E29: Mastering Sales Commission Plans with QuotaPath's Ryan Milligan

Hello and welcome to the Revenue Leadership Podcast by Topline. I'm your host, Kyle Norton, CRO at Owner.com, and every Wednesday we dive deep into the strategies and tactics being used to drive success by the best revenue leaders in the world. So join me as I sit down with revenue operators to discuss actionable frameworks that you can implement in your business today with no fluff, no sales pitches, and no platitudes.

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Today's guest is Ryan Milligan, who is the VP of Sales, Marketing, and RevOps at QuotaPath. And Ryan has an unconventional background coming from data science, then marketing, then RevOps, and finally now into sales and revenue leadership. He spent a bunch of years at Homebase, which has gone on a pretty great run. Over the last 5-ish years before taking a role running RevOps at QuotaPath where he is now 4 years ago. And then finally, his turn to the dark side into sales leadership was a little under 2 years ago. And he's the perfect guy to talk about commission planning. It's a topic that I've been eager to dig into for a while now. And QuotaPath is obviously one of the premier commission planning tools out there. Ryan has been a RevOps leader and has built plans for QuotaPath itself. He was like the key consultant for a bunch of QuotaPath's customers, and he's seen it from a whole bunch of angles. So I'm really excited to dive into all things commission planning with you and appreciate you joining, Ryan.

Thank you so much for having me, Kyle. I'm really excited.

And I forgot your most impressive accolade, the 2024 Startup CRO of the Year Award. Thanks to our friend at Pavilion.

Yeah, you can see the guitar right behind me. It's—

Oh, that's the guitar.

It's a conversation starter on a lot of demos. So I love it.

There you go. So the topic for today is commission planning. We're going to go deep on how to think about what makes a great plan, how should we build them, how should we roll them out, communicate. And we want to get way into the weeds and really unpack what you have seen working with tens, if not hundreds of people on their own plans and really break into it. So warm-up question before we dive in, why go into sales? You were a RevOps guy and you have the data science and marketing background. How'd you get roped into this?

So it's really interesting. RevOps is the primary buyer of QuotaPath. So a director of RevOps is the most common person to show up at our front door and look for a demo. And we had a former leader of sales and service decide, hey, I'm really interested in doing more consulting work. And so presented an opportunity in sales and marketing leadership here at QuotaPath. And I threw my hat in the ring because I said, hey, look, like I know the product and more specifically the pain really, really well. I used to pay commissions for a team of 30. It's a very painful process in Excel. And I can take some of the operational rigor of RevOps and pair it with the art of the sale. In order to be a pretty effective and efficient team. So I'm pretty chatty on LinkedIn about how I think RevOps is a good path to CRO. We can talk about that another time. I think more and more RevOps people are going to want to throw their hat in the ring and figure this is a really good stepping stone into sales leadership with a CEO like AJ who's run high-performing sales teams before, selling a product that the truth is I know a lot about. Um, and that's, those have both been kind of, uh, impetuses for, for my success in the role for sure.

And so do you think the path from RevOps leader to CRO is, it requires being in a company where the RevOps is the buyer? Like, do you think a, a RevOps leader could go be the CRO selling dev tools or, uh, marketing solutions, or is, or is it unique in that, in category?

I think it's definitely easier if the RevOps is the buyer. And the truth is, I don't think it's going to be easy for someone to go from RevOps at one company to CRO at another. It's very much a contextual upward momentum for sure. And so I think that it was just a unique opportunity for me. But yeah, I really, I feel like you do have to know the product cold. And you have to figure out what you can do and bring to the equation that your sales team can't today. And really, I mean, it's, it's a whole diversity of thought argument, right? I'm a very mathematical, analytical, pressure test the state of ops kind of person paired with sellers who have the creativity and the optimism that I sometimes lack as like a hyper-pragmatist. And so that those two things together really make us successful. and you can kind of meet in the middle in a way that's effective.

Okay, cool. Makes a ton of sense. All right, let's launch into the topic du jour. So sales commission strategy, sales comp strategy. Um, actually, before we jump in, where you've seen it be really successful, what is the balance between ownership being in a compensation and benefits team or just like generally held by HR versus like how much should a, should a sales leader run point on this or RevOps? Like, whoa, just talk about ownership first.

So in terms of design, the most successful outcome for design is the kind of triangle of influence of commissions, which is finance, sales, and RevOps working together to build a comp plan. Uh, you have to have all three people at the table and you have to have those three people know that everybody has positive intent and there's not sales versus finance in this sort of thing. I think a lot of people assume that those two people are warring when they actually aren't. They both just want the company to grow effectively and efficiently. And so, yeah, the best teams that I've worked with are showing up to our front door with finance really interested in cash protection and preservation really of the business, sales interested in best motivating their sellers and driving high rep retention, and ops looking to administer these plans in a way that's easy to understand and interpret and scalable as the team balloons.

So HR nowhere in that triangle.

So, I mean, it's interesting. There are teams that have commissions more dedicated, like commissions analyst orgs. They're definitely valuable. I think for us, a completely separate commissions analyst org sometimes has a hard time pulling in those stakeholders. Uh, and you can oftentimes swap out kind of the commissions analyst org with the, with the rev ops org as, as, as businesses grow. But the sweet spot for us has really been those 3 teams working together because if commissions is an entirely separate unit of the business, oftentimes it lacks the, the context about how the rest of the org works and how rep motivation really works. And so the commissions teams are the ones who have to spend a lot of their time interviewing the reps themselves, uh, to make sure that they know what motivates them effectively.

And how much does the sales leader need to be educated on this? Like, how deep do you think a CRO needs to go on the psychology of commission plan building and, uh, comp strategy? Like, how much time should they be spending there?

I think it's a really, really underrated thing for them to spend a lot of time understanding because at the end of the day, the seller is oftentimes, you know, mainly motivated by cash outcomes. Now, now different sellers are motivated differently, obviously, and you can talk all about that, but a lot of sellers, you have to understand your seller's motivation explicitly. A lot of them are trying to optimize cash. And if you don't know what motivates your seller and you don't know how to best use the comp plan to drive that outcome, you're going to find yourself having a bunch of surprise turnover from your reps, which you certainly don't want. So I mean, I think it's a place that a sales leader should be spending more time than they think, understanding the psych and the mechanics, and then understanding how the finance leader sees commissions. Like, being able to make that case is really massively important.

Are there books or papers that you direct people to if they're like, oh man, I don't really know much about the psychology of motivation and like I want to get schooled on it. Where would you send people?

You know, Pavilion's got a great CRO school about this and we run a bunch of classes there within the school. That's where I tend to send a lot of people. It's tricky though because there's not, it's not like there's a class on in a lot of places, or it's not like a seller is taught how to build a really effective comp plan. And so the Pavilion CR school does a really good job of walking through some of the mechanics and the motivation as well. That's where, that's where I tend to send people.

The first thing my brain goes to is ask ChatGPT, like what if, you know, if I'm a sales leader trying to figure out How to understand motivation psychology around commission planning. Like, what are the books and papers you would tell me to read?

I'll run that after this and we'll see what we'll see and maybe put it in the show notes because, you know, and, and, uh, and we spend a lot of time researching, uh, and, and presenting reports on state of comp in the market. That's something my team on the, on the marketing hat side of the house spends a lot of time releasing about. We interview a lot of our reps. And so I actually, I get a lot of my research from users of QuotaPath, honestly. We survey thousands of them every year to ask how are they motivated? What do they care about? Do they like their comp plan? Why do they like it? And so we release a lot of data ourselves as well.

