Welcome and thank you everyone for listening to the Stacking Growth Podcast. This is part two of the conversation I had with Carl Ferreira about variable compensation plans for sales teams. In part two, we're covering off on the questions we got from our LinkedIn audience, and we're giving our perspective on those questions. So, enjoy the show.
If you haven't listened to part one, I suggest you go back and listen to that, where we cover off on the myths of why variable comp plans are necessary for sales teams. Enjoy the episode, connect with us on LinkedIn, and if you have questions that we did not address, like Carl and I know, and maybe we'll go for an episode three on this topic. Thanks for listening. Yeah, there's one here from Moore.
I like this one a lot, and basically the premise of this question was, hey, like how are you going to experiment with this? Like how would a company even roll this out? Like how would they back off from this if it didn't work, etc. This is a good point.
Like if you actually want to bring this change to your organization and test out, either a high salary with a bonus or even a full salary, how do you do that? I think it's not rocket science. I think, you know, you start with a team or a smaller cohort of sellers. Even if you don't want to change, current sellers comp, maybe the next three hires that you make, you test out hiring in this model to begin with.
So, the expectation is set from the beginning, that you make a salary. Now, here's the thing. If it doesn't work out, if those sellers aren't motivated, they're lazy, they suck, whatever. Okay.
Well, in those cases, you probably want to fire them anyways. Like moving a lazy seller from salary to 50-50 comp, again, it's a myth that we can talk about. Like 50-50 comp transforms a lazy person into a motivated person. That's not true.
That's not true. That's not true. That's not true. The person is that way regardless of their comp, right?
And so, I think the easy way to get to test it is just bring in a couple sales people. What's the worst that can happen? You know? Yeah.
I'll give an example of what I think you should do. If you're largely an outbound sales structure, it's going to be tough to test this. I like your idea to try to find a small example. If you have some high-end-bound demand coming in, the market team producing demand and actually converts the revenue, like what?
The proxy would be like, what we do over 500 demands, or what the amount of demand comes in. This is where I'm going to start. Take a couple really good sales people, pay them extremely well, put them on this kind of, on this plan, and get really good and efficient at building what an inbound sales structure looks like and comp model for these people to convert. One is already, the most valuable leads that you're going to get in the sales team.
Take a good team, put them on this, test it out. For nothing else, they will close the deals, even if the comp structure doesn't work out, the process doesn't work out. The circuit deals close, getting all the stars on it, and you're going to be getting really low. And so, that's one way to test it out.
Any thoughts on that? Yeah, and if you've already, another thing too is you don't have to risk that much. It's going to cost you a lot of money. You can take three sales people who crushed it last year and they all made around 180k.
Okay, hey, Carl, you made 180k last year, you went 200% of your number. I'm going to pay you 200k this year. Flat salary though. Would you be down for that experiment?
We want to see if your mental health improves, we're going to get your feedback throughout this process. Maybe we only do it for six months. We're going to see obviously if your numbers change. Like bringing on board with that experiment.
From my perspective, I'm like, dude, I crushed it last year and only made 180. And now they want to give me a salary of 200. Like, why would I not take that? Because of some chess-feeding culture of, yeah, what if I could make 210k?
You know, this year, it's like, I don't know, it wouldn't resonate with me, right? So, yeah, I think you're absolutely right. And then for the company itself, it's not a lot of risk. It's like because you're not going to, you already know this person is you're going to pay them 180k give or take.
So, you're basically just giving them a small raise, right? What's 20k, right? So, and I think what you get out of that is healthier deals being closed. The sales reps would probably report higher satisfaction just with their own lives in general.
I don't think you'd lose them either, is easily, right? Because you got a bunch of recruiters that come and hit them up. If I have a 5050 comp plan, so my base is 60, let's say 100 to 100. And a recruiter comes to me, and then I go to making, let's say, 225k, and a recruiter comes to me and now is offering me a 5050 comp plan, right?
When I have a full salary, it's like, I have to explain that. I'm much stickier at a company for better or for worse. I'm much stickier because I'm now used to making 225k a year. So, I'm used to my paychecks being whatever, 10 or 12k, whatever they are, every two weeks.
