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Updated August 22, 2022You’re reading an excerpt of Founding Sales: The Early-Stage Go-To-Market Handbook, a book by Pete Kazanjy. The most in-depth, tactical handbook ever written for early-stage B2B sales, it distills early sales first principles and teaches the skills required, from being a founder selling to being an early salesperson and a sales leader. Purchase the book to support the author and the ad-free Holloway reading experience. You get instant digital access, commentary and future updates, and a high-quality PDF download.
While sourcing for the top of your hiring funnel can stock your pipeline with higher-probability candidates, your screening, interviewing, and closing process is what will maximize your conversion of these potential hires.
I find that a lot of organizations don’t know what they’re looking to achieve in the screening and interviewing part of the hiring funnel. I boil it down as this: the screening and interviewing process exists to authenticate that would-be candidates have the characteristics required for success in your sales org. Authentication is the key. While experience at a prestigious organization, a degree from a compelling school, or a shiny-looking resume may be potential leading indicators of success at your organization, the goal of the screening and interviewing process is to prove it, and once proved, to close the candidate on working at your organization. All the steps in your screening and interviewing process should support that goal.
Hiring, while of extreme importance, can be a large time suck of inefficiency if you aren’t mindful. This is why I am a big proponent of the use of asynchronous screening approaches earlier in the hiring process—it puts the time cost onto the candidate, while at the same time creating rich “interviewing artifacts” that are better reflections of a candidate’s abilities than a resume or personal statement that has been polished to perfection. This can be all the more important when working with staffing agencies whose incentives are to shove someone, anyone, in a seat. Having a strong screening mechanism in place that doesn’t consume all of your time, and gives you a high-signal outcome on which to base judgment, is all the more important when working with recruiting agencies.
For that reason, I’m a particular fan of implementing screens involving the production of some lightweight work artifact as the first step in my hiring process. One of my favorites is a written screen. It’s not an essay test, but rather a series of a dozen or so open-ended questions that the individual can respond to. I generally give instructions to spend no more than an hour on it, and I keep the questions in the template lighthearted (but pithy enough to allow for the demonstration of critical-thinking acumen). Some of my go-to questions include:
Tell me about something you’ve built that you’re proud of.
What do you think about Google Glass?
What sort of team sports did you play in high school/college? What was your favorite?
On a scale of 1–10, how messy is your room? Be honest.
Tell me what you like about sales/recruiting, in your own words.
Document for me a deal (either sales or recruiting) that went terribly. Be totally honest.
Here’s a set of examples that we used at TalentBin.
What am I looking for in the written screen? Well, modern salespeople spend most of their time communicating value and persuading people to do things in written, spoken, and visual formats—so the ability to clearly communicate is extremely important. An inability to do that with cursory subjects will reveal an inability to do so with your solution. If you can’t explain—with a beginning, middle, and end—something you’ve built that you’re proud of, your favorite bar and why, or how a deal went sideways, you’re going to struggle to do so with our product. While high activity is important for sales, executing those activities with attention to detail is required. Those who can’t demonstrate thoroughness and attention to detail in a task where it is specifically called for will fail to do so in day-to-day work activities.
This is similar to how recruiters look for typos and grammatical errors in resumes—except that those are the most highly polished pieces of hiring collateral that candidates present. It’s much better to use a tool that is specifically designed to catch a lack of attention to detail or thoroughness, in a time-constrained approach. If the candidate can’t be bothered to tell the difference between there, their, and they’re in what has been identified as a test, what will her emails to prospects look like? And what will her pipeline cleanliness look like?
Another artifact-based screen that I like is a mini homework assignment involving account research and voicemail pitching. At the end of the written screen, I tell candidates to leave me a 30-second voice mail, pitching TalentBin as if I were the head of recruiting at Airbnb. Firstly, I like the fact that it’s a composite homework assignment. It requires going to TalentBin’s website and consuming its value propositions, which tests initiative, comprehension, and retention. It also requires qualifying Airbnb as an account and allows for varying levels of execution on the part of the candidate.
