Asking “what’s typical commission for SaaS salesperson?” is like asking “how expensive should I price my SaaS product?” or “how long should I spend on developing my software?”.
To answer your questions correctly, we need to ask for clarification and more details about your software, its complexity and company goals.
If you search on Google, Youtube or Quora, answers will tell you that 7%, 9%, 10% or are the most popular software sales commission rates. Since we don’t want to repeat the same statistics, we will show you how you can find the perfect answer. How? We will write about:
- 1. common software sales comp plans,
- 2. some rules you’d rather follow when working on your software sales commission plans,
- 3. what factors to consider before defining your SaaS sales commission percentage
- 4. and finally figure out how much that SaaS sales salary should be.
In the end, a bonus section is waiting for you! We will share 8 ideas on how to increase your sales team’s productivity and help them close more deals.
What are 5 common SaaS sales compensation models? See below!
No base salary, commission only
Pros: This model is great especially if you are a startup. Mainly because you don’t get much funding (or at all) and can pay your sales reps only when they bring you paying users. Besides, your startup doesn’t have to pay taxes for commission-based only employees and offer benefits. For your sales team members, this approach may be beneficial because they are more independent and working schedule is flexible. The harder and smarter they work, the larger their commission check will be.
Cons: For your recruiter, finding contractors who are a good fit will be more difficult. The reason is that commission-only position doesn’t guarantee a fixed financial compensation at the end of each month. Consequently, only a small group of jobseekers will agree upon facing this risk. While talking to your prospects, they will try to close the deal immediately to make money, forgetting to qualify the prospect and asking some essential questions. One more thing. You have to pay higher commission rates than if you offered base salary too.
Base salary + commission
Pros: You will offer your salesperson a certain amount in advance and know how to plan your expenses. Your sales reps will feel more confident and secure. Because they aren’t starting out the month from $0, and new deals will add more financial resources to their already existing salary.
Cons: Base salaries are sometimes small numbers. And often they don’t attract experienced salespeople. If you increase the fixed salary, it will force you to lower the commission rates. This plan will suit you if your growth is stable and predictable and you can offer decent base pay.
Pros: Any company would like this idea. You exclude development, support, marketing and other costs and pay commission only based on the amount of net revenue. Your sales reps should learn how not to make discounts and how to close more expensive deals.
Cons: You’d like to go for this approach but we should understand that your profit will be a considerably lower amount than the actual deal size. However, if your sales team is closing 5-6-figure deals or your operational costs are low, your employees will definitely support your approach.
In this case, you offer X% commission if your sales team doesn’t exceed the quota and increase commission rate when they exceed. When they outperform, you reward them more generously.
Pros: With this way of compensating, you reward high-performing sales reps when they show they can do more for you! When they exceed monthly or quarterly quota, you pay them higher commission rates. For example, your salesperson will get 11% if he reaches $50,000 monthly, and will get 13% of every deal he will close after it.
Cons: Hard to find major drawbacks for this approach. The main thing you should consider is to know how to set initial and further rates wisely not to hurt your company budget and not to hurt your team members’ success either.
This one is less common in the SaaS industry but in general is considered by subscription based service providers. You pay your salesperson when your existing users don’t churn and renew their subscription.
Pros: Thus, you motivate your employees retain your users and provide high-quality customer service. You can do that if sales team is actively included in customer retention process and contributes to customer success.
Cons: If your marketing and success teams are dealing with retaining customers, rewarding your sales reps becomes a non sense. You do pay them for the initial deal and retention is another department’s job. Multitasking will and adding multiple KPIs for your closers will not help them be more effective. Moreover, it can hurt their daily productivity and make them fail on all fronts.
Wait! You aren’t going anywhere without these 6 golden rules
No matter which SaaS sales compensation structure you will go for, here are 6 rules that will help you make smarter decisions. These principles are industry norms and if you follow them, you won’t get into trouble. Let’s see what principles you should take into account before finalizing your SaaS sales structure:
- Salesperson salary = 50% base + 50% commission – Especially if you are a startup, you can follow this principle which is common among SaaS companies. For example, your sales rep’s base salary is $20,000 and you offer him additional $20,000 if he drives $200,000 in revenue.
- Commissions are valid only for bringing new subscribers – Have you seen SaaS companies who offer LTV-based commission? That’s not about being wrong, that’s more about being unfair. Here’s why. Sales team’s responsibility is to bring new customers. New and expensive customers. Marketing and customer success teams are in charge for retention. So if you think of compensating anyone for preventing churn, you already know who to reward.
- Quotas should be 5x the OTE (On Target Earnings) – In case you wonder, OTE is your sale’s reps base salary + expected bonus if he exceeds the quota. In other words, it’s your sales rep’s full salary. So for example, if your team member’s base salary is $1,500 and you offer additional $1,500 monthly, his quota should be at least $15,000. Your sales rep will receive 10% which is the so called typical software sales commission.
- Avoid discounts – If you don’t want to look unconfident and strive to show the actual value of your software, don’t include discounts in your strategy. Your sales reps also should acknowledge that lower-price deals affect their commission size too. Sales teams in SaaS companies mainly work with large companies for whom 10 or 15% percent discount doesn’t make much sense. All they want is a working product.
