Stop Overpaying For Your Salespeople

Almost 5 years ago I wrote an article on LinkedIn that went viral:

‍The Dirty Secret of OTE for Inside Sales Reps

(70k+ views, 700+ reactions, 70+ comments.)

I wrote that article in a fit of rage.

We were flying from San Francisco to Los Angeles on day four of a fundraising tour for Levelset’s Series C financing round. We were exhausted from long days filled with too many pitch meetings to count.

This was April 2019. Boom-time for VC-backed tech companies. Revenue multiples and company valuations were high. Growth came easy. The tech industry was gushing with over-funded companies who loved to spend.

Levelset's business was in a good position. We were growing quickly and still had lots of runway from the previous funding round. Our burn was under control. We really knew the details of our business and were confident in our plan to scale the company.

I felt like we had a tiger by the tail. We could drum up demand at will, if only we could get enough of the right salespeople to join the company.

The one thing we couldn’t figure out: sales hiring.

If you are trying to raise a round of venture capital, this is exactly the type of problem that you want to have, a problem that money can solve.

So why was I so frustrated?

We couldn’t hire fast enough and I felt it was because other companies were being irresponsible with their sales compensation plans.

We were unwilling to compromise our business economics by offering way-above-market starting salaries for new sales reps and that made hiring difficult.

‍Boom Times Create Bad Habits for Salespeople

Every other venture-backed company in 2019 was spending money like drunken sailors. Over-paying for sales reps with very little experience or proven track record.

This created a challenging market for hiring talent. Many sales professionals took leaps in title and earnings by jumping from company to company. It was common for reps to jump ship every 12 - 18 months. You would see SDRs become AEs, or AEs become managers, or managers become VPs in short order. Everyone had lofty expectations for themselves and their careers.

The compensation plans were aggressive. Reps were getting high pay for hitting quotas that were unrealistic, or at the very least unfounded in past performance. And as a result, many reps weren’t able to achieve those on-target earnings that they were promised in the hiring.

If they didn’t hit quota consistently? They would either get fired or transition to another high-growth company that was willing to pay the same or more.

This period harbored bad incentives for anyone looking to move up quickly on the career and compensation ladder. If you couldn’t get promoted within your own company, you could just go to the job market and get the money or title you wanted from another company. If you didn’t like your boss, or your coworkers, or the customer, you could just get a new job.

You would probably get paid more in your next role. Heck, the sales job might even be easier. Sure, you had to switch  to a new job, but at least you got what you wanted. Right?

The problem with this era of tech and venture is that many sales professionals created poor habits. By making short-sighted career decisions, you forego the relationships and experiences that make for a long and successful career in sales.

The best things happen when you lean in, invest further, and stick it out. That’s where the personal, professional, and financial gains compound.

Imagine having to start over in your career, again and again, but feeling like you are actually doing well because your on-target-earnings and title have improved. The tragedy is that most don’t realize they are in that position until it’s too late to fix.

These people are living like the main character in the movie Groundhog Day, or The Myth of Sisyphus.

Don’t let that happen to you or to the people on your team.‍

Be Greedy Long Term

In software engineering, there’s this concept of global optimum vs local optimum.

Most would argue that you should focus on finding the global optimum whenever possible. Focusing on global optimum is always beneficial for both local and global optimum. Whereas focusing on local optimum is only sometimes beneficial for both.

I’d argue the same applies to a career in sales. It may be true that making short-term decisions can work out well for you long term, but you will not fail by making long term bets on yourself.

In life and career, align yourself with the organizations and people who want to see you succeed. That is worth way more than a marginal $10,000 in annual income or a slight bump in title for your LinkedIn profile.

Play the right game, the game where reputation and influence are the currency of your career. Always be making deposits so that you can withdraw any time you want.

How?

Choose to do the hard thing today so you can reap the rewards later. I’m not one for motivational speeches, but this advice is as ancient as it gets.‍

Breaking the Cycle

You are part of the B2B SaaS Sales community. You have a responsibility to change it for the better, for yourself and for every other sales professional in the SaaS world.

Here are some ways to improve the lives of the people on your sales team:

1. Create thoughtful and realistic sales compensation packages
   The comp plan should be based on past rep performance. The quotas should be realistic and attainable. The commission calculation should be so simple you can do the math on the back of a napkin. If you need more details on how to create a strong comp plan, read The Principles of Good Sales Compensation.
   
