An SDR commission plan is aimed at compensating SDRs for their efforts and results. Here, we will be looking at how to develop an SDR commission plan that balances financial security with motivation to perform better. Read on to know how you can create an SDR commission plan that will inspire your SDRs to give their best.
A sales development representative (SDR) plays an instrumental role in a business’s success. After all, they keep your pipeline teeming with high-quality leads!
Given this background, you need to devise a rewarding SDR commission plan that motivates them to give their all in attracting customers.
That being said, the problem with the SDR commission plan is that you don’t get a magic formula handed to you. There are no templates that you can follow and gain instant results.
So, you’ll need to follow a clinical trial and error method to develop an SDR commission plan that works for your organization.
Don't worry, I’ve got you covered!
In this article, I’ll cover seven essential steps to create an effective SDR Commission plan. I’ll also highlight four amazing benefits of implementing this plan.
How to Create an SDR Commission Plan?
Here’s a step-by-step guide for building a commission plan for your SDRs:
1. Fix the on-target earnings (OTE)
On-target earning, or OTE, is the pay an SDR can expect upon achieving 100% of their quota.
It contains two components:
- Base pay: The fixed annual pay that the SDR is entitled to, regardless of their performance.
- Variable pay: As the name suggests, contains the variable component comprising the on-target commission (OTC).
Once you have a ballpark estimate of the OTE, you might have to finetune it depending on the:
- Experience.
- Qualification.
- Sales cycle complexity.
- Product sellability.
- Average contract value.
- Business goals, etc.
Factor these in to work out an OTE that is competitive enough to attract and retain sales talent.
2. Determine the pay mix
Now that we’ve established that the OTE is a blend of fixed and moving pay elements, the next stage is to decide on an appropriate ratio for the two components.
Typically, SDRs in entry-level positions have a higher base salary portion. It lends some stability and financial cushioning, which allows them to focus on acquiring critical skills, developing strategies, and perfecting techniques.
In this case, you’d have 70% base pay and 30% variable pay. With time, this ratio moves to a 50-50 split. Such a recalibration of the pay mix will give the SDR a much-needed push to discover opportunities and hit quotas.
The objective is to strike the perfect balance where the SDR feels motivated to achieve quota without worrying about survival.
Check out this ultimate guide on creating the perfect pay mix strategy.
3. Establish performance variables
Let’s dig deeper into the variable pay component!
SDRs generally earn a commission on activities (opportunities created, calls made, meetings booked, etc.) or outcomes (deals closed, contract value, expected revenue, etc.).
Focusing on activities alone will cause SDRs to prioritize quantity over quality. On the other hand, SDRs have very little control over the outcomes as they’re primarily involved at the top of the funnel.
So, if the deals don’t close and their commission suffers, then SDRs are bound to be left annoyed.
As such, you need to quantify performance that combines activity and outcome. Most SDR commission plans use metrics like sales qualified leads (SQL) creation or sales qualified opportunities (SQO) discovery.
4. Set attainable sales quotas
Set a quota that is too high, and you will have frustrated and demotivated SDRs.
Lowball it, and you will be overpaying for mediocre performance.
What should you do?
If you’re just starting out, you can research the industry standards to set realistic sales quotas.
According to this SDR metrics report, SDRs generate seven qualified sales opportunities every month. So, you can use seven as the baseline. On the other hand, if you already have some existing data to work with, you can use that to set the quota for your SDRs.
Naturally, you obviously want something practically achievable by at least 60 to 70% of your SDRs to keep the momentum going.
Once again, it’s about finding the perfect balance.
5. Define thresholds and accelerators
Thresholds and accelerators help motivate low-performers and reward high-performers, respectively.
Thresholds define the minimum performance levels beyond which an SDR begins to earn a commission. Typically, thresholds sit at 40 to 50% of the quota. So, if the quota is 10 SQOs and the threshold is 40%, SDRs who achieve 3 SQOs or lesser will only earn their base salaries.
On the other hand, accelerators motivate SDRs by increasing the commission rate once they have hit their quota and continue delivering results. So, if the quota is 10 SQOs with the SDR making $220 per SQO, then this figure increases to $250 per SQO starting from the 11th SQO.
Use the quota as the benchmark to define thresholds and accelerators that are best suited for your organization.
6. Outline Performance Period
The performance period is typically linked to the sales cycle duration.
However, since the role of an SDR is fairly limited and restricted to the early stages, they generate results faster.
Resultantly, most companies follow a monthly system of performance review and commission calculation.
7. Test Your Plan
Once you have developed your SDR commission plan, it would be best to test it before rollout. Use the existing data available to calculate the commission for the SDRs.
Alternatively, you can take hypothetical values to test the efficacy of your commission plan. Compare the payouts with the industry standards and benchmarks to gain a well-rounded view of whether you’re treating your SDRs to fair and just compensation.
Note: This is a high-level, step-by-step guide to building an effective SDR commission plan. The steps mentioned above are purely instructive, and you can tweak them as per your business needs and requirements.
4 Key Benefits of Using an SDR Commission Plan
Clearly, the process of developing an SDR commission plan is not easy and requires a good amount of number crunching.
But is it worth it?
Here are a few advantages that will help you make up your mind:
1. Provides greater transparency
Commission payout can be the bone of contention for several SDRs, who feel that they are giving their best, but someone else is earning the benefits. A well-defined and documented SDR commission plan eliminates ambiguity and justifies all payouts.
2. Helps in SDR performance analysis
The commission is a reflection of the SDR’s performance.
As such, managers or team leaders can use it as a metric to segment SDRs into different levels and assign work to them. It also helps you personalize their career growth trajectory.
3. Acts as an incentive
The SDR commission lends insights into how much an SDR can earn. The ability to visualize their maximum income potential will motivate them to work harder toward quota attainment while also staying productive.
Such a mindset would naturally benefit your company too.
4. Improves planning and budgeting
A structured SDR commission plan offers businesses a clear picture of the maximum payout. Knowing this figure allows you to plan and budget finances accordingly so that you are never taken by surprise.
Closing Thoughts
If you’ve developed an SDR commission plan that’s fair, just, and reasonable, then you’ve already won more than half the battle!
The other half primarily hinges on communicating the SDR commission plan across the organization so that everyone knows what’s at stake.
Moreover, choosing compensating software like ElevateHQ would further hedge the bets in your favor. It combines the best of data-driven decision-making and calculations to ensure that everyone walks away satisfied with any commission payout.
Sign up for ElevateHQ today to make the most out of your SDR commission plan!
