Here is a common debate between sales leaders: when is the right time to start paying sales reps commissions?

Should it be from day one, or only after they've ramped up and covered their base salary?

This decision can significantly impact your team's morale, motivation, and ultimately, your company's success.

Two approaches to commission structures

There are two distinct schools of thought when structuring commissions for your sales team. Let's dive into each approach and weigh the pros and cons.

Approach 1: the payback period

The first approach, known as the "Payback Period," says that Account Executives (AEs) only start earning commissions once they've sold enough to cover their base salary. Here's an example:

• Your company sells software with a standard monthly subscription fee.

• Your AE's base salary is $5,000 per month.

• Under this approach, your AE won't receive any commissions until they've sold $5,000 in Monthly Recurring Revenue (MRR).

The primary advantage of this method is that it helps your company mitigate risks and minimize costs. This is done by not overinvesting in reps who struggle to ramp up. However, the downside is that it demotivates your sales team. Failing to reward them for their tangible achievements can decrease morale, loyalty, and drive.

Approach 2: commission from the start

The second approach is to start paying commissions from the first deal closed. This method acknowledges and rewards your sales reps' achievements from the beginning of their tenure with your company.

The main benefit of this approach is that it fosters a sense of recognition and appreciation for your sales reps' hard work. Knowing that their efforts are valued can boost morale and motivate them to strive for better results. The drawback, of course, is that it increases your investment in new hires without guaranteeing their traction and delivering consistent performance.

Which approach is right for your business?

My preference leans towards the second approach: paying commissions from the start. While it involves a higher upfront investment, I believe the long-term benefits of a motivated, loyal sales team far outweigh the risks.

Consider this: a study by the Sales Management Association found that organizations with highly engaged sales teams achieve 2.5 times more revenue growth than those with disengaged teams. By rewarding your reps after their first sale, you're demonstrating that you value their contributions and are invested in their success. This can lead to higher engagement, lower turnover, and ultimately, better sales outcomes.

Of course, the right approach for your business will depend on various factors, such as your company's growth stage, financial stability, and sales cycle length. If you're an early-stage startup with limited resources, the payback period method may be more practical.

However, if you're a more established B2B company looking to scale, investing in your sales team's morale and motivation could be the key to unlocking rapid growth.

Implementing a winning commission structure

Regardless of which approach you choose, there are several best practices to remember when designing your commission structure:

1. Ensure clarity and transparency: Your commission plan should be easy to understand and communicate. Make sure your reps know exactly how their performance will be measured and rewarded.

2. Align with company goals: Structure your commissions to incentivize behaviors that support your overall business objectives, such as expanding into new markets or increasing customer retention.

3. Review and adjust regularly: As your business evolves, so should your commission plan. Regularly assess its effectiveness and make adjustments as needed to ensure it remains motivational and aligns with your goals.

Powering growth with the right commission strategy

Finding the right commission structure can have a significant effect on your revenue growth. By rewarding your sales reps' achievements from the start, you can cultivate a motivated, engaged team that drives better results for your business.

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