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The Complete Guide for Creating a Successful SDR Comp Plan

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The Complete Guide for Creating a Successful SDR Comp Plan

Here are the five key variables to consider when building an SDR comp plan for the needs of your company and sales development reps.

There’s no one-size-fits-all when it comes to SDR compensation plans.

But, fostering a proactive company culture and aligning both company and employee objectives are common denominators in the best commission plans. More importantly, the level of transparency and objectivity conveyed through a plan can reassure SDR that achieving targets is both attainable and fair.

Your SDR comp plan also plays a major part in motivating your sales development team to book meetings quarter after quarter. So, ready to see how you can encourage SDRs to stick around and build more pipeline?

Let’s dive into some essential points and get you winning 🏆

How to make a top-notch SDR compensation plan:

  1. The variable compensation plan: what is it?
  2. Setting performance variables
  3. Adjusting for inbound, outbound, and new SDRs
  4. Undertaking goal progression/ratcheting approaches
  5. Establishing clear communication
  6. Motivation!

The variable compensation plan: what is it?

When it comes to sales, the individual performance of an SDR can either contribute to or impede overall company gains. Variable pay looks to motivate reps through sales performance and financial incentives. When sales reps reach their target goal, they can expect extra sales commissions tacked onto their base pay. 

In layman’s terms:

Variable compensation plan = base pay (fixed annual salary) + variable pay (financial incentive based on performance variables)

Of course, for an effective variable compensation plan, a target pay mix presupposes a fair base rate for all members of the sales team. Unfair and constant ratcheting (increasing sales reps’ monthly quota if they surpassed it in the past) can lead to a higher turnover rate and impact long-term results for the worse.

Factor in SDR experience, company goals, and the inbound vs. outbound function to create the ideal variable compensation plan.

Steps for making a motivating SDR Comp Plan:

Your comp plan is not just an extension of management; it’s a reflection of the vision your company aims to fulfill. That being said, the right plan should encourage workers to make the right decisions at an individual level for the company as a whole.

Essentially, the structure must support your sales playbook and drive the behaviors most favorable to success. 

Step 1: Set performance variables

Before you can establish your performance variables, first you must define what SAL, SQL, and opportunity mean for your company. A clear understanding of these concepts will support SDRs (and indirectly your revenues) as they focus on nurturing relationships where fruitful opportunities can arise.

Before you can establish your performance variables, first you must define what SAL, SQL, and opportunity mean for your company

Once you’ve done that, you can then consider the performance variables on which to base your SDR’s incentives. Your company’s needs and its current objectives will determine the variables that will best complement your SDR comp plan.

Decide the payment incentive KPI

Inside the outbound sales pipeline, variables range from activity-based, the number of meetings booked, meetings held, opportunities created, and deals closed. 

It’s no surprise that when it comes to the main KPI for paying out SDRs, meetings booked still reigns king. And paying out for opportunities strike a balance between company goals and an SDR’s skills. But interestingly enough, in our SDR benchmark report, we found that over 35% of SDRs are also compensated for deals won, on top of opportunities and meetings.

Taking a deeper look into the data behind rep motivation, we found when paid additional incentives for deals, SDRs are slightly more motivated by their comp plans than their counterparts without the extra kicker. And every little ounce of extra motivation counts when it comes to meeting targets.

What’s the best target variable pay mix?

While additional incentive is the most challenging decision in a comp plan, base salary deserves your attention too. The ratio of base pay to variable compensation can differ from one sales organization to the next as per the company’s objectives and culture. However, you’ll find that combinations between 60/40 and 75/25 are the most common.

In sales compensation plans specific to startups, it’s ideal to lean towards a higher variable percentage given the lack of reliable and prior data. Although, this aspect could also signal the immaturity of a company and the need for a more savvy sales talent crew. 

According to numbers provided by The SaaS Institute, clients experience the most success with a 70/30 split. To give you a better understanding, let’s take a sample salary of a Barcelona-based SDR as an example.

