A Very Simple Sales Comp Plan For Your First Sales Reps

Your first sales reps don’t need a “world-class compensation architecture.” They need a plan they can understand
while standing in line for coffee. Because in the early days, your comp plan has one job: create focus.
(If your plan requires a 12-tab spreadsheet and a therapist, you’ve built a distraction.)

The goal here is a comp plan that’s simple, fair, and hard to gameso you can ship product, learn your market,
and build a repeatable sales motion. Then, once you’ve earned the right to be complicated, you can be complicated.

Why “simple” beats “perfect” when you hire rep #1

Early-stage sales is messy. Your pricing might change. Your ICP might sharpen. Your pitch deck might still have
“TBD” on slide 7 (respect). A complex commission structure assumes stability you don’t have yet.

• Speed: You can roll out a simple plan quickly and start selling now.
• Trust: Reps sell better when they trust how they’ll get paid.
• Signal: A simple plan makes it obvious what matters (usually: booked revenue).
• Iteration: You’ll change the planbetter to adjust a bicycle than a spaceship.

The “SaaS starter recipe” for first reps

A practical early-stage approach many SaaS leaders use can be summarized like this:

Pay a rep roughly 20–25% of what they close in total compensation (base + variable),
typically with a 50/50 pay mix, using a straightforward commission rate on new bookings,
plus a small accelerator for exceeding quota.

That’s not meant as a rigid law. Think of it as a sanity check. If your plan pays dramatically more (or less)
than that range, make sure you can explain why in one sentence without sweating.

What “20–25% of bookings” looks like in real life

Let’s translate the idea into numbers without turning your office into a math-themed escape room.
Suppose you hire an Account Executive (AE) with:

• OTE (On-Target Earnings): $120,000
• Pay mix: 50/50 → $60,000 base + $60,000 variable at 100% quota
• Annual quota: $600,000 in new ARR/ACV bookings

At quota, the rep earns $120,000 total comp on $600,000 bookedexactly 20%. The commission rate
implied by that plan is simple: variable ÷ quota = $60,000 ÷ $600,000 = 10%.

This is why “10% commission on new ARR” shows up so often in SaaS. It maps cleanly to a 50/50 plan and a healthy
quota-to-OTE relationship (often around 5:1) without requiring a finance degree or a crystal ball.

Step-by-step: build your first AE plan in 30 minutes

Step 1: Pick one north-star metric

For first reps, pick one primary metric. The classic choice is new ARR booked
(or annualized contract value if you sell monthly subscriptions). If you want speed and clarity, start here.

Avoid paying AEs on a buffet of activities (“calls, meetings, demos, vibes”). That’s how you get a calendar full of
“great conversations” and a bank account full of “great sadness.”

Step 2: Set OTE based on the role you actually need

Your first AE is often part closer, part product feedback loop, part therapist for prospects.
Choose an OTE that’s competitive enough to attract someone who can sell without constant supervision.

Common early-stage SaaS pay mixes for AEs land around 50/50 (sometimes 60/40 for longer cycles or
more complex enterprise deals). The more your motion depends on the rep’s closing skill, the more variable pay makes
sensewithin reason.

Step 3: Set quota using a quota-to-OTE sanity check

A common rule of thumb for SaaS is a quota-to-OTE ratio around 4:1 to 5:1 for ramped reps,
depending on deal complexity and margin. Early stage, if you’re still validating the motion, you might start a bit
gentler and then tighten once you have repeatability.

Example: If OTE is $120,000 and you choose a 5:1 ratio, quota becomes $600,000. Clean, understandable, defensible.

Step 4: Set commission rate as a simple equation

Once you know quota and target variable pay, the commission rate is:

Commission rate = Target variable pay ÷ Annual quota

Example: $60,000 ÷ $600,000 = 10% on new ARR/ACV booked (up to quota).

