Quick Guide to SDR Compensation

17 Oct, 2022
Collin Stewart

A great compensation plan can do wonders for your sales team–increasing motivation, performance outcomes, and employee satisfaction. With the right commission structure, your outbound sales function will be positioned to meet and exceed quota year after year.

So where do you start? In this quick guide, we’ll walk you through how to build an effective commission structure step-by-step.

Why you need an SDR compensation plan

There are two primary functions of a sales development representative (SDR) compensation plan: benefit to the individual SDR and benefit to the company. The best plans balance these two objectives so that both the rep and company benefit.

Designing the right compensation plan requires careful consideration. Where many companies go wrong is by setting an unrealistic or confusing compensation plan. This results in low morale and, as a result, fewer deals closed. 

Transparency is key when it comes to compensation. Be clear with your SDRs about how compensation works, the structure of their commission plan, and exactly what they need to do to increase their earnings. With the right plan in place, your sales team will be more productive and motivated to reach their goals.

Motivating your sales team

Motivating your outbound sales team can be challenging at the best of times. The best way to ensure everyone stays on track is to practice open communication, listen to your reps as problems arise, and provide incentives to reward good behavior. 

A great compensation plan is just one way to motivate your sales team. For more ideas, check out this blog post on non-monetary incentives, which can be a great supplement to financial compensation.

Building your SDR compensation plan

The best compensation plan for your sales team depends on a variety of factors, including your revenue goals, SDR experience level, and integration between outbound sales and marketing. If you aren’t careful to align sales incentives with marketing goals, this can lead to conflict between the two functions.

Keeping those factors in mind, here is a basic overview of how to create an effective compensation plan.

Quick-Guide-to-SDR-compensation

1. Determine your plan structure and variables

The most common structure is what’s called a variable compensation plan, which consists of a base salary plus a commission based on performance variables. According to Hubspot, most companies employ a 60:40 split, with 60% of the rep’s pay consisting of a fixed salary and 40% being variable.

To choose your performance variable, consider both overall business goals and specific outbound sales objectives. For example, if your goal is to increase your average deal size, that will result in a different compensation plan than the goal of an increased retention rate.

The best metrics are usually revenue-generating–sales qualified opportunities (SQOs) and sales-qualified leads (SQLs) are two common ways to measure the performance of an SDR. Make sure that whatever variable you choose is within the rep’s control, otherwise, they won’t feel motivated to achieve the goal.

2. Choose your timeline

After you’ve chosen your performance variables, you need to decide when reps will receive their commission: when the buyer signs a contract when the buyer pays their invoice, or at predetermined intervals (ie., once a month). The last option is commonly known as a tiered-commission structure: when reps reach a certain number of deals per month, their commission rate increases.

To find the best fit for your company, consider your budget, the size and structure of your sales team, and industry standards. If all of your competitors use the same model, your reps will expect the same, and you need to have a good reason to deviate from the norm.  

3. Set quotas

Once you have a compensation plan structure in place, it’s time to start setting quotas. There are two main approaches:

In the bottom up approach, you multiply the typical number of closed deals by the average deal size to achieve a baseline quota. In the top down approach, you use market data and your revenue goals to determine how many deals your sales team needs to close to reach those goals. Both of these approaches will require market research and/or combing through your sales team’s historical data.

The most important factor when setting quotas is to make sure they’re achievable. If the numbers are unrealistic, your sales team will suffer a serious lack in motivation, leading to dissatisfaction and underperformance. 

4. Set clear expectations

Communication is the key to successful implementation. If reps are unsure how their commission works, that doesn’t provide a strong incentive for them to exceed quota. 

Make sure to clearly outline the compensation plan in the hiring process, onboarding, and ongoing coaching sessions with your sales team. Invite reps to ask questions and encourage honest feedback on the plan’s structure so you can make improvements if necessary.

5. Adjust the compensation plan as needed

As your sales team grows and evolves, you should continually evaluate your compensation plan to see if the structure is still serving your goals. You may also want to consider adding thresholds and accelerators to motivate top-performing and underperforming reps.

Thresholds are the minimum performance level a rep needs to reach to be eligible for compensation (usually 40-50% of the quota). If they don’t reach that number, they receive their base pay but no commission. 

Accelerators, on the other hand, reward top performers by increasing the rep’s commission rate. If a rep habitually exceeds quota, they should be compensated for that behavior. Both thresholds and accelerators can provide the needed motivation for your sales team.

Final thoughts on building an SDR compensation plan

Your commission structure needs to serve both your sales team and your company’s bottom line. Start by considering your overall objectives, setting attainable quotas, and then clearly communicating those goals to your team. If you follow the steps outlined in this post, you’ll be able to build a compensation plan that boosts motivation and revenue. 

Need help building or scaling your outbound sales team? Reach out here to get in touch with our expert coaches.

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