Now for me to have to go back and ramp and learn. I'm thinking twice about that. But if I go 5050 to another 5050 comp plan, that's easy. That's a no-brainer.
It's the same stuff, right? So, I think you actually see a lot higher retention and you don't see reps leaving as quickly. And so, there's obviously a lot outside there to that to add to your point. I got another question here.
I'll throw this one at you. I didn't see what you think and then I can give my perspective. Hypothetical. If you sold 2 million, how do you account for making the same comp as someone that sells 500k?
You want me to go first? I go first because the question is wrong, Cassie. Okay, you're in an organization where one salesperson closes 2 million and another closes 500k? What is going on at that organization, right?
Like, that would be the classic case if there's that one seller that's been there for 10 years, just murdering it, and no one else even can get close. Like, why would you even have a discrepancy like that? But this is a really important question, Cassie, because you don't define a comp plan for 100 reps or 10 reps based on an outlier scenario like this. But this is what we've done, isn't it?
We've appealed to this one rep that somehow has a monster's 2 million dollar a year and no one else can even hit 25% of that. Like, that's a part of this. Is the 2 million worth it, right? From that one rep?
Or does that all of that ARR just get eaten up because we have to continuously replace 75% of the team every year, right? I don't know, there's just like, there's something off about that math. I don't know what you think about that. First of all, I need more information on whether this rep due to close to 2 million versus 500,000.
I mean, it could be the situation you outline. I mean, they're sitting on great accounts in amazing territory where, you know, it was banking cash for work that others are doing in the company. Either the product, the marketing team, customer success on upsells, that's part of the equation. So the way I would step back and think about this is, you know, one, what are the underlying mechanics of this and what do the salesperson really do in that scenario?
And two, when we think about this as a team sport, there's a lot happening today for deals that get close, big and small. And in this kind of old comp structure, it's getting all the weight and credits of the salesperson for getting the deal kind of sign versus everything else that's happened in that journey. Like we talked about from products, from finance, from marketing, from leadership, from partners, et cetera, et cetera. And there's a lot more going on in the buying cycle today than maybe 15, 20 years ago where, you know, as we talked about, it was all in the salesperson's shoulders.
It's not the case in it. So to me, I think, to your point, that wrong way to look at it. One, it's an outlier to what kind of what the salesperson actually do to make that happen if anything that's unique versus others. And to me, like, in this day and age, a lot more going on in the company makes these things happen than just the salesperson.
Yep, totally agree. Not a question, but a hilarious comment. Roy said that I had an interesting perspective. His last company, OTE was a complete farce.
Nobody in my entire region hit it. 10 years was very low. That's common though, isn't it? It's like sad.
It's like we cry and we laugh at the same time. But that's the truth. And that's the myth that we addressed earlier, Cassidy. Was that like every sales rep is hitting and everyone's making all this money.
And like the truth is, no, it's like mostly toxic environments where nobody actually makes any money and everybody hates their life, you know? So it's very, very sad. What else we got here? Oh, good one here from Evan.
Interested to see how it impacts the buyer experience. And Evan also won an entire Netflix series on this topic. That's a wild request. So buyer experience.
I can speak for my own experience here. And then Cassidy, you're interested to get your take. I think it changes the buyer experience and the sales experience dramatically. Even if you are really good at the tatching from the outcome, you are a human being Cassidy.
So on a 50-50 plan, I am always, even if I'm super honest and transparent and I'm a really good person and I want what's best for my buyer, they're still a sliver of me inside my heart that is biased towards the deal. Because I'm a human being. This affects my livelihood, you know? Like I could much more easily detach if the stakes were lower, but they're not.
It's my mortgage, food, my reputation at my company, you know? Like what's at stake is massive. So I feel like in sellers we lie to ourselves by saying that we can really, truly detach from the outcome. So the answer to the question is what happens when you're paid a salary?
It's like I can detach from the outcome. It's okay. If you don't buy. Like let's just figure out if you should be buying, you know, to begin with.