Imagine he/she is earning €25K. In this case, €17.5K would be base pay while €7.5K would comprise the variable pay based on direct contribution to opportunities and revenue. 

How do I set a variable baseline?

We recommend that an SDR hit 70% of their quota before any incentives are paid out. A minimum performance level will keep representatives motivated, regardless if it has been a bad month or after a quota ratchet. Similarly, the minimum performance level promises that individual SDRs strive for 100% with each new prospect on a continuous basis. 

Keep in mind the need to customize this baseline according to evolving CAC and other costs affecting the bottom line.

2. Consider complexity among inbound, outbound, and new SDRs

Compensation plans for inbound, outbound, and new SDRs can be challenging to define, given that processes and professional experience vary among all three groups.

Inbound vs. outbound meeting compensation

We suggest that low-intention MQLs (top of the funnel ebooks or webinars) are valued the same as those generated from outbound leads.

Consider customizing inbound vs. outbound lead qualification to your team’s needs and preferences. Doing just that will help you to incentivize accordingly.

SDRs in ramp-up

Likewise, for SDR in ramp-up, compensate with the same payout per meeting with a lower target percentage for the first three months. This specific adjustment can bolster the SDR’s confidence and encourage future excellence within their role.

3. Undertake goal progression/ratcheting approaches

Any strong SDR compensation plan must take goal progression and ratcheting into account if the company is to boost and scale growth. The target pay mix, a combination of base and variable compensation, supports the points above.

Of course, as your company and its team are unique, you’ll have to experiment a bit before you hit that sweet spot. A compensation plan must balance motivational components as well. Quarterly performance or overachievement bonuses, may help high, low, and average performers stay engaged throughout the year.

A minimum performance level will keep representatives motivated, regardless if it has been a bad month or after a quota ratchet

4. Establish clear communication

Communication is critical when it comes to implementing an incentive-oriented SDR comp plan. This includes definitions of concepts and goals, the anticipation of challenges and their solutions, as well as an outlined plan itself with targeted goals. (Psst: we’ve made a personalized SDR compensation plan template to give you a head-start!) 

When an SDR knows what is expected of them from the get-go, both of you are on the same page and can focus efforts on what matters most: Achieving monthly targets with pride and glory.

How can I best implement the plan?

Once you have created your variable compensation plan, sit down with your SDRs to explain it in detail.

Not only will it allow you to outline your goals for that individual, but it will align expectations and underscore your company’s policy for transparency and fairness from the very beginning. 

Similarly, because err is human, we recommend selecting compensation software suitable for your company’s objectives and culture. The right tech stack will avoid any headaches arising from financial mistakes, relay a sense of confidence to your SDRs, and tap into SDRs’ nature for healthy competition.

5. Motivate!

The final component worth considering for an SDR comp plan is motivation. What will you do differently to boost individual morale and ensure that all SDRs continuously work towards closing deals?

Remember to take the factors discussed above into account like SDR experience, company goals, inbound vs. outbound function, etc. to create the ideal variable compensation plan. Timely compensation tied to direct, visible, and pre-defined contributions can positively shape company culture. Use it to encourage specific behaviors among SDRs, i.e. booking qualified meetings or contributing to closing deals. 

Sales accelerators

Accelerators can make that difference from meetings pushed back to next month to new revenue coming in today. Clock-race or incentive-based accelerators are just two that can help drive your SDR across the finish line. With clock-race tactics, you won’t need to increase payroll spend.

With incentive-based, both you and the SDR will see an increase in earnings and revenue. Each option comes with its cost, so it’s important to look into which accelerators are ideal for your SDR team.

What’s next?

Now that you’ve gone through a quick breakdown of the variable SDR compensation plan, you’re ready to figure out the right pay mix to rally up your reps and increase sales revenue. 

Of course, if you want to make sure you’re not missing anything, check out our guide on how to create an SDR comp plan. The excel template inside is a total time-saver.

SDR Compensation Plan Compete Guide & Template

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