Operating the sales motion at an early stage company is one of the hardest startup jobs out there. The team is fighting an uphill battle to sell product vision while grappling with the cold-hard truth that the plane is being built during take off.
In order to make sure the sales team is properly motivated, founders have an even harder job to design a compensation structure that balances the need to reward performance while leaving enough room for reps to navigate the ambiguity of a not-yet-solidified sales process.
The standard components of sales compensation are base (cash) and commission pay. These roll up to your on-target earnings (OTE) and set the stage for what is expected of your reps.
We looked at the compensation of thousands of Account Executives across the United States. The answer is clear as day.
A 50 / 50 split between base compensation and variable commission is the most common sales compensation structure.
This result isn’t surprising. Companies want to leave enough room for high achieving reps to blow through their quota and make some real money, but without cleaning out the company entirely.
Word travels fast when your sales team is getting rich, fueling the go-to-market flywheel as you attract better and better talent.
But at the same time, if there’s a tough quarter, you want them to be able to put food on the table with that 50% base salary buffer.
But does this structure still hold for the early stage? What if your only experience selling comes from the founder-led sale?
50 / 50 is the gold standard everywhere.
Except in the early stages of a start-up.
Base salary frequently represents over 50% of OTE.
Why in the world would an early stage company pay more base salary than variable?
Overall, it takes a few cycles to figure out the sales motion. And quotas should be set thoughtfully given the well-being of the company and rep are at stake.
Two main takeaways:
In general, neither 0% variable nor 100% variable are viable long-term options for most SaaS companies. You’ll probably end up close to 50 / 50 for most AE roles, but the path to land there might not always be straight forward.