Let's figure out if we can actually help you. It really changes just the vibe of the sales process. I find myself, I don't feel clouded. I remember like in my previous sales role when you go through a sales process, especially if you're having like a tough month or you're closer to the end of the month, you can feel clouded judgment.
You're trying to find a way to close the deal instead of trying to continue to find, like instead of letting the deal sort of naturally happen and you just kind of take it's more natural course, you start to apply false timelines. You start to like find all these little ways to basically manufacture an op and make it come to fruition sooner than it probably naturally would. I don't have a good example for this of where it happens in the kitchen, right? Like when you just try to put the state too fast and you just burn it.
You know, that's what kind of happens in the sales process. When you don't like naturally allow something to do what it's supposed to do, it's just as weird. And buyers talk about this all the time, right? There's very few buyers that will raise their hand and be like, I love the sales process.
I love talking to sales people. That doesn't happen. And so I think you create a much better buying experience when there actually is no outcome. Nothing changes for me.
If you buy or you don't. Now that's not to say the performance is important, that's a separate topic. But financially, like me paying my rent on time is not at risk. You know, like me going to the grocery store and having to choose between x food versus y food that's not present in this conversation.
And I don't think that it should be. I mean, there's a reason only stats come out. About buyers and be going 60, 70% through the sales process when they talk to the sales person. It's because they don't want to talk to the sales person.
And the reason I want to talk to the sales person is because this structure has made it uncomfortable. You don't want to talk to the use car salesman. Until you actually have to buy car. And so, this question, I think without a doubt the customer experience would get exponentially better.
Where your prospects, if you said variable comp out of the equation. I think it'd be good for companies to cast it. You don't have a study on this. But like think about discount rates.
How many discounts are thrown out there just to purchase time, right? Most discounts are just in exchange for a quicker signature. Not that that's always a bad thing. But you think about a SaaS company that's doing this constantly because they have a month to month quarter.
Like these little 10% to manufacture urgency. It's up to millions of millions of millions of dollars. What about also on the other end of that? Like if I spent more time with this buyer, could I sell them more potentially?
If I spent more time with them and uncovered more problems and took the time to spend an extra week with them to uncover some kind of new thing, I might close a much larger opportunity up front. Or set expectations with the handing off from sales to success or to their services team or whatever it's onboarding, whatever happens in your business. And all that was done a little bit more thoughtfully. Would I increase LTV?
I don't know. But I can't imagine that all of those metrics that I just shared would not be positively affected. It's a no-brainer. But I don't know why we don't care.
Everybody knows this. We know what you're talking about. Of course it would. But we don't action it.
It's really bizarre. Why do you feel like that is? One of the things on my mind, I can come back to something that you said, that is this idea that every sales team has taught a framework or methodology. And all have some form or fashion about being consultative and helping guide the customer through the sales process and being abundant.
And you mentioned being detached. And these are all really good sales techniques. And each methodology is some variation of that. Yet then we create an incentive structure that goes exactly against that.
So we're incenting a behavior that's not the sales methodology that we're asking the sales team to go through. And so I want to answer your question. But when I think about this, this paradox is what's causing the buyer experience to be some off-key. And if you're just to take the training, which is good, and mirror that with a compensation model that supports the training, you would get a much better buying experience, better customer relationship, and likely more revenue, short-term and long-term.
That's an ethical. Yeah, I completely agree. So let me ask another question. Because there's a lot of questions here in the thread about performance.
So how do you balance that detachment from the outcome with performance? And make sure that because there is still a quota. There's a myth, I guess, that if you have a full salary, like you don't have a quota. Like that's not true.
Our sales team has quotas. We have monthly targets. We have quarterly targets. Right?
Those are still expected to be hit. We have underperformed. If we don't hit them. So it's a myth that I wanted to debunk there.
But what happens with performance? How do you balance that when you kind of remove some of this urgency? Or can there be too much detachment, you think? And how do we solve for that?
Well, every other function gets measured on performance. So you're marketing, you use measured on performance, your finance team, your product team, your customer support team. Everybody in a company gets measured on performance, including obviously the sales team. And so if you achieve your goals and objectives for a given period of time, then you've met expectations.