Yeah, that makes sense. I remember back in the day I read a bunch of like the underlying psychology of, of, of behavior because it's, it actually is so counterintuitive. We assume that it's pretty straightforward, but I think anybody who's run sales teams for a long time has been surprised by the second order effects of their comp plan.

Oh, for sure. Especially, you have comp plans that reward the wrong behavior and don't motivate the seller to deliver revenue that's great for the business. I have walked so many people through the traps of their comp plans before in ways in which, you know, there are some instances in which a rep makes more money for selling a deal that's worse for the business, which we can talk about in a minute. And so you have to make sure that the comp plan itself is driving a seller to close more revenue. That's better for the business. That's kind of the whole mantra, which I'm excited to dive into.

Okay, let's hop into objectives and then I want to come back to the failure modes that you're teasing there. So what does a great plan accomplish? Like, what are we supposed to be optimizing for?

So a couple of things. First, a great comp plan is incredibly easy to explain. I call it the grandma test. A rep should be able to go to their grandma and say, hey, these are the ways in which I earn variable compensation in 2 sentences, 3 max. Second is it is very much aligned with the core metric that the business has to move this year. So the example I give a lot is gross revenue retention. Let's say you're a business that's struggling with gross revenue retention. Everybody from marketing, BDRs, reps, reps, account managers, uh, sales engineers, everybody variably comped should win if they source, close, expand revenue that is believed to improve the gross revenue retention of the business. Signing longer-term contracts, uh, converting short-term to long-term contracts, driving multi-product adoption because we think that's going to be good for the long term, whatever the the layered mechanics are, but the truth is the comp plan has to reward people for delivering revenue that's great for the business. So simple to explain, uh, motivating the right behavior for the business. And then the third is feeling achievable. And I think that's what a lot of people miss. Uh, you have to walk a rep through, and, and the, the litmus test is, would I want this comp And there have been a couple of times where I've consulted people and I said, okay, before you walk me through it, if I hired you for this job, would you like this comp plan and how would you hit this plan? The number of people who can't explain that, who can't tell me, okay, I'd have to run, you know, uh, 30 demos a month, uh, with a $10K ACV with a 25% close rate to hit this number. Like if you haven't done all of that up funnel stuff and you just hand a rep and $175K quarterly quota, you're doing a massive disservice because they're panicking about how are they going to hit this number when you have to chop it into these like discrete units of measure. Hey, if you're not running 5 demos a week, there's no chance you're going to hit this $175K quota. Yeah.

And a bad comp plan will send a sales org into a frenzy and you'll lose people for, you'll lose people for like weeks. Basically and dealing with complaints and this and that. We, we made a pretty drastic change to our comp plan in July. We moved from, from measuring people on close one revenue to launched revenue because we really wanted to like tie them more closely to, uh, to launch SMB business, high, high velocity. So, um, that pay point only gets moved out by between like 4 and 14 days, which is, which is manageable. And we got action right away. Like people started to understand what that meant for them and it made an incredible difference on the business. Like deal quality, the early churn rates, like everything got better at that point. It was really exciting, but that could have gone wrong in 100 different ways.

Oh, totally. You could have people Uh, if you had it and there's an enablement piece too, right? Like this is the comp plan paired with how you'd be successful, but you could run the example where people are trying to speed up launches or, uh, you know, trick people into, into launch go live. Now you have the, you have the set of parameters to have that not happen. But if you just let the person loose with, hey, now it's launch date, you could find yourself rewarding bad behavior if you don't pair it with the structural and like, um, integral enablement for them to be successful in that new plan.

Yeah. Yeah. We'll come back to that. So objectives, ensuring that it aligns to high quality revenue. It's tied to a core metric that the business cares about. Easy to explain, achievable, motivating. The one thing that I've always added to my comp philosophy here, and I can't remember if this is from Sales Acceleration Formula. I forget who I'm stealing from. but like, it has to be fair for the customer, the rep, and the business. And I think this is sometimes something that gets missed is, you over-rotate one way or the other, you know? And, and I, when I explain comp plans to reps, this is one of the, this is one of the important things I, I'm like leaning into. It's like, look, it has to be fair. Like, is this plan fair for the business? You get paid and the business doesn't, doesn't profit from it. Nah, that's not super fair. Or if you do a bunch of stuff and like the business, is getting all these great outcomes and you're shortchanged or paid on some weird other timeline, like also not fair to the individual. I think like fairness is one of the things that I squeeze in there as like a pillar.

Yeah, it's a classic explainer. I mean, look, our team was 100% plus blended attainment all 4 quarters last year. So naturally, uh, we raised quotas because, and I asked the question to my reps, I'm like, hey, there's two paths here. Our number is going to go up, right? We had a banner year last year and born naturally was like, hey, I think we can drive up performance. And so naturally quota was going to go up. And I told the reps, hey, there's two ways you do this. I either hire more people or I raise your quotas. You guessed it. Every single rep said, raise my quotas. Like put it on my back, coach kind of thing. And I raised OTEs and bases and raised quotas simultaneously. And part of that fairness conversation is, okay, I'd love to pay you a 30% commission rate on a deal because I like you and I want you to make a lot of money. But if I pay you a 30% commission rate, this business ceases to exist because we've lost all the money that we have. And so setting up that framework is, is super important in the conversation of, yeah, I'd love to pay you more money, but this is the parameter that makes you a lot of money, makes the business a lot of money. And lets us be sustainable. It's the same kind of thing with headcount growth. Like, you do it in a way that is good for the org and good for the customer as well.

When do you pair a quota increase with an OTE increase versus when do you just increase quotas without the OTE increasing?

I tend to do both simultaneously. I think that you do the same thing, fair, win-win for both parties. we do 50/50 splits here, like most teams, uh, that I talk to do. And so you are bringing down effective commission rate, but you're softening the blow, uh, if you're raising bases as well, uh, as you experiment with that like liminal point or that kind of flexibility point. So I tend to like the, and I talk to a lot of sales leaders about this too, like, what do you recommend? I tend to like to do them at the same time. If you want to invest in these sellers being the kind of future of the org. That's, that's always been my take. But naturally you're going to raise the quota more than you're going to raise the OT relatively and bring and shave down the, the commission rate over time.

Yeah. Yeah, that makes sense.

Yeah.

I mean, there's, it's, there's so much pressure as you graduate from Series A to B to C for LTV CAC to improve and sales and marketing efficiency to improve, that that can be challenging to do much of the time. That's an interesting framework. Okay. One more question before we get into actual plan design. Who in your mind should be on a comp plan? So like BDR and AE is pretty, pretty obvious. Account managers with quota. Yeah. Like most of the time, but like, CSM, solutions engineering, like what, like who in an org do you generally say should be on a variable comp plan?

So every single person at QuotaPath's on a comp plan. Um, that's just, that might just be dogfooding our product, but every single person on QuotaPath's on a comp plan.

And it's a question.

