Top 5 Insights Into the Commission Compensation Market with Spiff CRO and Head of Customer Success

At a family emergency with a death in the family. And so Matt Marshall, who is our CEO of two weeks now, was gracious enough to agree to be a co presenter. So I am going to turn it over to Matt.

Thank you, Carolyn. Good morning, everyone. Thanks for joining us. As Carolyn said, I've been on board for about two and a half weeks, so if there was ever a time to stump the sales guy, that would probably be now. So I'll give it a go. So let's, you know, we're here to talk about five insights in regards to commission. So the first one to talk about was how big a deal commissions really are. The typical SaaS company spends around 8 to 10% of its revenues on commissions. If you factor that across all companies, you're talking about a trillion dollars of money spent on commissions alone. So if you are a salesperson, right, and you see those numbers, you think about a movie. I'm a Movie quote guy, 100%. And next slide. Tanner, you're thinking to yourself, we're going to need a bigger pipeline. So as we get into this, I thought this was really interesting. So the Harvard Business School did a study on the effects of revenue on the top line of a company by getting commission plans.

Right.

So we'll start from left to right. So plan one that had a 21% effect on top line consisted of a salary, a quarterly bonus, an annual bonus, and then two tier accelerators at 1% and 3% versus the base plan. And that had a 21% effect on top line revenue. The second one was a salary, two tier accelerators versus the base plan which had a 15% effect on top line revenue. And then the other two were salary, quarterly bonus and annual bonus, no accelerators. And then the last one was just salary and annual bonus. So by this data you can see the effects that if you get comp plans, right, the effects that it has on your top line revenue can be relatively drastic in a good way. So it's super important that you know, you're taking the time to really try to figure out what are the right accelerators to drive salespeople to get the top line revenue that you want. Now, number two, the reality is you're probably not commissioning, right? Most commission plans are overly complicated and do not drive the right behavior. So if you're familiar with this guy, you're hearing in your head you're doing it all wrong. Everything is wrong. So let's look at some examples of this. And this was stuff that Jason Lemkin had found. So the First I want to do is kind of walk through what a typical big company plan looks like. First factor is a guaranteed competitive base salary. You walk in the door, you're guaranteed that money. Second is the percentages of commissions are relatively low. Typical percentages are 8 to 11% of the first year ACV and in some cases they're less. In a lot of cases there's a relatively high quota. So you don't even make a lot of money on each deal. As a salesperson. And in the early days of building a SaaS company, that can be tough. Right. It's just not overly motivating for salespeople to drive the revenue that you want. The other thing that he found out was there's almost a complete handoff of customers to others. That could be Carolyn. And customer success could be an account management team. But overall, salespeople in general are not incented to stay involved with customers the entire life cycle. The next thing he found was there were a ton of accelerators and decelerators and that's kind of doing that, twisting each dial to figure out how to drive the right behaviors. But what that can lead to are kind of gaming of the comp plans where there'll be behaviors where reps will hold on to revenue for the next quarter and stuff that bigger or they'll drive everything into this quarter to do as much as they can. Um, so the other thing is that there's a, there's always a sense of maybe reps are making too much money, maybe the bar is too low, or maybe both. Right. And by doing that, you know, you can just create some demotivation and aggravation across the sales team. And in general, at big companies, sales are seen as a cost center. It's unfortunate, but it is true. And you want to turn that into a profit center. So let's look at just some typical parts of a big company plan and these are the problems that arise from them. So in most cases, they'll incentivize mediocre reps to stay right. So they are getting a guaranteed income. They don't have to really work that hard to hit it so they don't really try. And again, like we said, there's not a customer centric enough incentive plan for salespeople to stay involved through the entire customer life cycle. And in a lot of cases, the good ones, the reps you want to be making money, that therefore means they're driving revenue. They aren't making enough.

Right.

They see mediocre reps making money and they aren't making what they want to. You really want to have the top 10 to 15% of your reps making money where they can go out and buy an M6 convertible. Right. That incentivizes your entire sales team to kind of aspire to that, but it also drives your top reps to go and make a ton of money, which leads to a ton of revenue for your company. One that is near and dear to my heart. They're way too confusing, right? You have accelerators, you have decelerators, you have all kinds of things trying to figure out how to push the right behaviors. And in the end, like salespeople should not need an abacus and a slide rule to try to figure out how much they're going to make in a quarter because A, it's aggravating and B, it's just super demotivating. And then the other one with the big company is they just don't maximize for the lead itself. Those comp plans are basically designed for large scale sales teams. And as a sales team, you're not geared towards driving the leads that come into your pipeline. And a small company, as you can imagine, those are invaluable. So Lemkin next kind of walk through what he thinks is a better plan and what those should have. Go back one Tanner. So the first really fast is to make sure reps are paid fair and at market wage. You want to have an OTE that's competitive in the market. Again, you really want to make sure that great reps are paid right. They are going to be driven by money and therefore drive revenue into your company. Make sure the bad reps, if you happen to hire any, are incented to leave on their own, you know, and, but make sure salespeople love prospects and customers, but at the same time you don't want to break the bank. And again, simplicity is everything. And I'm getting a time warning. So we're going to move on to the next slide. You know, really fast before I hand it back over to Carolyn is, you know, here's an example of what a better plan could look like. You have a competitive base salary, but the reps cover it. And what does that mean? That means if you're a salesperson, you're not going to make commissions until you sell your base salary. So if your base salary on a monthly basis is $5,000, you would make commissions after $5,000 and one but by doing that, that allows you to pay a much higher percentage of commissions on ACV that drives the right behavior, but it also gives people the ability to make more money. And if you're thinking about like cash in general, your mediocre reps that won there should kind of even everything out. So in the end, if you build it right, you're going to have the same amount of spend as you would if you just had everybody on the same level. One accelerator, right, Cash up front. Right. Always pay more for cash up front. It helps your cash situation and it just drives the right behavior. In some cases, there are options to payment upon receipt of cash versus contract e signing. That can create some angst among salespeople, as you can imagine, but it also encourages them to stay longer term because they'll wait for those commissions. And that is kind of what we feel are great examples of what to do and what not to do. And on that note, I will turn it back over to Carolyn.

