This is part of a series – start at the beginning here.
If you’re bold enough to venture into hiring in the US market right now, first of all – good on ya. As most folks know, compensation is in a weird place right now because everything is changing so fast. While the numbers may change year over year, the structure should stay the same, especially if you want to maximize the effectiveness and stickiness of your team.
Sales compensation plans should be extremely easy to understand and always abundantly clear to the rep how much they are going to make that month/quarter/year. It’s amazing how many Sales compensation plans I’ve seen based on a multitude of factors. Please resist this urge – hard-to-understand plans make sense to Finance but don’t typically work out well on the ground for Salespeople. Paying Monthly is also helpful because most people budget monthly.
And once you figure out how much you’re going to pay your SDRs, try out our SDR ROI Calculator which should help you out with planning for your team.
Here’s some information on how to structure compensation for SDRs in 2022.
SDR On Target Earnings in 2022
As said above – the numbers are changing quickly, so this section of this blog may be out of date sooner than the rest. Typically a US-Based SDR can command an On Target Earnings of between $60,000 and $100,000 per year (80% of all SDRs will fall in this range). The delta will depend largely on the target market, which essentially turns into Deal Size.
If your SDR is calling on target accounts with an Average ARR of $100k+, you can expect the SDR to make over and above $100k per year. If they’re calling on an ICP list with an Average ARR of $20,000, you should expect them to make around $60,000 per year total earnings. You can feel it out between those numbers, but that’s generally the rule of thumb.
SDR Commission Splits
While the numbers may change, the compensation split should not. Since SDRs are highly incentivized to perform, the OTE split should be 50% base, 50% incentive. Sometimes at the Enterprise level I see a higher base to incentive split, but having run these teams, I believe strongly in a 50/50 split.
Ramp Up/Training Periods
During onboarding, the last thing you want is for your SDRs to get discouraged and not make their full OTE. If they do, they will quit extremely quickly. We recommend at least a 3-month ramp-up period for your new SDRs that coincides with a quality training program (post coming soon about training your SDRs). Typically we design it this way:
- Month 1: Guaranteed OTE based on completing training assignments (these are essentially box-checks, but still encourage learning)
- Month 2: 25% of full goal
- Month 3: 75% of full goal
Since part of the training should be having your SDRs on the phones, if they get any meetings in a month where there is no numerical goal, they should be giving credit towards the next month that they have a numerical quota. This encourages the SDRs to produce success with no downside as they are in training.
Where Should We Cap Commission for SDRs?
Nowhere. Ever. Not ever.
Commission caps have to be one of the worst overall business decisions you could make. The only place they make sense is if you specifically have a certain capacity of widgets or hours to sell, but even in that case I’d most likely tell you that you still need to un cap that commission because you’ll need to sell more in the next period. And if you’re really trying to limit sales, then you probably shouldn’t have an SDR team at all.
If a company has a commission cap because of a financial reason, then there’s no way for the company to scale properly – every dollar spent on Sales & Marketing should result in ~ 3 dollars of lifetime value from customers in a healthy SaaS business. If these extra dollars in commission are not resulting in that level of return, you need to rethink your strategy.
Point being: never have any reason to limit commission or incentive pay. It’s the best way to shoot yourself in the foot.
What Should SDR Incentive Compensation Be Based On?
There are a few common models for SDR Goals:
- Meetings Booked
- Opportunities Created (from meetings booked)
- Closed Won Bookings
Sometimes we see a combination of several of some of these, however, we always encourage keeping compensation plans as simple as possible. The simpler they are, the easier it is to point Sales folks in the right direction and the less time it is to manage.
Typically we’d recommend an Opportunities Created from meetings booked model. This gives the Account Executive the ability to accept or reject the lead, ensuring quality. Make sure that you have strong Opportunity Qualification rules set up for Account Executives and ensure that your tracking is set up correctly in Salesforce (we’ll talk about that more in our Technology section).
If you do meetings booked, the SDR may throw more meetings at AEs than needed, wasting their time. If you do Closed Won Bookings, it might take too long for the SDR to get paid, frustrating them and not giving them instant results.
To start getting paid, the SDR should hit at least 80% of their target. Depending on how valuable the meetings are, you can add decelerators on the lower end (i.e. 60% of payout at 80% of goal) or accelerators at the higher end (i.e. 150% of payout at 130% of goal). Accelerators tend to make a lot of sense because you want your good people to stay, and because you’re already paying a base salary, it’s cheaper to compensate overperformance than hire more people (not to mention the decreased management and overhead cost).
SDR Manager Compensation
In keeping with the “simple is better” mantra, roll up the same goal for all SDRs under one manager, multiply it by 0.8 (80%) and make that the Manager’s goal. Report this number to the board as your target goal.
SDR Managers should make between $80,000 and $140,000 depending on experience and deal size.
Tracking and Reporting on SDR Compensation
Now you’re probably thinking: this is great information (of course), but tracking meetings booked for 30+ SDRs sounds like a nightmare. Well, it is, if you don’t invest in your technology stack for SDRs. You will waste many hours each month if you don’t have this system set up extremely tight inside of Salesforce. And it’s much harder to audit for accuracy if you aren’t thinking ahead of the game.
We’ll break down how to track and report on SDR Compensation/achievement in our Technology post.
And that’s that! If there’s a highlight of what we said it’s:
- Keep it Simple
- 50/50 base/bonus split
- Paid Monthly
- Goal is Opportunities Created from meetings booked
- Managers are targeted on 80% of rollup from their team
Good luck setting up your SDR Compensation model. And as always, if you need more help, we’re here for you.