I want to talk to you guys about SDR compensation best practices.
AEs are one beast altogether, and we can have a totally separate conversation about that, but I want to talk to you about deploying SDRs in your organization and how to compensate them appropriately.
This is where some confusion lies when you start to go, “hey, we have AEs and they’re making sales, and now we want to add the SDR function.” How do we move them in and start compensating them appropriately so that there doesn’t cause any contention or challenges with it?
When we talk about SDR compensation, there are two main components: We have the salary. Everybody’s paid a salary. Plus a commission,
So in that category, the two of those things combined are called OTE (on target earnings). On target earnings is how you want to present that.
When you’re doing a job description for folks, when you’re putting that out in the market, you want to be able to share what it is that they have the potential to make if they were on target with their goals. That’s the combination of salary plus commission that they would make. Salary’s pretty straightforward. It is currently sitting somewhere around $50k salary for an SDR. That does change based on where they’re located. So if we’re talking about folks on the coast, those numbers can go up. And if we’re talking about folks in the middle of the US, it could go down a little bit, maybe to the $45,000 number.
But what an on target earning a commission plus salary looks like right now is somewhere around $70k. That means we’re having about $20k worth of compensation that’s being added to their base compensation or their salary if they are completely on target.
Let’s get into commission and how that’s made up. This is where most of the mistakes happen. When it comes to commission, we need to be focusing our attention or our commission on things that the SDR can control. If you focus on things that are out outside of their control, that’s where problems start to arise. I have had so many people come to me and say, should I be paying the SDR a percentage of closed business? No. Ask yourself that question. Are they able to control whether or not that deal is closed? No, that’s not their function. And so what happens when you do that is that these SDRs start to become almost like managers of the sales rep that they work with, and they’re saying, “hey, I teed up a deal for you. How come you didn’t close it?” Or “you paired me up with somebody that’s not a strong closer,” or “it was his fault or her fault, and that I’m not making my commission, that I’m not getting what I’m pay what I should be paid.” So somebody else is in control of their ability to get paid. And that creates contention.
So if we’re not gonna pay them for closed won deals, then what do we pay them for? How do they start to see a level of commission coming from this?
There are two areas that we like to focus on in order to drive the right behaviors for an SDR.
We want to look at volume and we want to look at quality. Quality and volume.
When we look at volume, the main component for that is the number of meetings set in a given time period. So typically that’s on a monthly basis. How many meetings was that SDR able to set successfully for you? Now, if we just stop there and said, that’s all we’re gonna pay for, is number of meetings set, then what you have there is you’ve got an SDR who can set meetings with pretty much anybody, any time, and for any reason. And if those meetings don’t show up, if the wrong people show up, if they don’t turn into opportunities for your sales rep, then what? It’s not valuable, right?
So we have to add a second component to that, which is the quality. And what we look at for quality is opportunity created.
Typically, that is broken up in two different components when it comes to that compensation structure that you put together. You say, I’m going to pay you a certain amount of money for the meetings that you set, and if those meetings turn into opportunities, that means you presented us with a quality meeting, and now I’m going to pay you more for the fact that we have those quality meetings.
The last thing I want to talk about is incentives. People get the compensation portion of things confused with incentives, and incentives should be at the SDR level, can considered kind of these one-off opportunities to adjust behavior or change behavior with an SDR during a given period of time. For example, your SDRs are being tasked with trying to drive people to a conference. There’s a conference coming up in a couple of weeks, we’d like to see if we can get attendance at a booth and things, but that’s not a meeting set or an opportunity created, right?
Because of that, what we’re doing is we’re saying, “you know what? I’m going to pay you an extra,” or “I’m going to pay you an incentive to drive you to do that activity for us over a short window of time.” That’s one way to look at incentives. The other way is just in addition to this, to drive a behavior during a very short period of time. So for example, if we’re feeling a little bit light during a given month, or we’re running close to a holiday and the SDRs are feeling like “nobody’s going to be be available, nobody’s going to be ready.” And they have that mentality, there’s a potential to say, “today only, the first person to set three meetings gets X.” Those are ways to kind of drive excitement, drive urgency in a given day.
There’s plenty of different ways to look at incentives as well. I’ve got a lot of different options available that I’ve used in the past that are not even financially draining to the company where you’re saying “if all the SDRs work in the office and there’s maybe a parking spot that is valued by the employees, you offer “you get my parking spot if you’re the person who has the most meetings set this month.”
Do group outings; take everybody to the movies or something if they hit a goal. There’s so many different options in that area, so many different ways to think about it. And so I hope this was helpful for you.
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