Perfect. Thanks, Matt. So let's talk about everybody's favorite 2020 topic, Covid. 80% of the companies out there, the SaaS companies, have made significant adjustments to plans and their expectations as Covid hit. So as you look at this meme, I think every 2020 meme we all can relate to, we're all in that same boat. We thought it was going to be one way. It's been completely different and that's no different for the SaaS space. So the effects of COVID have been varied. While some SaaS companies have seen unprecedented growth, others have experienced significant slowing in sales. Still others have been forced to reduce their team through layoffs. In a recent survey, Spiff conducted in conjunction with our partners at Modern Sales Pro, we sought to understand how the current economic climate has affected sales compensation. So what we did is we surveyed 100 sales professionals to find out how they and their companies were positioned prior to the COVID pandemic, what their initial reactions were to the pandemic, and how they have positioned themselves. Now, as you can see from the results overall, companies went into 2020 with high expectations. How could they not? The economy was booming and sales goals were pretty optimistic. When the pandemic hit, there was an immediate shift in expectation of goal achievement. There was an initial knee jerk reaction from most companies to all the uncertainty that's been swirling around us. And although we are far from normal, and whatever normal is or whatever, however we define that these days, what we are seeing or what the survey is showing is that we are normalizing. So we're rethinking the way we look at sales and sales compensation. So some of the areas in particular where we have seen an adjustment include a focus on more activity based compensation. This is to develop a more robust pipeline. We've seen adjustment in ratios between base and variable compensation and we've also seen a loosening of quotas and quota expectation. There's also been guaranteed compensation to keep teams motivated and experienced reps on the team. The Commission Payout Adjustment as Matt kind of alluded to earlier, some companies are moving for from a commission at contract signing to a commission upon receipt of payment. There's also been a shift that's been very interesting from annual plans to quarterly plans which allow companies to reevaluate the market and readjust some of those sales metrics accordingly in order to motivate sales reps. There's also been the addition of non cash or cash alternative rewards and what we're seeing overall is a much more diverse compensation model. As we look toward 2021 and begin to build compensation models for the next year, we need to include more flexibility. If we have not learned anything else whatsoever from 2020, we need levers that we can adjust up or down, and we need the ability to pivot for unseen challenges and opportunities that lie ahead. And that will make us successful as we try and navigate the unchartered waters that we face in the coming months and the coming year. So I'm going to shift quickly, Tanner, to our fourth point, which is to discuss the gap between genders and commission compensation. So first I want to look at research conducted by Gong IO. They found that men had a 49% likelihood of moving opportunities to the next stage, whereas women in the same role had a 54% likelihood. In addition, the research found that women had a close rate that was on average 11% higher than their male counterparts. The research that GONG conducted is fascinating when juxtaposed with the recent analysis we performed at Spiff, which found that when it comes to commission compensation, men on average are making slightly higher commission than women in an account executive or a closer role, whereas women in a setter role are typically earning higher commission than men. So rather than inferring anything from the data directly, I would like to talk through some thoughts on how we go about bridging the gap. The analysis that I presented is based solely on gender. However, the points I want to discuss should be considered when forming diversity initiatives within each of our organizations. So the first that I want to explore is what are we doing to evaluate hiring practices? How are we ensuring that we are broad, are casting a very broad net and getting a diverse group of applicants? How do we ensure that we do not allow bias to play a factor. Are resumes anonymized so that there is a focus on the most qualified candidate? Are we looking internally and are we promoting our top performers within the organization, regardless of gender, regardless of ethnicity? What percentage of our sales team is comprised of men versus women or one dominant group versus another? What studies have found is when there is a higher concentration of one group within an organization, they get together to play golf, to go to lunch, and do all of those things together. Well, in those moments of being together, they're sharing resources, they're sharing best practices and. And that minority group is at a disadvantage. They don't get shared in those same best practices and the same resources. As we look at territories and regions, which I know can be so tricky, how do you make sure that those are assigned in a manner that is fair? How do you decide who gets the most lucrative region? Are you evaluating regions on a regular basis to make sure that those are realigned and divided fairly amongst the team? Are quotas aligned in a way so that either gender can be successful or either group? Does each sales team member have an equal voice? If a quota is adjusted for one individual on the team or one group on the team because they have a voice and they push back, is that same consideration given for someone who doesn't have a voice and. And didn't push back, Is it a fair level game when it comes to quotas? So as we each build our sales organizations, I hope that we can evaluate these factors as well as many others to ensure that our teams are not only diverse, but are also playing on a level playing field and are compensated equally for equal effort.

Would help if I wasn't on mute. The last one we wanted to walk through was, you know, the immediate visibility factor that drives results. Making commissions real time drives up to a 36% increase in performance of reps, and we're running out of time. So I'll kind of go through this one relatively quick. And, you know, it's not about getting the work done. It's all about visibility, especially for salespeople, as you think about how we are as people. So this slide's a little bit of an eyesore, but it really talks about intrinsic and extrinsic value and what kind of motivates people. The summary of this slide essentially is that intrinsically motivated rewards are more powerful if they happen sooner rather than later. And having visibility into those awards specifically for salespeople so they have something to look at and grasp and chase are going to have the biggest effects on their behaviors and on and ultimately the revenue that they drive. So you want to incent them quicker and get more immediate results as you kind of plan your compensation, but also allow them to see it right. They need.