Yes, everybody, every single person earns variable comp in some capacity. Um, now it's a scope of control question. Like product people are 90/10 or. you know, uh, 92/8 versus 50/50. So as you get further away from revenue, you, your base variable rate naturally shifts because you have less control. Uh, but I would argue that, you know, there's, there's no reason that every person in the org shouldn't be, all our engineers are on variable comp plans because you want them to care about the revenue performance of the business. And, you know, two, it lets engineers dogfood the product and find bugs if there are any, you know, like there's, there's some like those are big, uh, wins there for sure, but it gets them to understand just in a business more generally, you know, it ties their performance to the revenue shape of the business. And if this business doesn't succeed, I'm not going to pay out your full on-target earnings because the business isn't succeeding. I mean, it's the same thing you talked about fairness before. Your on-target earnings to me are unlocked as a function of how well this business does. Now, AEs are deals they close, BDRs are deals they've sourced, engineers are revenue growth or growth of a North Star metric of a business, which is way less in their day-to-day control. But I see no reason that everyone in an org shouldn't be on a variable comp plan. And the one that I have a kind of alternative take on is CS. In zero interest rate market, you saw this bifurcation of AM and CS. CS was always billed as, hey, I'm here to be your support person, uh, I'm not financially motivated by how things go. I kind of— your, your good cop, bad cop sort of model. Look, the truth is they're measured on the revenue performance of the business, so why not give them some ownership of that, in my opinion? And I think great CS is interested in, in driving renewals and driving adoption. And if they get customers to love your products, but they don't drive high retention rate, well then how much did the customer love the product in the first place?

Yeah, it's the question is always how much control did they have? Because being a CSM at a company with an awesome product, pretty sweet.

Yeah.

You know, being a CSM at a company with a, with like an underperforming product. No amount of heroics can make them good at their job. They're, they're just hamstrung by, by the solution. And so, or yeah, I guess just like as a principle, you're saying everybody's tied to the, to the business. The, the thought going through my mind is how do you pay a CSM for their incremental behavioral or performance output above a standard CSM? Like I always think, I always come back to, to WARP, like wins over replacement.

Yeah.

When I think about reps and like SPFs, I, I, something I say to my managers is like, you know, your SPF has to drive some WARP. Like don't just SPF them on something that like they're already gonna be doing. SPF them on something that's like truly incremental. And for CS, I think that, that part's tricky.

Yeah, it depends on what exactly their role entails. Like if their role truly is, I'm managing a customer relationship and then anytime commercials come up, I'm pulling in an AM or an AE to like have the tough, like the cash conversation. And I'm here answering support tickets. You know, maybe it's like a, it's more of a team-based goal or like it's very minimal or you treat them kind of like you would an engineer or a PM. In their variable comp or it's a very small percentage of their take-home. I do, I am seeing more and more orgs go back to combining, uh, AM and CS into one like post-sale revenue management style role. And for those, you're seeing a lot of gross revenue retention and upsell-based quotas as well.

Individual in their book, not, not a team goal.

In their book. Yeah. In their book.

Interesting.

Cool.

All right, let's get into the big meat, which is how the hell do you design a good comp plan? So when somebody sits down with you, they're like not very well versed in building commission plans, and you're just trying to explain the broad strokes, lay of the land. How do you walk them through how they should start thinking about this problem set?

Yeah, so, uh, first question I always ask is, what does this business have to do to be successful this year? You're growing from $2 million to $5 million in ARR. I have a lot of early stage conversations. You're growing from $100K to $1 million in ARR, right? Wherever you are in your journey, you have a revenue plan. You've told your board, your investors, hey, we're gonna drive this much lift in gross revenue retention, or we're gonna move to the enterprise to double our ACVs. We have something that is going to need to be moved in order for this business to be successful? Let's write that down. And then let's make sure that when we build the comp plans, that every single person is rewarded above warp, right? For like what they're doing incrementally to drive— let's take GRR as an example, the improvement in GRR for the business. And then on a role-by-role basis, you're laying out what are the roles and responsibilities of of this role and what is a way to quantitatively measure them. For BDRs, it's demos set or booked or held paired with some sort of quality metric like closed won revenue or something after the fact that measures the quality for them. You know, your sales team, it's closed won new business. For account management, it's, you know, uh, gross revenue retention paired with expansion. You kind of have What are their jobs to be done? I spend a lot of time talking about jobs to be done. What are the rules of engagement within the org? And what can each team member be measured on? Uh, and then from there, you're doing two things. One, you're setting what's the total team revenue for each of these teams that you have, or, or what does it mean to be successful? So how many demos does this BDR team have to book this year and how much revenue has to come from those? How, how much new business is in our revenue plan? And then how do we build quotas that have enough coverage? So typically, you know, roughly my rule of thumb is always anywhere between 80 and 90% attainment of quota is revenue plan. So you have some coverage. How do you have enough coverage to then divvy up the quotas between the team members and build the accelerators on, you know, both vertical quota attainment, but also deal parameters so that you have 1 or 2 accelerators on a deal that point a rep to what am I supposed to do? The comp plan is supposed to tell a seller— let's take a new business seller, for example— the comp plan is supposed to tell the seller what great looks like and the parameters.

That's a good line.

The parameters of the deal that are great. Because if you don't tell the rep what great looks like and they have a, let's say they have a $500K Or let's see, like a $250K quarterly quota. Let's say they have a $250K quarterly quota. There's 1,000 different ways they could get there. They could close one $250,000 deal or they could close 251K deals, right? And your business probably wants them to close that one big deal, maybe, uh, because it's easier to manage or what have you. So the comp plan is supposed to tell them what great looks like. And the parameters of a deal that are great. So they spend more of their time closing those great deals.

Hmm. And so what are the criteria of a great deal that you would tell people to think through?

So you think about the metrics of the business that you've decided what your metric is, and then you think about the, yeah, the kind of different shapes of the relationship. So one is contractual. The length of the deal, how long are they committed for, the payment terms of the deal, if you're focused really heavily on cash flow, the— and then you think about the kind of parameters of the customer. Is there a target customer that you want in a certain industry, a certain vertical? Are there things about the buyer that you care a lot about and want to have happen? And then the third thing you think about is their relationship with your product. Is there a certain new SKU you want to sell? Is multi-product really beneficial for you? And so what I typically do, and as, as orgs get more advanced with this, and we did this with our own business, hey, go build a logistic regression. Let's say GRR is your big metric. Look at every customer you've signed. Look at all the characteristics of that customer when they signed. What are the metric? What are the variables that pop? In predicting the likelihood they're going to renew in 2 years. And still—

expand, really. Sorry, renew and expand, really.

And expand. Yeah. And so what are those variables that dictate that they're a great fit customer for you for a long time, or that they're truly ICP? And how do you reward a seller? Well, one, how do you reward marketing to generate more of that pipeline, BDR to generate demos, then the seller to bring on more of those customers? And so effectively what you're trying to do is use your comp plan to change the shape of your revenue. And that's what we've spent a lot of time on with customers.

Okay. Um, and how many of the, like, cause I, I see a lot of the time the problem is a comp plan gets, fails the grandma test. You start adding, okay, it's like multiple products and term length and you get a bonus for cash up front, blah, blah, blah.

And then.

You know, a rep doesn't, you know, like every time you're writing a proposal, you're like cross-referencing your comp plan with a proposal and you end up getting this like paralysis. How many of these criteria can be baked into a comp plan before it starts to like get watered down?

