try to get the target list, and this seems like so obvious, right? But the sales leader saw my job as, quote, make things look pretty. And as hard as I could try, I could not get him to give me the target list from the sales team. I don't know why, but he clearly didn't understand the collaborative nature of going to market. And so That and another million experiences over time is what actually made me want to really go deep into what Fulcast offers, because that collaboration that you're talking about is so incredibly important. And getting back to the sales comp plans, I love that you're bringing it all together, that it's all related. The first sale on your comp plan is to the sales rep. The second thing you got to do is sell in the territory. And then what's the third thing you got to do?

So once you've got all that, you've got to make it easy to understand. And it's a dangerous thing to say because I get the, oh, so sales reps are dumb. It's like, no.

Yeah.

But one of the tests I like to do with some clients is walk into the bullpen and I'll have the CEO with me and I'll just look at a rep and say, hey, I'm under NDA. What's top deal in your pipeline?

Mm-hmm.

Cook Incorporated. Cool. How much is it? What's the, what do you think you're gonna do? We're pitching a $250,000 project with an automatic renewal for 3 years, $50,000 in implementation fees, right? How much will you make if you close that this month? If they can't easily answer that question, you're wasting incentive dollars.

Wow. What a great—

it doesn't have to be directly on, but they've gotta say, well, I'm gonna make 10% off of the rev. Actually, I'm gonna make 5% off the rev, but then it's gonna put me out of a quota for the second half of the rev. I'm gonna be making 10% off of that. So You know, blended will probably be about an 8% of the total revenue. I get a flat 3% on services, but I get a kicker of $1,000 if I sign a 3-year deal with a built-in inflation adjustment. So that's where I am.

They should be able to just clearly articulate that. Actually, one of my personal opinions, and maybe it's a controversial opinion, is that it is harder to be simple than it is to be complex.

Absolutely. It's really, really difficult because the desire to keep on putting things in there, because what happens is, and I actually run this as a workshop, so I do design workshops with companies and I usually tell people, it's like, here's what I need. We're gonna go all day. We'll stop for lunch. We'll put a 2-hour lunch in there so everybody can run off and do their emails and check on things. We're gonna go, let's call it all day, and we're gonna start by just putting up a grid. We're gonna play brainstorm. What is everything that matters this year for the company? How would we measure that? The second thing is, how do we measure that? Because there might be something important like, hey, we wanna improve our standing in the Gartner Magic Quadrant. Well, unless you switch from one grid to another, improve your standing is really fuzzy. You know, I mean, Gartner even tells you you're not supposed to pull up a ruler and see how far you moved on the grid. So they get They get testy about that. So how can we measure it? Which is why, by the way, you need finance, you need rev-op sitting in the room. You also need marketing and a few others. So you, you put all this together and then I'll just say we're gonna do a ranking. Every person is gonna rank all those and I'll sometimes have them do it separately and hand it to me. Everybody go get your coffee and go spend 30 minutes doing the emails and phone calls. And I try to build all those in. It's the only way to keep their attention.

Right.

And I just run the math. I said, based on this, these are the 3 measures that we should be putting into the sales plan. It's not everything. It can't be everything. These are the 3. And I stop at 3. You cannot have more than 3 measures. And if any measure is less than 10% of the check, it's worthless. It's lost. It's forgotten.

Interesting.

So the reason why 3 matters is it's just how many things we can focus on. And before people say, I can focus on 20 measures, it's like, do you turn down the radio when you're looking for an address? We all do. Everybody.

That's right.

Because your brain is trying to read, drive, and the radio is one more distraction. They've actually done experiments on this.

That's so interesting. You know, another case in point is my kids make fun of me all the time because anytime I go, mm-hmm, they're like, she's not listening.

Oh, so your kids have your tells. They know your tell of faking attention.

Yeah. And sometimes they'll ask me questions. They sometimes they'll ask me for things that I normally would say no to, but because I've done that, then they'll be like, hey mom, can I go to the mall and spend $50? Mm-hmm. Okay, thanks. Bye.

We should play poker together.

That's right.