Step 5: Add one accelerator (optional, but motivating)

Great reps don’t stop selling at 100% unless you accidentally train them to. A simple accelerator keeps momentum:

• 10% commission on new ARR up to 100% of quota
• 15% commission on new ARR above 100% of quota

Keep it uncapped if you can. Caps are the fastest way to turn your top performer into your next resignation letter.

Step 6: Decide when you pay (and how you handle churn)

Startups often pay on booked revenue because it’s simple and aligns with the AE’s job: close.
To protect the business, add a modest guardrail:

• Clawback: If a customer cancels early (for example, within the first few months or before a year),
  you can claw back the proportional commission.
• Net revenue: Pay on net new ARR after discounts, credits, and refunds.

Don’t turn clawbacks into a hobby. Use them as a reminder that “good fits” matterthen focus on improving onboarding,
product value, and customer success so early churn is rare.

A simple example AE plan (for $500/month subscriptions)

Let’s build a plan around the common scenario: subscription is about $500/month, which annualizes to
$6,000 ACV.

Plan design

• Role: Inside Sales AE (full-cycle)
• OTE: $110,000
• Pay mix: 50/50 → $55,000 base + $55,000 variable
• Annual quota: $550,000 in new ACV booked (≈ 5:1 quota-to-OTE)
• Commission: 10% on new ACV booked up to quota
• Accelerator: 15% on new ACV booked above quota
• Payout cadence: Monthly (paid on closed-won bookings)
• Clawback: Pro-rated if customer churns before 6–12 months (choose a window that matches your risk)

What a month can look like

Say the AE closes 8 customers in a month at $6,000 ACV each. That’s $48,000 ACV booked.
At 10%, the commission for that month’s bookings is $4,800 (subject to any timing rules you set).

The rep doesn’t need a decoder ring to understand this: close good deals, make good money. Everyone wins.

“But what about small deals that take the same effort?”

This is where early-stage reality matters: smaller ACV deals can consume real selling time (demos, follow-ups,
procurement, security questionnaires written by someone who fears joy). If you’re very SMB/transactional,
your comp may drift slightly higher per dealor you may streamline the motion so the cost to sell drops.

The principle stays the same: the rep should feel like the plan is worth their time, and the business should
feel like it can scale profitably.

Ramp: how to keep new reps alive long enough to become dangerous

Even strong AEs often need a ramp period to learn your product, your market, and your customers’ weird internal
approval rituals. A simple ramp avoids panic and turnover.

A practical ramp structure

• Month 1: 25% quota (mostly learning + pipeline building)
• Month 2: 50% quota
• Month 3: 75% quota
• Month 4+: 100% quota (fully ramped)

Some teams use a draw during ramp (a temporary guarantee against variable comp) to smooth income and
reduce “I’m broke and terrified” energy. If you do, keep it simple and clearly documented.

If you hire SDRs: keep their plan simple and quality-focused

SDRs typically don’t control closed revenue, so paying them purely on closed-won can feel unfair and create drama
(the worst kind of office drama: spreadsheet drama). Instead, a common approach is:

• Base + variable: Often 60/40 or 50/50
• Primary metric: Sales-accepted qualified opportunities (or accepted meetings with clear criteria)
• Optional kicker: Small bonus when those opportunities become closed-won (to reward quality)

Example SDR plan

• OTE: $70,000
• Base/variable: $42,000 / $28,000
• Quota: 10 sales-accepted opportunities per month
• Payout: $250 per accepted opportunity + $200 kicker per closed-won sourced opportunity

The trick: define “accepted” with objective criteria (ICP fit, show rate, problem alignment), so you don’t end up
paying for meetings that exist only to pad calendars.

Simple rules that prevent chaos (without turning you into the Comp Police)

Rule 1: One page beats ten pages

If a rep can’t explain their comp plan to a friend in under a minute, it’s too complex. Your best salespeople want
to sell, not interpret legal documents.

