Sales compensation for startups in the pre-product-market-fit phase requires a flexible approach. Unlike established businesses, early-stage startups face unique challenges where traditional 50/50 models often fall short. Crafting a startup sales strategy that aligns with the realities of early growth stages is crucial for motivating your team and driving sales in an uncertain market.

In this guide, we will explore how pre-product-market-fit startups can develop effective sales compensation strategies that recognize the fluid nature of their environment, helping inspire sales teams and set the foundation for growth.

The challenge of standard compensation in startups

Traditionally, sales roles are compensated with a mix of base salary and commission — typically split 50/50. This model rewards performance directly linked to sales outcomes, incentivizing representatives to close deals.

However, in startups where product-market fit is still being identified, this standard approach might be unfair and unproductive.

Why adjust compensation?

1. Uncertain sales environment: Startups often lack a repeatable sales process in the early stages. The absence of established sales materials and a solid sales process makes it difficult for sales reps to achieve traditional sales goals.

2. Evolving product offerings: As startups continue to develop and adjust their products, the functionalities available might be limited, impacting the ability of sales teams to meet high sales quotas.

3. Changing messaging and ICP (Ideal Customer Profile): As the startup hones its market positioning and refines its target customer profiles, sales teams must adapt quickly, often without a historical benchmarks to guide them.

Given these challenges, following strictly a 50/50 compensation model can be demotivating and lead to high turnover rates among sales personnel.

An alternative approach to Sales Compensation

To foster a fair and motivating environment, startups need to consider adjusting the traditional sales compensation model:

1. Increased base salary

Proposal: Adjust the compensation structure to 70-30 or 80-20 ratio between base salary and commission. By increasing the base salary, you provide more stability and security for sales reps, recognizing the challenges they face in a startup environment.

2. Flexible commission structure

Variable metrics: Alongside revenue generation, incorporate other key performance indicators (KPIs) such as the number of demos conducted, proposals prepared, or strategic customer engagements. This broader criteria set recognizes and rewards the diverse contributions of sales reps beyond just closing deals.

3. Continuous adjustment

Review and adapt: Regularly review the compensation structure to ensure it remains aligned with the evolving business landscape and sales team needs. This includes adjusting targets, KPIs, and the balance between base and commission as the startup grows and stabilizes.

Building a fair and motivating work environment

Compensation plans that reflect startup challenges enhance fairness and boost morale. They acknowledge the complexities of selling a constantly evolving product and the critical role sales reps play in this process.

Cultivating long-term commitment

• Support and training: Make sure your sales team is properly trained and supported so they can effectively communicate the value of your product, which is likely to be in its early stages.

• Communication transparency: Stay in touch with all stakeholders regarding compensation structures, changes, and the reasons for the changes. This transparency builds trust and aligns with the objectives of the company.

Conclusion

It is critical for startups, especially those that are still trying to find their product-market fit, to rethink traditional compensation models. A company can ensure that its first account executives are not only fairly compensated but also deeply motivated to grow with the company. This is done by adjusting these models to better suit the startup environment.

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