   
2. Educate the sales team how compensation works (get them to read the article)
   It’s likely that many of the reps on your team don’t even understand how the company came up with the OTE for their role. It’s possible that many in the company don’t even understand how the company designs sales compensation packages. This is an easy problem to solve. Educate the team on the economics of the business. For example, if you want the cost of sales to be 20% of the total first year revenue, then the sales rep’s annual quota is 5x their on-target earnings. The more they understand, the more likely they will stay and lean into opportunities at companies with strong economics and career potential, even if the pay is less.
   ‍

3. Meet the sales reps halfway
   If you are asking the salespeople to be loyal to your company, then you should be loyal to them in return. When it comes to managing performance, find ways to support those who are putting the work in and leaning into the opportunity at the company. Don’t create onerous performance improvement plans, or crazy-low benchmarks for termination. Be honest with yourself about how well designed your sales targets are. You likely weren’t very scientific in how you set the revenue plan, or the comp plan, or how you designed the sales territories. So give your hardest workers some grace if they are a little off their number temporarily. Figure out what’s going and get them back to hitting the number, coach them up or else you will find yourself with great reps looking for an opportunity outside the company.‍

‍Stop overpaying for your salespeople.

There’s not much good that comes from overpaying a salesperson. It sets the wrong expectations for both the sales rep and the company. It creates bad habits for the salesperson. It is unlikely that the rep will be successful, who starts out with a compensation plan that is outsized for their skill set.

Let me be clear, I am fully in favor of having rich compensation plans that overpay for over-performance. But that’s not what we are talking about here.

When companies overpay for salespeople, it is usually because the revenue leader is inexperienced or the company is desperate for growth.

If you are overpaying for salespeople, ask yourself “why?”. Have an honest conversation with yourself about your sales team and culture. If it's broken, then decide to fix it starting today.

Choose the right path. Create a compensation plan that tells the sales person you are going to be in business for a long time.‍

Build a world-class sales culture

Back on that plane ride from San Francisco to Los Angeles in April 2019, I was enraged by the sales hiring market and searching for ways to break through. Our team (CEO, CFO, and me) sat in conversation about the challenges of scaling the sales team, and ultimately the company revenue, in the current economic environment.

Inspired, I wrote down exactly how on-target-earnings works in SaaS sales and hit “publish”.

I put a stake in the ground. We were not going to be the type of spineless VC-backed company willing to buy its way around poor fundamentals. We were principled. We had conviction.

It only seemed fair to let the salespeople know what they were signing up for in a sales job. Most don’t care enough and just want the short-term win. But the ones that do care, we wanted them on our sales team.

This article became part of our recruiting process. It was polarizing. The reps who understood and appreciated the message were far more likely to fit in with our sales culture. The ones who were chasing a larger base salary and a title didn't make it through the interview process. What better filter could you build for weeding out poor-fit sales hiring candidates?

Even though we were transparent about the type of team that we were building, the hiring was still hard. We focused on skills development, culture, using the opportunity as a platform for success, and the opportunity to earn your way into a larger compensation bracket. You could get all the things you want, but it would take time and it would require hard work.

At scale we had over 100 on the revenue team across different disciplines and levels of management. With a team of that size, the culture takes over and those little habits become the fabric that holds the sales team together. As you scale the team, there are so many opportunities for conflict within the team: territories, lead distribution, rules-of-engagement, compensation splits, etc.

Reps who are focused on short-term gains cause mayhem on a high-growth sales team. This can lead to a toxic culture and slower revenue growth.

So build a team of salespeople who are betting on themselves. The ones who are greedy long term. Recruit them by paying a fair compensation relative to the rep’s experience and role’s responsibility. Support that rep, coach them to be successful. Build a career path that allows the rep to move up in title and compensation. Reward hard work and success with more career opportunity. Create a culture where sales reps never want to leave.

If you have made it this far, you are thinking deeply about the sales team that you are building. You can build a world-class sales culture.

I know this because we had a world-class sales culture at Levelset. If a construction-tech company based in New Orleans can build a sales culture that competes with the bluest of blue-chip venture-backed companies, then so can you.