Rule 2: Don’t change comp mid-quarter unless the building is on fire

Mid-period changes destroy trust. If you must change something, set an effective date and communicate it early.

Rule 3: Pay on what you want more of

If you pay on raw volume, you’ll get volume (including bad-fit customers). If you pay on net new ARR, you’ll get
ARR. If you pay on “number of demos,” congratulationsyou have invented a demo factory.

Rule 4: Use SPIFFs sparingly

SPIFFs (short-term bonuses) can be helpful to push a specific behavior (launch a new product, fill a pipeline gap),
but if everything has a SPIFF, nothing is important. Also, your finance team will eventually start sending you
memes. None of them will be flattering.

FAQ: quick answers founders actually need

Should we pay on MRR or ARR?

Most early SaaS teams pay AEs on an annualized number (ARR/ACV) because it’s easy to compare deals and aligns with
quota. If you sell monthly, annualize it for comp purposes so performance is apples-to-apples.

Do we pay commission on renewals?

Usually not for early AEs unless they also own renewals. If you have Customer Success owning renewals, keep the AE’s
plan focused on net new business. If you’re still founder-led on retention, don’t pretend a comp plan can fix churn.

Do we need a cap?

Caps are rarely your friend. If you’re worried about overpaying, the real fix is better quota setting, sensible
accelerators, and paying on net revenue. Let great reps win; it’s cheaper than replacing them.

Conclusion: your first comp plan should feel almost boring

A great early-stage sales comp plan is not clever. It’s clear. It aligns effort with outcomes. It helps your reps
“eat” while they ramp, and it gives them meaningful upside when they perform.

Start with a simple base + commission plan, anchor total comp to a sane percentage of bookings, keep a clean 50/50-ish
pay mix, and use one primary metric. Then revisit once you have proof of a repeatable sales motion.
Until then, remember: the best comp plan is the one your team can execute without a meeting about the meeting.

Field Notes: of Experience-Driven Lessons (So You Don’t Learn the Hard Way)

In early-stage SaaS, the most painful comp problems usually don’t come from the commission rate being 9% instead of
10%. They come from confusion. When reps don’t understand how they get paid, they assume the worst, ask for
exceptions, and spend emotional energy debating instead of selling. The “very simple plan” works because it replaces
ambiguity with a clear trade: “Close the right deals, and you’ll make real money.”

One common pattern founders report: the first rep needs to believe they can win quickly. Not eventuallyquickly.
That’s why ramp matters so much. If you set a full quota in month one, you haven’t created motivation; you’ve created
resignation. A reasonable ramp (and sometimes a small draw) buys you time to train, build pipeline, and let the rep
experience early success. That early success is rocket fuel for confidenceand confidence sells.

Another recurring lesson: payout timing shapes behavior more than you think. Paying on booked ARR is simple, but it
can accidentally reward “anything that signs” if you don’t pair it with a basic clawback or a clear definition of
qualified customers. The best version of a clawback isn’t punitive; it’s preventive. It nudges the team to avoid
bad-fit deals that churn in three months and leave everyone grumpy. Keep the rule short, document it clearly, and
don’t turn it into a courtroom.

Teams also discover that accelerators can create end-of-period weirdness. If your accelerator kicks in sharply at
100%, some reps may “save” deals for next month/quarter to start strong. The fix isn’t necessarily removing the
accelerator; it’s designing it thoughtfully (for example, smooth tiers) and managing with good forecasting habits.
Transparency helps too: when reps trust the pipeline and know they’re supported, they’re less likely to play games.

Finally, many startups learn that you can’t “comp plan” your way out of not feeding reps. If the lead flow isn’t
there, comp won’t solve ityour rep will just miss quota faster. Before hiring, pressure-test whether you can supply
enough qualified opportunities for the role. A simple plan assumes a fair shot. Give your reps that fair shot, and a
straightforward comp structure becomes an engine instead of an argument.

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