We call it a pizza topping rule. It's like 2 to 3. Uh, you know, you never want more than 2 to 3 toppings on a pizza. And what I'd rather have you do, honestly, a lot of this is, is it's a less is more sort of thing. Where I tend to think, because if you do too many, you're going to give a point or two on everyone. So let's say your base commission rate's 10%, I'll give you 2% for a 2-year deal, then I'll give you another 2% if it's an ICP customer, and then another 2% if it's cash up front. And ultimately what happens is the impact of that gets muted. I would rather you pick one thing that is amazing for this business and pay the full 6 on that thing. Than kind of divvy up these rewards between these onesies, twosies that mute the impact. So like some of the greatest conflicts I've seen are this is the one parameter this quarter we care a lot about of the revenue of this business. Like we're going to shift all our contracts from 1-year to 2-year. So you get an extra 6 points. You get a crazy high commission rate if you sign 2-year deals. And then you enable the rep to sell more 2-year deals and you watch the shape of the revenue shift. And then once they've gotten that muscle built, all of a sudden they're basically only selling 2-year deals because they've been— the comp plan rewarded that. Now from the— from your work perspective, now everybody's only selling 2-year deals. So I'm going to lessen the impact of that accelerator and pop a new one on for the next quarter. And that's what great comp plans are doing. They're changing. They're rewarding you for going outside your comfort zone until that becomes normalcy for you. And then that's just built in. And now what's the next thing I can drive you to do more of?

Okay. Rewarding you for going outside your comfort zone.

And then, and then when it becomes normal, then you add the next thing and you shift the other one down and you tell the rep that you're like, hey, you know, we did this in our own business. We, a couple of years ago, we were primarily one-year contracts. You know, when I took over the sales team, 75, 80% of our revenue is in one-year contracts. And I was like, look, let's experiment. Let's use— I went to AJ, I went to the board, I said, hey, we're going to spend some money on trying to drive more two-year contracts and see if we can change the shape. And we paid almost double the commission rate on a two-year contract for a one-year contract for a quarter. We just said, hey, let's just blow it out of the water.

Let's run the experiment for a quarter. Okay, that's cool. And so you're doing that as like a spiff, not necessarily a comp plan change?

It was a SPIF for the quarter and the quarter before 15% of our revenue was in 2-year contracts. That quarter, 85% of our revenue is in 2-year contracts. So all the reps who told me, hey, I can't sell an SMB 2-year deal.

Yeah.

You know, money talked to them and they said, oh, well, I can figure out. And you pair that with enablement, obviously, uh, and train them how to sell 2-year deals. And we stopped offering both 1 and 2 at the same time and just offered 2. There's a lot of different stuff you do, but you do that, you tell them, hey, this is the best this is ever going to get for you. I want to teach you how to do this. And then you ramp down the rate over time so it becomes normalcy, and then you layer on the next thing.

Hmm, that's really interesting. Uh, hold on one second, I was gonna blow my nose. Trying to do a podcast when you can't breathe takes up the level of difficulty. Oh, I haven't really gotten sick much this year. My kids got me.

They, they got me too.

Yeah.

I, I, I, my daughter just got us really sick. So we're in the same boat.

This is only our second time this winter, which is pretty good. Okay. So. Obviously you only really wanna pay for incrementality. Like you, if you want to, if you're paying for multi-year deals, you don't wanna pay a 2% SPIFF and then just be paying for people to do the same thing that they already did. That, that's like clearly a loss. So how do you design for and measure incrementality? I think like this testing is real, is a really interesting idea. Any, anything else to really like make sure that you're only paying for improvement in behavior and not just like more for the same?

The testing is big and I think it's testing for, you, you make the rate wild for a very short period of time. So you basically measure what percentage of our revenue has been 2-year deals. We had been hovering around 15% for a very long time. Part of me said, okay, let's bump up the commission rate a little bit for 2-year deals. but it's like you're just not gonna be able to read between the noise. And so we set aside a testing budget to say, hey, you know, we're gonna test this. And we told the, we told the reps we were testing this. We were like, hey, we've carved off some budget for this. We're gonna test, can you start selling more 2-year deals? You're gonna be very happy. The rate's gonna be comically high. And we did that for a quarter. Now you paired that with the enablement, hey, our reps used to show a 1-year and a 2-year contract side by side, which from a psychology perspective wasn't great because there was no fear of loss there. There's a bunch of sales methodology stuff we went through simultaneously. But you show, you change that for a quarter, you see if there's any spike and you basically do the pre-post and you're effectively asking yourself, how much more would I pay if all of our revenue was 2-year deals versus 1-year deals? And you have a math equation in mind and an ROI of that spend in mind. And we far exceeded ours. And then you tell the rep, hey, okay, now we're ramping it down.

And how did you figure out what the, what the right amount was to spend on a 2-year deal? So like, yeah, I'm curious on that analysis.

So we knew, we knew going into it. I mean, the simple back of the napkin is on a total contract value perspective, if you don't have to run a renewal. Because you would pay, if you ran a 1-year deal, you would pay an account manager some rate for the renewal and you're not running that renewal. So the simplest measure is, okay, if I can sign a 2-year deal, I can at least take the money the account manager would have made on the renewal and shift that all into accelerator for the new business rep. That's net neutral from a cost perspective. And then that allowed us to go even, and then at the highest end, technically on a total contract value perspective, you double the new business rate and you're paying the same on the total dollars, right? Now we didn't go double because we felt, hey, that just seems like incredibly excessive. And so somewhere between pure double and the, um, the AM rate is like a threshold that you can play around with to justify spend.

And you're trying to move churn really as well. And so you don't know that for 12 months. And I guess maybe you looked at historical, but then maybe you're, there's selection bias there because the people that chose 2 years were the most committed and being like, oh yeah, like let's lock it in.

Yeah.

How do you, how do you estimate the impact on churn and then like go figure that out? The actual churn impact later.

Yeah. I mean, you have to, you basically have to. under your, your selection bias point is incredibly clear. Like you can't just say, oh, well, the GRR is going to pop to the GRR over 2 years historically because they picked 2 years. They really were bought into the vision or what have you. So you run different scenarios of, okay, if this from an LTV perspective, if this gets our, uh, you know, renewal rates to at the point of 2-year to 95% versus 90% versus 85% or whatever thresholds are you, what does your CAC payback look like? And we kind of had to do a little bit of a gut check of does this seem reasonable? Like, do we think we can bump up the renewal rate in that period to get the incremental impact on CAC payback we were looking for? So there It's a little bit of a guessing game, honestly. But you have, you at least have the range of, okay, best case scenario, they're just as good as the two years that signed well before. At worst case scenario, which you wouldn't expect, they're just basically the same. You haven't done anything. But even in that worst case scenario, you have them for a year longer. So you have more time to demonstrate value throughout the course of the contract. Because it's a technical implementation for us. We have to join CR. The reason to your contracts are great for our business is because it gives us more time to demonstrate value to the buyer because you're linking up and a lot of times your CRM paired with an ERP to like join the closed one revenue with the invoice paid revenue to pay commissions. And then you're pushing that into a payroll provider. So there's a lot of technical integration pieces of our product that you want to give people time to see that value.

Yeah. Um, in, in just like SaaS in general, how many companies like chase a customer that wants to cancel after a year on a 2-year deal? Like what do you generally see the churn rate is in, in the market?

