A time comes when a B2B SaaS company starts to think about sales to big companies. Becoming an enterprise SaaS in other words. It soon becomes obvious that getting enterprise sales is not easy. Then its a short step to the place where you decide its time to start hiring sales people.
There is a bit of consensus in Scotland right now. A lot of companies are on the cusp if they can just get the right sales team onboard. The problem is great sales people are hard to find. And expensive.
I sit in a lot of conversations about how much to offer sales people. For most SaaS founders it feels like a big risk. The salary alone can add 20 or 30% to the monthly burn rate. Then comes the vexed question of commission. How much should you offer for on target earnings? What is a reasonable target?
At this point I like to confuse the issue by offering my thoughts. I don’t think targets and commissions are a good model for rewarding sales in general. I believe they are terrible approach for a SaaS startup.
The four killer flaws
Commissions based on the achievement of targets (or quotas if you prefer) are popular for three reasons. First they are simple, clear and easy to measure. Second the targets can be tied in to your overall revenue goals. Finally, sales people generate real value. And this is the established way of rewarding them for it.
All these arguments sound attractive. Everything is a balance though. And there are four big reasons why this traditional thinking does not stand up:
There are bunch of conflicting incentives and messages inherent in traditional per head sales quotas. I love this article by Steli Efti, a true sales guru, pointing out the downside risks of getting this stuff wrong.
Luckily there is an alternative that avoids many of these pitfalls. And it grows naturally with your business.
How team targets work
Most of my career, I worked towards team based targets. In a startup this is dead simple. You need to have one goal. Everyone in the business has to have a laser focus on achieving that single goal. So everyone shares the same target. Hiten Shah explains the importance of this.
As you grow, different teams will emerge. Targets and objectives will grow more complex. But each person will be a member of one or more teams. They share objectives with everyone in the team. This leads to a natural process. Objectives grow and diverge with your business. They are not made up to fit with “iconic,” expensive, big name hires.
In a large business, most senior people are part of more than one team. The effect is that everyone has a different set of objectives. Each individual target is shared with the team but no two people have the same combination.
For example, in my last year I was leading two major account teams and part of an industry business unit team. I had shared objectives with each of these teams. Yet no other individual had the exact same combination of teams and objectives.
Be clear team targets do not mean splitting objectives up into separate portions. Each member of the team shares 100% of the same target.
The Chairman's View
How does this affect reward? First and foremost everyone gets rewarded better because the business performs better. Teams work towards the same goals. People support each other. Incentives are unify not divide.
Performance reward in this system has to be based on total contribution. Simple numbers matter but they don’t tell the whole story. Total contribution gives you the opportunity to look at everything. Close sales, build relationships, deliver great customer service, product innovation - whatever really matters.
You can take the chance to factor in the important cultural things that get left behind in a sales culture. Respect, diversity, honesty and personal growth all matter. So recognise them.
Its true that total contribution is much harder to measure. At the same time it is fairer.
Leadership earns more respect. The right behaviours are supported and encouraged. Well worth the effort.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.