If you do better, you exceed. If you do lower, you didn't. And I get managed, right? And I can get managed in terms of a pip.
I can get managed in terms of managing out of the company. And so when you think about that, every organization has fair, ideally, fair objectives in ways to measure their performance day in and day out, month over month, quarter over quarter. If I then go with the sales team and say, okay, well, they also have performance measurement. It's in terms of like OTE and any of the quota and getting paid for that.
Well, we already know that 50% of them don't hit that. So you're not really setting an objective measurement. You're not really giving them a chance. So from a performance perspective, it looks like half of these folks are meeting the objective that you set out.
And if you're going to take that and say, well, what happens in the marketing team, half the marketing team doesn't hit their objective? You're being a world of hurt. You do something different with your marketing team or your finance team or your product team. And so one could argue the other case, and that is the way we're measuring performance in the sales organization is completely full, clogged, because the objective that we're setting is false.
It's not true. It's inflated. The sales teams aren't going to hit it. And so when you think about what that means for me, building a managed performance to manage development and manage just the satisfaction of the employee, the morale, I think we're just doing more harm than good.
I mean, the idea that you can't drive performance is false. Of course you can't. You do that in the other part of your organization. Yeah.
Dude, such awesome points. I think a point that like sales teams historically have used a con plan as a crutch for bad coaching. They let the con plan do the coaching, if that makes sense, right? Or do the performance management instead of the manager going in and being like a good manager, right?
And having good training in place. So I think it's like the sales team, no other organ business has done this, right? If you fail something, product doesn't release something, that's managed. The sales team actually has a crutch and kind of a scapegoat in the con plan.
It's like, oh, well, you didn't hit. So I don't have to coach you. I can just pimp you and fire you. And I think that's why you actually get a lot of like sub-optimal coaching and a lot of immature types of coaching with sales teams, which again, turns into turnover, et cetera.
There's no prioritization to coach. I don't need to coach because you're afraid that you're not going to hit your quota. So that fear and this culture we've created really does the coaching for me in a weird, twisted way. And it's obvious that it's not successful.
When you have a different con plan a bit than 5050, I think you get too out. You were forced to hire better. You have to hire better people. You have to know how to hire.
You can't afford. You're going to pay somebody full salary. So I think you'd be much more meticulous and thoughtful and thoughtful about how you hire and making sure this person is motivated and they have all the right traits. And then because again, in a 5050 variable, you know, whatever hiring, we only pay them 60 grand a year guaranteed.
If they don't work out, there's a pimp in place. We fire them. Super simple, right? I think it forces management to be a lot better.
Honestly, a lot higher quality. When you're adopting the risk as the organan, it goes back to the right side. The organization is now taking on the risk because they're going to promise Carl for $200k or whatever. So now they're going to make sure that Carl is the fricking right higher and that we have the right infrastructure in place to make sure that we're getting all the value out of $200k and getting all the value out of Carl.
When I only owe you 60 grand, whatever, I'm just firing. So I think it shifts the whole culture as well. And again, it makes the organization get a lot more thoughtful and buttoned up. That's such a good point.
I think this is something you should cover in your next walk and talk. Done. I don't know what I'm going to get out there. It's a little hot for tomorrow evening.
Carl can only walk and talk with a sweater on, so he needs to wait until it gets cooler in San Diego. I don't know what it's called. It's the sweater polo. Short sleeve, still sweater material.
I never get away from the sweaters. You talked up to sweater pull. I've never heard of the sweater pull. I meant you.
Absolutely. Should we cover another question or two or should we wrap? I know we're going to have this for a while. Yeah, let's wrap.
We'll go version three if we need to, but I think we have covered most of our stuff. We'll relieve this stuff and see if four questions come up. We'll do part three if we need to. I love it.
We'll put this out. If you're listening to this, shoot us some questions. Shoot us some more missing ones to cover. And as Carl said, we'd be happy to do session three.
So session one, miss session two Q&A from our LinkedIn audience. Carl, this is fun. Appreciate it. Yep.
See you guys. All right. We're out. Back in growth.
Later.