So I think that's a good question. I mean, I think that the buyer, if they're signing up for a 2-year contract, in year one are not demonstrating value, I don't see a ton of chasing happening because, you know, in today's market, the buyer has a lot of power. Uh, they could write a terrible G2 review for you. They could, uh, you know, everything is so community-led bought that they could, uh, you know, be a negative reference for you in any of these, you know, in Pavilion. Somebody's asking for— so I, I don't think your, your intent is not to lock people in contracts, and it certainly isn't ours, that they don't want to be in. It's just the challenge is if you have a complex setup of a product and you have a complex commission plan and it's taken you— and there's, there's work that the customer needs to do. They need to make sure their variables are in shape in CRM. They need to make sure that everything— like, we have data, you know, it's a, it's a garbage-in garbage-out model if you don't have your data clean to calculate commissions off of.

Yeah.

And so we just need to make sure that they have enough time to see the value of the product. Because when I renew a product, 6 months out from renewal, I'm having an internal conversation. Am I staying with this thing or not? And if I'm on a 1-year contract and it took me 4 months to get up and running, even if that was my fault, like I didn't have my data clean and I don't blame myself.

Attribution bias at work.

100%. And so then it's like, well, I'm not going to renew, but is that the, that's not the software's fault. And so you want to give yourself more time to, uh, to at least show that you're working towards like the right outcome.

Yeah, that makes sense. Um, so identify what, what success means that year, role by role, quantify the measure that they can affect to get closer to that business outcome. Oh, pipe, the coverage. Okay. This is where I want to go back to. Um, so you're building quotas to cover your finance plan with some margin of error. And so you said between 80, between, uh, between 80 to 90% quota, rep quota attainment should lead to your finance plan, correct?

Usually. And then it depends on how many, I mean, it depends on how many layers you have. But I like to think about 80 to 90%. If you, if you summed up all of the reps' quotas, and if your entire org was at 80 to 90% attainment, that number would hit your plan. And then you basically build in buffer at the more senior leaders you have. Each of their targets is slightly buffered. So if it's like 80% of the reps' number, then each of the managers are at 85 or 90% of their team's number, then the director's at 90 to 95% of her director's. And you kind of, you have this range between 80 and 100, whereas you layer in buffer this way, but 80 to 90% of the individual reps summed up on a new business revenue perspective, uh, should give you enough room to buffer senior leaders as well.

And so you see this range all the way from like 70% to 110%? Like we actually, because of our business and SMB and like, I try to build, I want to build like a winning culture. We actually assign quotas and assume that people are going to exceed to get to the finance number. And it's worked for us. And over time that may evolve. Why 80% to 90%? Why is that the pick? Yeah.

And I mean, I, I tend to like the narrower as well. Uh, so I tend to like to be closer to 90% ourselves in terms of the coverage. I, it builds in, uh, if you have, it really, it really effectively depends on your ramp time for a new rep. Uh, if you're rotating a rep in and out, you, you model out your expected attrition and ramp time of new reps. That historically with teams that I've worked with has given them enough time on the yearly basis to have a rep leave. Fill in the gap with a new rep and keep hitting plan even if a rep exits the business. That's always been— it's a cycle time of a new rep paired with ramp and expected attrition. That's a lot of the math that I tend to do. Jeff Ignacio has a really good calculator for this. I have to recommend that very highly on like a, okay, rep cycle time, expected attrition. It's something I use all the time that I think is very valuable.

I, I'm gonna get you to send me that after and we'll put it in the show notes.

Great.

Jeff's a super sharp guy, so I'm, I'm, that's a cool one to share. Okay, so we've, we've talked about how to think about sketching out a plan. How often should you change a plan? Is this like a once a year thing? Could you get away with changing every quarter? What's the advice you give to people?

So I tend to think about there is the base mechanics of how you earn on-target earnings. If I am a robot and I execute exactly what you want me to do with no accelerators, no spiffs, no nothing. If I, I earn $50K base, $50K variable. If I close $500K in new business, I'm going to make that $50K, 10% base rate that you're doing once a year. That is your like on-target earnings plan. And that is the way in which, because it's, it's, it's how you feed your family, it's how you support your life. Like that base set is a yearly thing. And then the ways in which you're accelerating rates, the spiffs, the accelerators, that the changes you're making to drive business outcomes, that's quarterly, uh, if not in a shorter term, that can be monthly. Uh, but the way I think about it is you have a base comp plan that is how you earn your take-home pay. And if you don't play around with any, any of the other stuff and you just sell middle of the fairway, hit par every time, that's an annual thing. Unless you have some sort of macro event which you have to change quotas. But like the base layer of your comp plan, you want someone that— you want a seller to have some level of predictability in terms of their take-home earnings and pay. But then you use it throughout the period. Quarterly is usually what we tend to see. To like change behavior, to have, you know, we're gonna, we're trying to sell multi-product a lot in Q1 and Q2 because we just launched a new product. Now that we've gotten that adopted, we're trying to ship our comp plan to drive longer-term contracts. You know, you can use that quarter in, quarter out.

And so the accelerators and additional SPFs, those will all bring people above their OTV.

I tend to like acceleration shifts to bring above your OTE because there are ways that you dig yourself out of if you're having a poor quarter. So I'm not going to hit quota this quarter. Uh, I, I don't have a path to get anywhere close to my OTE. Okay, well, the least I can do is I can bring on more revenue that's better for the business to get me as close to OTE as possible. So I tend to like, hey, you have a, you have a clear path to, to OTE. Which is if you're mechanical, close just the revenue you need because you've delivered at that point, you've delivered what the business has asked of you. Even if it's not beautiful revenue, it is the business asked me to close $500K in new ARR this year and I did that. So I deserve to earn my full earnings. That's not outside of warp, right? That's like pure warp. Uh, but then if there's other things that I can do that go above and beyond, If I'm hitting my number now, I can just earn a ton of money and finance and the board are happy to pay me because I both delivered on my revenue and the shape of that revenue was amazing. And then the mixed message is, oh, well, I only ended up at 420 of my 500 number, but I got close to OTE because at least I brought on a bunch of high-quality revenue.

Okay. And you don't find that that messes with your coverage model? If people can get to the OTE?

You know, I, I tend to like, you can get, you have to, you have to model out the percentage of your revenue you think is reasonably, is like reasonable for you to put in a certain type of, of, of model or a certain, certain type of parameters, excuse me. And they should be the only way they should be able to get to their OTE is if they are absolutely blowing the percentage that you had modeled out of the water. So like if you, hey, if it was 15%, now all of a sudden it's 85%. I'm fine with reps hitting, earning their OTE if they don't earn the hit full quota because they've fundamentally changed the shape of the revenue of this business. And I'm paying them as a thank you for, for like changing the shape of the revenue. So there's, there's a, you have to model what you expect, what your current baseline is, percentage of revenue. That has this characteristic that you're trying to drive? What percentage do you expect it to be? If it's what you expect it to be, you don't want them to hit their OTE for that based on like sub-80% attainment. And then if they blow that out of the water, then that's, that's the kind of give and get of the math.

Okay. That, that makes a lot of sense. Um, what are the signs that you've got the wrong plan? Like what would you, what like people are listening to you, they're like, oh yeah, this is all really interesting stuff, but like my plan might be fine. What, what, what, what are the warning signs that they should look out for to tell them that they might need to look at their plan today?

