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This is a question that comes up over and over again: how to you design a comp plan for a startup sales team that is fair and effective?

Here are 5 rules I feel will result in an effective comp plan that I discussed at one of our past events:

1. Keep is Stupid Simple - If salespeople need to look at a fancy spreadsheet to figure out how much they are going to make if they work a few extra hours today, then you lost. Straight percentages are common, but for monthly subscription products I also like some fraction of a month as commission. So if your product costs $80 per month, then maybe they get half a month ($40) or one-and-a-half months ($120) for every sale depending on if the contract was a month-to-month or 1+ years.

2. Pay for Play – decided upfront what behavior you want to drive and bake it into the comp plan. What gets paid gets done, not more, not less.

3. Pay Salaries - Commission-only is just about the worst comp model ever. On one end it makes people desperate to pay the bills, which makes them overly emotional and/or aggressive. They can burn bridges with customers. On the other end, you are going to pay large sums of cash for people that can really sell and you will eventually want to take some of the margin back. That will cause nothing but problems as your salespeople resent you for taking money out of their pocket at best at worst they quit, taking your customers with them and kill trust and morale for the remaining team in the process. Rule of thumb is that half of on target earnings (OTE) should be salary and half in commission, but it should be more in a startup and there should never be a cap to how much then can earn.

4. Watch Margins – the rule of thumb is to keep your average commissions around 10% of gross sales. This does not include salary.

5. Set it and Forget it – people are funny about money, so whatever plan you put in place make sure it is the right one and stick to it. No matter what kind of change you make your salespeople will assume you are taking something away from them and it will kill morale. If you decided you want to promote a certain product or behavior one month, than simply add a spoof on top of the base plan, but don’t change the base plan if you can help it.

- question also posted on Quora

Any thoughts? What has worked for you and your team?

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Topics: compensation