- If your salesperson generated an expansion revenue, calculate commission based on the added price – For example, the initial deal size was $10,000 and now your user is going to pay $14,000. You have already paid your sales rep for the initial deal, so this time you should calculate X% of $4,000, not the whole amount.
- Pay your sales team when you get paid – Contracts that you sign with your sales reps should contain information about this process. Usually, you arrange the payment within 30 days after receiving cash from the customer. What if the customer withdraws and changes his decision?
Let’s move to our next section.
-How to discover the ideal SaaS sales compensation percentage?
-Take into account the 7 things mentioned below.
- What’s the typical rate in your country / worldwide for SaaS companies like you – You should follow this approach mainly for comparison purposes and what you find out shouldn’t be your final guide. Salaries in the USA or Canada, for example may be quite higher than in South America or Europe. And even companies in your own country may work with different SaaS sales compensation models. At least, this research can help you refine your remuneration model and give you some precious insights. According to numbers in HubSpot’s guide, average base pay for SaaS sales reps is between $34,613-$53,000.
- What’s your net revenue – You pay not only your sales reps but your engineers, marketing and support specialists too (you hire at least these professionals). Depending on what prices you set and how much revenue you are expecting to generate, you will know what’s the most reasonable commission rate to offer.
- Whether it’s one, two or multi-year contract – The longer the period that a customer wants to work with you, the higher your sales rep’s remuneration should be. Because you acquire a user who will be committed to your company and finding this kind of clients is always harder.
- Whether cash is paid upfront or no – Receiving cash in advance means you can manage your financial resources more easily and plan major your expenses. In this case, your sales reps deserve higher compensation than if the user paid monthly.
- Whether you set quotas monthly or quarterly – If your sales cycle is less 45 days, monthly option will work well. But if it is less than 90 days, quarterly option is more reasonable. 10% commission rate is good if you set monthly quotas. But in case of quarterly, it’s definitely a small number.
- Whether your sales reps exceed the quota or not – Say your sales team will receive 9% of revenue, in case they hit the quota. When they start closing more deals after reaching your target number, you can share with them 11% of revenue they will generate.
- Whether your team closes “special” customers – As a service provider, you might have a list of companies with whom you’d like to work with. They can be both world-famous companies and businesses that are well-known in your industry. Or you might want your sales reps generate sales not from your CRM database, but tactics like cold emailing and cold calling too. And once they bring customers from these channels, you can offer a higher commission rate.
8 steps towards creating a high-performing SaaS sales team
Here’s is the final section we have prepared for you. Let’s see how you can help your employees and earn more. And discover which approaches and techniques you can include in your SaaS sales incentive plan.
- Give your sales team time to master your software usage – Only communication, asking the right questions and diagnosing the prospect isn’t enough. Words play a significant role but … you are selling SaaS and your salesperson should know your product like the back of his hand. Even better. As customer-centric “doctors” who want to discover the patients’ problems, they should know whether your software solves prospect’s issues. And if yes, then how. Otherwise, your prospects aren’t going to convert into paying users at all or will walk away from you after a short period.
- Teach your sales reps marketing – Every day your salespeople have face-to-face meetings with potential clients. They definitely excel at personal communication and know how to address prospect’s weak spots. Make sure they know your buyer personas and buyer’s journey as good as your marketing team. Because wrong customers exist, and your salespeople should avoid closing them at all costs.
- Align sales and marketing teams – We are not about reviewing their responsibilities. We are about encouraging them to cooperate and share thoughts. For example, digital marketers can ask salespeople which kind of content brings the most qualified leads and high-paying customers. Based on real-time answers, your digital marketing team can prioritize their tasks and create better offers.
- Make a stronger sales staff with a training plan – Do you only rely on your salespeople’s knowledge or there are things you’d like all of them to know? That’s true, personal experience is second to none but your company, software, prospects are unique. And there are certain techniques, rules, principles you’d like your sales team to know. Your sales manager should be responsible for designing a plan that will benefit both the company and its closers.
- Let your sales reps choose their reward – Money is not the only way to thank and remunerate your team. Instead of guessing what advantages they will appreciate, ask them. One of your closers may be fond of travelling, another one – sports, the other one would like to attend a professional conference abroad. Trying to achieve their passion will become a great source of motivation, positive mood, and productivity.
- Help them grow with constructive feedback – Your sales rep’s success is your company’s success. When they fail to hit the quota, when they are losing, you suffer too. Instead of blaming, try to find the reasons behind their failure, evaluate their performance even if everything looks pretty good and voice the mistakes you wouldn’t like to see in their conversations. That will help you work with a better team and better train newcomers in the future.
- Set challenges, make their workday exciting – As salespeople love winning, they love facing challenges too. Confess that sales process sometimes is like a game: whether you lose or acquire. Promise your sales reps a larger compensation if they close a deal with a Fortune 500 company. Or if they close annual or biannual subscription package with upfront payment.
- Increase commission rate once they exceed the quota – This approach works. Imagine your sales reps have performed the way you were expecting. They completed their monthly/quarterly task, you met your goals, time to set new rules with new and higher commission rates.
We tried to guide you throughout the whole SaaS sales compensation process, told what rules you should follow and what factors you’d like to consider. Research others’ experience and sales commission for software sales but your final decision should be based on your company’s uniqueness.
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