Uh, one is that you have accelerators that aren't changing behavior. So you've just been running a, you, hey, I, hey, I hear this a lot of times. My base rate's 10%. I pay a rep 12% for 2-year deals. and you know, some reps sell 2-year deals, but it's like 15% of our revenue always. That is not, to your point, that's not an accelerator. That's not like above and beyond. That's just, you're paying them an extra 2% for, for status quo. Like the accelerator has to be driving a change of behavior. And if it's not, you're just paying them more money for no incrementality. Uh, where this gets to be a real trap is a lot of times the accelerator for something like a 2-year contract is not enough to cover the standard discount a rep will give on a 2-year contract. Oh, I've talked to a lot of teams who are like, yeah, I pay the rep an extra 2%. And then the first question I ask is a 1-year versus 2-year, how much is a rep discounting a 2-year deal on average? And they're like, oh, they usually go 30% off list or something for a 2-year deal. And then all of a sudden the rep actually makes less money for the 2-year deal because the 2% bump doesn't cover the 30% discount. So that is why, and that's, I mean, that's a hyperbolic example, but, and that's a selling methodology and an enablement problem there. Exactly. And I mean, and design, like it's, it's the design is not rewarding the right behavior. So that's probably one. And then the second problem is Or the second, like, warning sign is it's a rep NPS on comp plans. Like, you, you have to ask your reps what they think about the comp plan and you have to get them to explain it back to you. A lot of times you can't get reps to explain back to you how you're variably comped. That's a huge problem. Every single rep should know, hey, what type of deal makes a rep the most money here? Like, what are the characteristics of the deal that if you close this deal, you're going to make the most money? A lot of orgs don't know that. A lot of reps don't know that. Which is a shame. And if they don't like the comp plan and they don't feel like it's achievable and attainable, then you have a real problem as well. So it's the incrementality and impact of the accelerators is problem 1. And then problem 2 is just rep overall understanding of attainments or understanding of the plan and happiness with it. And then problem 3 is just, and this is just an org design problem. Is attainment. Like if you're worldwide, I talked to a team last week whose blended attainment last quarter was 50%. You just, you have far, you either have far too many reps or they don't have a path to plan or you're not driving enough pipeline. But if your team blended is 50%, you have a real challenge here.

Okay. So this is the perfect segue into this topic because we talk about plan design now. Like, How do we pick the right number? So 80 to 90% of quota, rep quota attainment should get you to a financial plan. How else are you thinking about setting the right number to drive the right behavior and stretch people versus, you know, like not giving somebody a number that is unattainable?

Yeah. So I, I like to do like a true bottoms-up activity model for this. if, okay, so you are a seller in a given month, how much capacity do you have? Like for a closed one deal, how many meetings do you have to have for that closed one deal? And then what's the throughput of the number of meetings that you can take in a period is like step one. So my first, my first mathematical equation is average deal that the seller has to close, how many meetings do they have, and then how much time do they have on calendar to actually have those meetings, and how much extra work do they have to spend outside of the meetings moving the deal along. So if you're running, let's say you have a sales cycle that's 4 meetings to close a deal. Okay. Each deal they're spending 4 hours. Let's say you put an extra 1 to 2 hours on the like prep outside of the deal, or even if you double it. Okay, so it's 8 working hours on this deal to get it to close. How many deals would they need at the average contract value you've been operating in to hit their plan? And do they have enough calendar hour availability, one, and then two, demand, is demand possible at that to actually make this sustainable at any capacity? Um, that's like that throughput activity calendar model. Uh, Hayes Davis writes a lot about this actually. I, I like a lot what he writes. You should check out his Substack. It's very, very helpful in some of this sort of stuff. But it's that throughput model that I tend to start with that helps me inform, okay, how many meetings does a team member have to have that are a mix of new, second, third, fourth to mathematically justify if they're going to be able to hit that number. And then what's their average contract value and dollar level win rate of those meetings to build the funnel to, to actually be able to hit their number. Um, and that's like, that's how I tend to do the math. And I find that to be very, very helpful from a throughput perspective.

This is one of the most important activities that I think a revenue leader needs to do, especially in mid-market. I find it gets really tricky there. And often what this will tell you is your win rates are definitely not good enough, or you don't charge enough, or you have like some fundamental, like law of gravity that's holding you back from this thing being ready to scale. And I think one of the challenges that companies have, not to get way off topic, But many founders go through this, um, you know, willingful suspension of disbelief to say, okay, well, like, you know, win rates just need to go up and we just need to like book more meetings and yada, yada, yada, which ultimately leads to like disappointment in 12 months because you, you didn't address the, the thing. It's like you didn't really have the product market fit you thought. You don't have the demand generation. Engine to do it, or if you were to generate the demand, it's, it, the CAC becomes unsustainable because your win rates aren't good enough, which is either a sales execution or a product market fit issue. But I think that exercise highlights so many of the challenges that, that a company has. Like I've been through scenarios where I've done this math and this doesn't it's alarming.

Yeah. And like, well, and the big thing that I worked on taking over the team here is, okay, how do you get that 4 to 3? Like, I think the question that nobody asks is, how do I make a 4-meeting close a 3-meeting close? And how do I bring down my meeting count per close? Can I make the time that I'm spending with the prospect more efficient? How do I get it from 4 to 3 or 3 to 2? Was that a much better structure to, to shape, like, to basically spend less calendar time? And then how do I force reps to, uh, get rid of ops earlier? Like I spend a lot of time trying to drive down wasted calories from our team. We are a very small, high-performing team. And I think a lot of the reason that is, is because I forced the hand of reps to be like, this deal has zero path to close. Like you want it to close. I get that you want it to close. They are not going to buy from you.

Yeah.

So why are you spending any mental energy here? I would rather you multi-thread, spend that hour that you're gonna write that demo recap and like prep for your next call, multi-threading this other op that has a path to close.

Or prospect.

Or prospect. Yeah.

The, something that I created during my time at League is this concept that I still come back to all the time, which is off-ramping, like where in your, where in your sales cycle is the best point to offer your customer a way out where you've like built enough interest. You, you could and should have built enough interest that, uh, good customers won't opt out, but bad customers will. Um, because I, you see this all the time. It's like your, your, uh, time to lose is an important thing to track. Like you want a really, really short time to lose. And what you find is actually in many organizations, your time to lose is almost the same as time to win, but you've done like 50% of the meetings.

I mean, it can be a lot more. I mean, the worst stores have like a 2x time to lose because reps are holding on to deals forever. And then it's interesting, like you want to— it's a lot of having the tough conversations up front. Like, have you secured budget for this? Do you understand pricing? And we've been using, it's been pretty illuminating for us in a very helpful way. Mike Hoffman's company Bravo that does the surveying. So basically when an op moves to demo occurred, we shoot every op that moves to demo occurred to serve like a pulse check survey. And it just says, hey, like, how important is this problem for you to solve? And when do you need to solve it by? And How are you going to make the case internally? And some of that stuff we ask them on the phone, obviously, but they can give a different answer. And you'll find some people say, hey, this is like a, I don't need to solve this problem for like 6 months. And that's immediately I tell my rep to be like, cool, breakup time. Like, yeah, love you.

And they're forecasting it for 45 days from now.

Exactly. You know? And so it's just like, you have to give yourself the ability to break up and say, hey, now's not the right time because commissions, especially for us. You know, people know in their gut when they feel a pain around their commissions process, it's not driving the right behavior. It's taking too much time. Spending the calories to convince someone they have a problem that they don't think they have is the least efficient use of energy.

Yeah.

