Hey Spiffers! We are so excited to publish the first in a series of posts we are calling “Commission Plan Teardowns.” In these posts, we’ll dive into the scintillating details that explain why high-performing companies chose their particular incentive compensation plan.
The first company we are profiling is Brex. Brex is one of the hottest companies on the planet right now. They recently announced a $100M raise and a $2.6B valuation.
We’ve structured this first post as a Q&A.
But first a brief summary of what you’ll learn in the Q&A below…
Commission plans are complicated. When used effectively, commissions will increase drive and nudge sales teams towards winning. Brex thought a lot about how to structure plans that would work well as they scaled rapidly. In the Q&A below you’ll learn why the company pivoted their compensation plan after 2 months, and what you should avoid when thinking about your own compensation structure. Brex grew their team at a rapid scale, building out verticals and rethinking the way they wanted to structure commission plans along the way. While the details may change, the goal remained the same for Brex: “Support the sales team, and the sales team will support us.”
Q: What is the primary business metric you use for commissions?
A: We began by compensating on new company signups. And we found that by tying compensation to card spend, there is a material impact sales assistance could have on customer card spend — if that’s how we incentivize the sales reps. Comp plans drive behavior. As you’re designing a comp plan, you want to be thoughtful in terms of what the behavior that comp plan is going to drive.
As you’re designing a comp plan, you want to be thoughtful in terms of what the behavior that comp plan is going to drive.Sam Blond, Chief Sales Officer, Brex
Q: Why should you be thoughtful about what behavior your comp plan is going to drive? Can you give me an example?
A: As an illustration for us, when we were compensating on new logo acquisition, it put the focus of the sales reps on getting somebody to sign up and use the card. But almost zero attention on getting people to migrate their subscriptions off of their old cards. And that’s how we make money. And so we changed models and tied our commission to how we make money.
Q: How long did it take shift focus from logo acquisition to card spend?
A: About two months. The impact we saw in the data was extremely impactful. The ramp of customers became consolidated. People were migrating over to Brex, the total company spend on Brex cards against other cards was moving over, all of this increased dramatically as soon as we made the change.
Q: How is the comp plan structured?
A: We have 2 verticals reps sell into: ecommerce and tech. Within tech reps are put into segments based on company size (small, mid, and large). The targets for different categories are in line with customer behavior. For small tech as an example, their GMV target is lower than somebody that’s selling into large tech. About 80% of our commission is tied to card spend, which is directly tied to revenue. And then 20% of the commission is tied to new logo acquisition (what we refer to as activations).
Q: How do you set targets between these markets?
A: The number of activations we’re expecting out of people working smaller businesses is higher because they can be much more transactional, but the card spend is lower. As you move upmarket, the inverse is true. So, fewer activations but companies sign up and can spend a million dollars a month on the card.
Q: What is the ramping period for someone who joins Brex?
A: During the first month, we tie the goal to new logo acquisition. And that’s because we want people to get really comfortable with signing up customers and going through the process internally. In the first 30 days it’s very difficult to predict the amount of card spend a rep will be able to generate. We progress from getting clients, to sign up, to thinking about card spend. It’s a logical progression from a training perspective.
Q: How many activations do you expect in the first 30 days?
A: About ten. It will vary by segment. Ten closes for most companies is a lot of new customers to sign up. But for us, we have a lot of leads. Our product/market fit is great. Those dynamics help. Then we start training the muscle of migrating card spend. They’re comfortable getting people to sign up. Now we take it to the next level.
Q: How does the commission align with the goals of Brex?
A: Brex doesn’t make money when new customers take out a card for the first time. We make money as customers spend over time increases and they move all their card spend to Brex.
Q: How does the comp plan reflect Brex sales culture?
A: I think sales reps are happy when there’s a comp plan in place that they feel they can hit and possibly overachieve. Sales reps care less about the design of the comp plan and more about their ability to perform in it. Philosophically, I like 70% or more of sales reps at or above their target. This creates a culture of winning, which is important in a sales organization.
Q: What is your thought process behind setting the targets?
A: The first one is, it’s not enforceable if the majority of the team is below their number. So you can imagine an environment where somebody misses their number, and you sit down with them at the end of the month, and you’re like, “What are we going to do differently this month to make sure that you hit your number?” And they’re like, “Well, nobody on the team hit their number. The numbers need to be attainable, and then I’ll be able to hit them.” So first you have to make the number attainable. Then you’re able to figure out what’s going on with the people that aren’t hitting their number and get them to perform inline with expectations. The second thing is to create an environment where people feel like they’re winning. If people aren’t hitting their numbers, and that becomes acceptable, mediocrity as an organization becomes acceptable.
If people aren’t hitting their numbers, and that becomes acceptable, mediocrity as an organization becomes acceptable.Sam Blond, Chief Sales Officer, Brex
Q: What are the conversations around missing targets?
A: You want them to have the sensation that, I missed — I did something wrong. But the only way that happens is if most people are actually getting their targets because then they’re the outlier. They’re the exception. And you determine what that number is initially through educated guesses.
Q: How do you come to this educated guess?
A: I would err on the side of guessing low as you’re determining what the actual number is. You would much rather have a target that was set too low and allow people to blow it out, then set it way too high, and miss by a wide margin. And if you’re paying sales reps too much money in the early days, that’s a good problem to have, because it means they’re performing. Over time, you use historical data to set the numbers. In the first month, everybody crushes it. Okay, great. Let’s increase the quota and make this a little bit more challenging. Everybody crushes it again, awesome, we continue to win by increasing quotas again.
Q: What did you avoid while setting the commission structure?
A: I see far too often companies where the majority of people are not hitting their number. And that is a problem with the comp plan design and not a problem with the people in the company. If missing the targets is systemic that’s something that leadership needs to change. When the majority of people are missing their numbers, don’t look at the people that are missing their number. Look to the numbers themselves, and go back to the drawing board, and set more realistic targets. Because very quickly, the culture changes to expectations being most people not hitting their numbers. And that is very difficult to course correct. Also never cap commissions — it incentivizes the exact opposite behavior of what you want in a sales rep.
Never cap commissions — it incentivizes the exact opposite behavior of what you want in a sales rep.Sam Blond, Chief Sales Officer, Brex
We hope when thinking about setting up your next sales comp structure, you feel empowered to use what works for your company. Our process is evolving and grows with us. A great way we use our Brex cards is to treat a few of the MVP sales team members to a nice dinner each month. It’s easy to increase the limit on their Brex card and this saves us the time from buying gift cards that someone might not like or want. When keeping track of commission, we feel the simple and dependable option is the one to go with. As we continue to grow, we value our partnership with Spiff and hope you consider them for all of your commission tracking needs.