No, my problem is I'm overly expressive. So people are like, which one of the 25 things he's put into his eyes and his face and his hand movements should I be reading? It's something that saves me a little bit of money. But no, the rule of 3 is so important just to keep it clean and simple. Once you get too many measures, nobody hits all of their numbers. And so they start cherry picking the ones they know they can achieve. And you get this weird behavior from your sales team chasing things.

Wow, this is so, so good and insightful. Do you have any strongly held opinions that might be controversial in nature?

There's a lot of ones that I talk to people about. I like to say that incentive plans are amoral. You get what you incentivize. But the bigger one is if you go and ask people what percentage of their reps should hit quota, you will hear around 60% to 65% is the answer from industry experts, from companies. It is this known rule of thumb. If any other department in your company consistently gets a D— I live on a college campus, I teach.

If I expect only 65% of my students to pass, you're a failure as a teacher.

I think I consider yourself to be a failure.

Yeah.

Now, I know companies do this because they over and they assume and they make all these assumptions, so they target 65% of people hit goal. And so they overquote and they overgoal and they churn and burn and they spend time, by the way, on hiring and recruiting and replacing. I think we treat sales too much as an interchangeable widget and we don't look at the cost of constant turnover. Sales reps hit their stride at a lot of companies in 3 to 5 years. If you sell a complex product line, the simpler the product line, they'll hit their stride faster.

Mm-hmm.

But then they're on it.

Yeah.

You could, I was gonna say just be selling cars. That's not even fair cuz even car salesmen have got a bunch of complex moving parts they've gotta play with. But whatever you want to consider what should be a fairly clean sale, it still takes time to hit your stride. Recruiters don't work for free, whether they are internal or external. And then by the way, also each time you bring in a rep, you're putting them in a territory and you're burning the Glengarry leads. If they're not good.

Well, and then I— what comes top of mind to me is that the average tenure of a salesperson is less than the 3 to 5 years.

You nailed it. So they leave about the time they get good.

Yeah. And I'm imagining part of it's their comp plan.

Right, right. I'm not going to hit my quota ever again. Matter of fact, reps that are the number one rep have a good chance of not being there the next year because they might have just nailed a bluebird that came in. And then they realize, I'm never going to get to make this again at this company. Matter of fact, they're probably going to cut my territory in half and double my quota. And they start interviewing.

Oh, that's so interesting. And that is the opposite of what we want to incentivize.

You don't do that to your engineers. You don't do that to marketing. You don't do that to HR. You don't do that to finance. Yeah, long-term employees have a lot of value. Yes, good sales reps who continue to grow with the company have a lot of value as well. I just think the whole quota-setting mentality in companies is broken.

Yes, absolutely. Well, obviously, Eric, I wish we had 5 more hours because— and hopefully you'll come back and talk more about this because this is so good. But clearly you're at the top of your game in marketing, sales, and RevOps. How do you stay there? What do you do that keeps you at the top of your game?

I go to conferences. I go to a variety of conferences. I read constantly on the subject, anything surrounding the space. And I leave myself open to be told I'm wrong. My biggest fear is I try to coast off of stale knowledge. The biggest one is I work with a lot of academics. I'm actually doing some research and pursuing a PhD on the side, but I love—

In all of your spare time.

Yeah. I go to an academic conference that takes place every other year. It's 50% academics, 50% operators, people out in the field. And it's awesome because the faculty present research and I'm invited to show up and basically critique their approach.

I love it.

Did you look at this factor? Did you look at this factor? And it just gets my brain going again and again and again.

Well, I think that's so insightful because I'm also an academician like yourself, and my PhD is in organizational communication. And there were not very many people. In fact, when I decided to go into the private sector, there was a lot of people looking at me over their glasses going, you, you traitor, you know. And I think that that's very interesting because there is still a chasm and a divide. So the fact that you're able to bring those things together, pull the best of academics and the best of real-world knowledge together, that's where we're really going to learn. So that's really exciting, and I totally concur with that. The moment that you start relying on stale knowledge, you're dead in the water.

Yeah, yeah. People can smell it.

They sure can.

And the market changes. The market's constantly changing.

That's right. Wow. So it's so great. Eric, will you please come back again and talk to us more about your vast knowledge?

I would love to. I would love to.

Thank you so, so much. What a pleasure it is to be able to chat with you and really appreciate your time.

You got it. Have a great day.

You too. Yes, that's business. Business. Yes, that's business.