Even if they booked a demo inbound, like even if they heard about us and they're excited to explore more, you have to ask those questions. Like what happens if you don't solve this problem? By the end of June and they say, oh, well, nothing. You have to just say, great. Here's the information. When this becomes a hair pulling problem, come back to me. We'll talk about it.

Yeah. Um, okay. Giant tangent. I want to go back to picking the right number. So the bottoms up activity model, which I'm obviously very much in agreement for, uh, what else helps picking the right number?

So it's a bottoms up activity model for me paired with Uh, kind of just the, the, the actual day in the life math. So it's the bottom of the chimney model paired with what are the numbers that a rep will have to do in order to be successful in this role? And does that pass any sort of like gut check or sniff test? Like, yeah, hey, you have to run 45 demos a quarter at a $20K ACV with a 25% win rate. And whenever metric that you're required to move, having a very clear level of conviction about why the business thinks they can move that metric. So if dollar level win rate is moving from 25 to 30, what are the exact things and how do you quantify the potential impact that those will have on that win rate move? Those two things for picking the number have paired with his— I mean, you've got to pair with historicals, obviously, if you have them. so how, you know, for a rep who's hitting their number, how, what were your expectations at the beginning of the year and how did those actually map to reality and how, how good a job do you do at predicting, uh, that actual outcome and all of that stuff again, you show that all to a rep when you roll out the comp plan. So like when I roll out a comp plan to a rep, I say, Hey, this is why— this is the number. This is your quota. And here is the math as to how you will be successful. These are the number of ops you need. Here's why I have confidence in that. This is the ACV. Here's why I have confidence in that. This is your win rate. These are your stage progression rates. Here's why I have confidence in all that stuff. So that a rep feels— you want a rep to feel bought into the number, not handed the number. And if you get off to a wrong foot, if a rep feels like the number is not achievable from the start, confidence is killed and it's pretty brutal. And so like bringing that with them is massively important.

And then, and so you have to marry this like bottoms up with the top down. Hey, we're all part, well, most of us listening are at venture-backed SaaS companies that are trying to grow anywhere between 25 and 200% year over year. We've all signed up for it. Like, How do you get there? How do you make, how do you make math work?

Yeah.

Um, okay. I want to switch gears a little bit, being mindful of the clock. Uh, what are the most common failure modes? Like where are the, the places that people who aren't experts on commission plan design most frequently go wrong?

First is they build all their comp plans in silos with no level of kind of, uh, combined goal. And so they build these like, uh, warring parties with the comp plan. So take, I mean, your example that you shifted to is a really good example of like a positive outcome. The negative would be if your rep, your new business rep was comped on closed one and your you know, account team was comped on go-live and the rep had no caring in the world or anything. You didn't have a clawback model, or the rep just got them to sign a contract, but they could never go live, right? And brought on a bunch of revenue and you don't have a callback center. So where you build these kind of competing parties where different teams win if the whole business doesn't win, I think is the biggest failure point. So the most toxic cultures I've come to help with comp plan design, I'll talk to the CMO, marketing's patting themselves on the back, they hit their pipeline number, they're super happy. And then sales is not even close. And so you have this comp plan where marketing's at 105% OTE and sales is at 64%. So if you don't have that like unified measure of everybody winning, And you don't have marketing comped on closed one revenue and sales comped on revenue retention or adoption. And like everybody comped on their handoff point and the success of their handoff point. That's a, that's a huge failure point and a, and a lose for sure.

Yeah. Our, our move to this like pay on launch thing is cause we had a clawback model. And so it's actually sort of the same a bit. But I think like clawbacks suck and it just like, it defeats people and it feels crappy. And there's a lot more of like blame game that happens within a clawback scenario. 'Cause you know, humans have negativity bias where we feel pain much more strongly than we feel gain. And so I was like, I just wanted to move to a model where it's like, hey, like don't even pay and claw it back. It just sucks. Like, put everybody on the same team. It's not perfect because now you have a whole bunch of sales reps just like paying a lot of attention to what happens at launch and putting a lot of pressure on that organization. And that's positive friction. I think it was in my interview with Eric Gilpin from G2 where he was talking about like, how do you push like productive friction into the organization? And that's certainly there. Um, but yeah, I, I, I think this like warring parties thing is interesting. I think what—

I'm sorry, go ahead.

No, finish.

I think the other one is you, uh, you don't, you haven't defined, I mean, it's the inverse of what I said before, but you haven't defined what great revenue looks like. And so you just hand a rep a number and, you know, whatever path they take on Candyland to get to their number is fine. Uh, that is, you haven't pointed them to care about the quality of the revenue they're bringing in. Uh, and, and you haven't gotten them to think as an owner of the business. And that's where you, you, you're not using the comp plan to tell them to do anything. You're just telling them, throw every deal against a wall and close what sticks. And that can lead to, you know, terrible revenue retention and expansion down the line. And so that's, that's a big failure to plan that I see a lot.

And what about trends? Like what's, what's, we've just come out of XRP. We're now in a very different market. We were in a pretty good market and then 5 days go by and we're in a, just a sea of red. What, what trends have you noticed in the last couple of years, uh, since you've been doing this?

Uh, seeing a lot of rise in outcomes-based and usage-based comp plans naturally with the rise of outcomes-based and usage-based businesses.

Yeah.

Uh, so a lot of, you know, the ERP, it's kind of the, it's kind of the like year of the ERP or the financial accounting system because that's where a lot of the payment will happen and that's how a lot of teams are getting comped. So you're seeing more and more orgs shift their org design wherein AE is becoming a usage-based shepherd for the first year of the contract and they're getting comped on adoption throughout the first year of the contract. You know, we always had that with, you know, database or storage systems and financial services systems, but just the boom of these outcomes-based businesses and outcomes-based pricing models, is leading to that, uh, for a lot of new business reps. And then the other thing I would say I'm seeing a lot more of is like consistency bonuses, where a rep's ongoing performance quarter over quarter unlocks incremental earnings for them. Uh, and it's really that predictability at the board level kind of finding its way down into the comp plan. So we're seeing much more of that, uh, which is a fun a funnel on that. It has—

I sort of love this. I've never thought about this. Like, every, every quarter or month in a row that you hit quota, you like add a small thing. Yeah. And then once people lose it, they like reset back to zero and they earn it, earn it, start earning it again. That's really—

yeah, it's pretty cool. And like, you have some— it's, it, it, it rewards— it has pros and cons. So it absolutely rewards consistency, which is great for measuring a business. The challenge is that if reps, the good reps will game it a little bit where they'll say, hey, if I've hit quota for, you know, Feb and I'm already in my accelerators, like sure, the accelerator is great, but I'm really nervous about March. So let me just slide that deal over into March. And I don't love a comp plan that ever rewards somebody for not closing a deal today. Like the comp plan should get you to close the deal today. So you just have to make sure your accelerators for beating your quota justify not— are better than your consistency bonus, basically. Because if that's not the case, then smart reps— no, I mean, no problem to them. I totally get why you would do it, but you would just take that deal and slide it over into next month.

Second order effects. Yeah, I think that is the single trickiest thing about building good comp plans is understanding the second-order effects. And, you know, okay, I'm going to introduce a multi-year incentive. Well, how much do they discount to get that? What don't they sell? What they— how do they finagle the payment terms? There's always— reps are incredibly creative in there's so much ingenuity that, you know, you get 20, 50 sellers on a plan and they're going to figure out how to juice it and they're going to figure it out pretty quick.

