
Uncapped Commission
Uncapped commission means there is no limit to the amount of commission a sales rep can earn during any given pay period.Continue Reading
What is pay mix?
In compensation, pay mix is the combination of commission, salary, and bonus that makes up a sales reps’ total income. Pay mix differs from company to company and industry to industry but in general, pay mix should be balanced in a way that rewards reps for the right behaviors and activities, but protects against overpaying under-performers.
Let’s look at a few examples of ways a company might structure their pay mix. In all three examples, let’s pretend the rep’s on target earnings, or OTE, is $100,000.
How much of a sales rep’s compensation comes from base salary and how much comes from commission? The answer depends on the organization, but the general trend is that most companies allocate 60% of their reps’ pay to fixed compensation and 40% to variable compensation. This breakdown has been found across industries, with only slight variations in degree.
Let’s look at some more pay mix benchmarks:
The right pay mix strategy is one that both aligns with the company’s goals and also incentivizes your team fairly. In order to determine the right pay mix, it’s important to understand the impact of each option.
Compensation mix is largely dependent on a few factors. These include the level of influence the role has on each purchase, the complexity of each sales cycle, the amount of work that goes into each deal, the industry, and more. Let’s break down a few common pay mix ratios, what they mean, and how they’re used:
Commission-Only Pay Mix
0/100: This mix is typically referred to as a commission-only compensation structure. Essentially, an employee paid on a commission-only basis doesn’t have a base salary to rely on. All of the pay they bring home is dependent on their performance.
A split like this is most commonly used in startups or small businesses who are just starting out. They don’t have the resources to offer a base salary just yet and they need a sales team that’s motivated to succeed.
The cons, of course, are high levels of sales turnover due to lack of financial security, burnout, and cut throat sales teams who may struggle to work together.
10/90 to 40/60: A pay mix with a 10% to 40% ratio of base salary still puts a heavy emphasis on sales commission– also known as a rep’s pay at risk. This type of pay structure might be used in cases where a rep has a lot of ownership and influence over a sales cycle. Their actions and behavior can be tied directly to outcomes.
Be careful using an aggressive pay mix or incentive plan with roles that have less influence over outcomes– SDRs and BDRs are a good example here. While these roles are critical to a business’s success, there are many elements that are outside a BDR’s control after a certain point in the sales cycle.
50/50: A pay mix with even parts base pay and commission pay are actually fairly common starting plans. This split allows organizations to make tweaks and test changes while having a control to compare with.
This structure offers more security in terms of base pay but a rep’s success is largely in their own hands. We don’t recommend this commission split for every organization or role. Like the previous plans we spoke about, roles without much control or influence over the average sales sales cycle may get burnt out or frustrated by a 50/50 pay mix. This stems from an inability to earn commission off factors they perceive to be out of their control.
60/40 to 90/10: A sales commission structure that is made up primarily of base pay, offers more financial security to reps. This type of commission structure is used in companies that have the resources to pay teams a regular salary. It’s also often utilized in roles that have less control or influence over purchase decisions. This would apply for a BDR role or roles that impact deals in less direct ways.
We caution against using a base-heavy pay mix for roles or teams that put in a lot of work to close deals- think, sourcing leads, prospecting, booking meetings, holding demos, etc. If you’re paying a larger base salary, you’ll find teams aren’t as motivated to do the work needed to win sales.
Whether you’re in charge of compensation strategy or sales manager trying to calculate pay mix, the math is actually pretty straightforward. Simply divide your base salary by your OTE. Let’s look at an example.
If your OTE is $120,000 and your base pay is $70,000, dividing $70k by $120k would give you .58. Multiply that by 100 to get the percentage of base salary and you have 58%. Subtract 58% from 100% to find your commission split and you’re left with 58/42.
Sales Development Reps– or SDRs– are a crucial part of any business. SDRs are often the first line of qualification and a major source of pipeline at most organizations. To put it bluntly, how you compensate your SDRs can make or break the success of your sales organization.
The right commission structure can motivate your SDRs to jump out of bed in the morning and take action while the wrong one can wreak havoc on your revenue and pipeline goals.
I’m going to do it… I’m starting with a sports reference. The more I dive into how to motivate different groups within the organization, the more it feels like a golf swing. There are fundamentals and things you should and shouldn’t do, but past those few small things, it’s all about making it work for you to get the results you want. This concept is especially true when you are creating a compensation plan for sales engineers.
Spreadsheets are amazing. They have made handling complex mathematical scenario modeling available for everyday people. Through spreadsheets, anybody can handle huge amounts of data from multiple sources, easily manipulate the data, do calculations, summarize, and visualize the results. The learning curve to get started is extremely low, and the possibilities of what you can do are nearly limitless.