Well, and then I think there becomes a culture where the, like, org blames the rep, which I always find so strange. Like, you gave them a plan. It's a path to earning money to support their family. If just because they're taking advantage of it, that's that's not their fault. And I think a lot of times orgs get like frustrated at the rep for taking advantage of it. I never quite understood that. They're just using the comp plan to the best of its ability for themselves, which is what they should be doing. So if you feel like a rep's beating your comp plan, that's not the rep's fault. That's the design's fault.

And they're the one who took on the 50%, like income risk, you know, you have to, you have to be understanding. We ran a spiff. At the very end of last month and the reps incinerated it like way above what we thought it was going to be. And I was joking with my VP of finance. I'm like, oh, this is at least double what we thought the cost was going to be. And instead of being like, oh, like instead of grumbling about it, obviously you're not going to grumble about it because it was good deals. Like we started, we in the channel and with every deal, we started saying like, His last name's Dopp. It was like hashtag make Dopp pay. And it became a fun thing to be like, you know, and he played along and, and, uh, you know, posted that like, uh, um, uh, Tiger King meme. Like, I'm never going to financially recover from this.

Yeah.

It's like, you have a good time with it and hell yeah, man. Like if your reps, yeah, the reps, I don't, I haven't even looked at the commission statements yet, but I'm sure there's going to be some absolutely bananas ones. Fuck yeah. That's great.

I mean, the best comp plan, the best comp plans are the ones that the reps feel like they're beating you. And it's fine.

They definitely felt like that. They got the best of us last month.

It's the one time where, and people forget this, like, sure, you and your VP of finance were like ribbing a little bit, but like, your VP of finance is stoked. Like, you guys just had a great quarter. You know, you're, it's, it's sure they're paying more money. But the business is doing incredibly well and, and you're rewarding good behavior. And like, that's, that's what you want. And I mean, when we ran that experiment for multi-years, yeah, we paid a ton of money for it. We made a crazy amount of money for it, but it dramatically shifted the shape of the revenue of this business. Like, I, I'd pay an insane amount of money for that to happen. Yeah.

Cool. Um, we didn't even get through all of my questions on topic one, let alone talking about how leaders should think about negotiating their own. Comp plans. So maybe we'll do that another time. I want to flip into quickfire. So in your mind, what separates a good revenue leader from a great one?

So there's two things that come to mind. I think one, great revenue leaders are looking at what is best for the business holistically versus, hey, I'm focused on sales performance or, you know, they are I love Five Dysfunctions. It's one of my favorite books. I just go back to it all the time. And it's how do you build a revenue leader who's a member of a management team who is interested in the performance of the business more so than the performance of even their own team? Like, that's great revenue leadership. And the modern CRO, I think, is moving that way versus being a secondary title. VP of sales as being somebody who wants to care about not only quantity, but quality of the revenue. And then analytical rigor and acumen, I think, is massive. Uh, I think a revenue leader who is comfortable in Excel, who's comfortable chopping up data, who, uh, can tell stories with data, uh, those are the ones who I think curry the most favor, um, in board relationships for sure.

Yeah. For sure. What's the most common advice you give to your frontline managers or like mentees that are like in the earlier innings of their leadership career?

Positive intent is huge for me. Uh, I'm pretty hard on my team and I'm, I, I, I'm pretty direct of like, hey, this is, this is where we messed up. Here's what we're going to change, but I'm doing it to you. I'm telling you this because I wouldn't be spending the time with you. Giving you this feedback or coaching you if I didn't think you had the capacity to be better. And layer that into the team that you manage, right? You, there's, I think a lot of times people shy away from critical feedback because they don't want the person receiving it to feel like they don't believe in them. That's like the exact opposite. I'm giving you critical feedback because I think you're really good at your job and I think you could be a lot better. And the point at which you should be the most worried is if I'm giving you no feedback. If I'm giving you no feedback, I kind of have just decided, hey, like, it's not worth the energy to give the— I don't see a future, you know, for you. And so I tell first-line managers, hey, like, give your sellers, give your junior marketers, like, direct constructive feedback in the moment to show them that you care about their growth and that you're investing in their growth.

Cool. Uh, what's the hardest lesson you've had to learn in your career?

Sales leadership has been, uh, it's been ups and downs. I think that, you know, just stepping into a new type of role, I think the hardest lesson really has been, uh, embracing things that you're not good at and like quickly learning how to be good. Uh, I, I'm a person who likes to be good at things and You know, the team has performed well, uh, and, and that's, and that's a very much testament to frontline managers in our team who've like helped me move into more of a revenue leadership role. But the hardest lesson has really been, uh, you know, you're not going to be great at everything. And the quicker you admit these are things that I'm not good at and you surround yourself with people who are much better than you at them, the faster that group all, all grows. And that's what I've tried to build within, within our sales team here, which is led to a lot of success, but it's a tough pill to swallow being like, hey, I'm really bad at that thing. And I know that and I'm going to try to help have other people help me fix it. Basically.

Last question. What's the best thing you've read in the last 12 months?

That is a really, really good question. I got to go back to Five Dysfunctions of the Team. I just love that book. I just like, and I know it's kind of cliché, but I, Combination of parable. I reread it all the time. I, I think it is such a great— there's like such an I versus we culture in a lot of these growth stage startups. And it's just been one of those books that I go back to time and time again to, to check my ego at the door and really make sure that I'm, that I am leading from like a first team mentality. And it's just something that has like permeated my entire leadership style. And I go back and read it all the time and it's kind of a top winner for me right now. Cool.

We did an enablement survey using the Five Dysfunctions survey model. It's really like, it's really interesting because it gives you the feedback around how accountable do people feel, how much trust is there, like going through the full sort of Five Dysfunctions. And it's a really fascinating view into your team. Like more generally, we do it across the IC org. If you like Lencioni and his stuff.

Yeah, it's like, it's hard to, you know, it's, I think people forget that startups are hard, like, you know, like they're built to be hard and they're built to be challenging. And everybody is trying their best and they're trying with positive intent and they want this business to do well. And the minute you reframe your thinking that way and you approach another person with that level of empathy, like they're grinding, they're trying their best and they want this business to do well as well, you become a much more well-oiled team and a more well-oiled machine than you would be if you're— the finger pointing is just a waste of time. It's just like, it's amazing how much time you can let go of if you're just all like, hey, we're, we're trying our best to make this thing work. Yeah.

Yeah. It's, uh, we, many people lost sight of how hard startups are in the ZIRP times when we were just spending the venture money on each other's crap and everything seemed like it was going up, but that was a little bit of a farce. Uh, I, for one, am, I, I mean, I, I'm really enjoying this new market condition because there's just less insane, silly stuff and spend happening that makes it harder for everybody.

But you learn a lot more, honestly.

Yeah. Yeah, for sure. Well, Ryan, this was awesome. I think this is going to be really helpful for folks to get a really comprehensive understanding of how to think about comp planning and strategy around it. So appreciate you joining and we'll have to do it again and get into How a leader should negotiate for their own comp plan. Cause I think we could go another 90 minutes on that for sure.

Well, uh, thank you very much for having me.

I, I had a blast.

It was a lot of fun. Cool. All right.

Have a good one. Thank you for listening to the Revenue Leadership Podcast. If you enjoyed it, don't forget to subscribe and you can find a link in the show notes and be sure to leave a 5-star review, share it with your network, and please join me next Wednesday for another great conversation.