A cursory level of execution would be abstractly pitching TalentBin. A better level of execution would be doing account research on Airbnb and their hiring requirements in order to tailor the pitch in question. And I don’t provide my cell phone number—but it’s in the signature of every email I send. And easily available from some cursory Google searching. Email responses asking for my cell phone number receive a raised eyebrow.
I’ve seen other approaches too, like providing some written GMAT questions to be executed ahead of an interview. These could have benefits, too, by providing more rigor, but I’m partial to a guerrilla-style screening test. Its less-than-rigorous outward appearance invites the candidate to act in a way that comes naturally to them, which is what I want to surface. If their natural way of being in the world is to be rigorous, with high attention to detail and execution, I want to see that. If that’s not their natural way of being in the world, then I definitely want to see that too.
Note that these approaches are quite different from video interviewing, where standard interview questions are presented to someone so they can verbally respond to them while being recorded by the webcam of their computer. I’m actually not a fan of this approach, because it’s just a time-shifted, place-shifted version of traditional interviews (or phone screens); those are typically more narrative-based, and less about authentication of the ability to do the work required for a role. And ability is a much more important thing to authenticate earlier in the hiring process.
Like video interviews, though, written screens are asynchronous in nature. I don’t have to be on the phone at the same time as the candidate, and can consume them later, when I have available time for it. Written screens also allow me to take an off-ramp as soon as it’s clear that the candidate won’t make the cut. If the first couple questions make it clear to me that this is someone who doesn’t have the requisite written communication skills or attention to detail to succeed in our sales organization, I can stop and tell the candidate that, while I appreciated their effort, it’s not going to make sense to proceed at this time.
Contrast this to the traditional approach of setting up a 15–30-minute phone screen that requires synchronizing calendars and synchronous communication (which is valuable, but for more nuanced judgments). And, let’s be honest, it’s more difficult to extricate oneself from a phone screen that has gone sideways after five or ten minutes; it’s just human nature to play it out. Written screens help avoid this time suck.
Be forewarned that senior staff will likely be more attuned to a traditional hiring workflow: typically an initial phone screen and, if they pass that, a series of on-site interviews. While you may be tempted to skip written screens of more senior staff based on their pedigree, don’t you dare do it. As I’ve noted, senior experience at a legacy organization can actually be an indicator of all kinds of bad behaviors. If a would-be senior rep is insulted by being subjected to the same screening approach as others, how do you think he’s going to be when it comes to coaching by you, or others? Or new process adoption? Or a transparent sales org? He should be excited that the organization has a rigorous process for identifying great staff and stocks its sales team with high-quality folks that are a joy to work with. And he should welcome the opportunity to show off how great he is.
Lastly, your approach to written screens doesn’t have to be complicated. Our organization (both Sales and Customer Success) uses a templated Google Doc that gets copied and shared with the candidate in question. We give them editorial rights and instruct them to execute it at their convenience and email us when they’re done.
The time savings and insights that are surfaced through the use of written screens in sales hiring can’t be overstated.
While written screens can be great for efficiently qualifying/disqualifying sales candidates, phone screening can be used to authenticate more nuanced parts of the profile that you’re looking for.
While it’s not the same level of clarity that you’ll get in a mock pitch—more on that later—or in-person interview, a 30-minute phone screen can be helpful for understanding if this person really has the characteristics that were highlighted in their profile (resume, LinkedIn profile, and so on) and demonstrated in their written screen. I like to use this opportunity to authenticate the intellectual acumen part of the profile that I look for.
Specifically, with respect to sales staff, I like to talk about funnel optimization and leverage by asking the candidate to take me through a lead-generation and sales funnel that they’re familiar with. This could be in their existing role, or it could be as simple as a business they worked at in high school, like an ice cream store, lemonade stand, or even a personal-training business (one of my key sales hires was previously a personal trainer!). In the context of this conversation, I ask several key questions:
What were the inputs to the sales funnel in question?
What were the characteristics of the prospects, and how could we find more of them, scalably?
What were the competitive characteristics of the market?
What would lead to higher conversion of the sales funnel?
And so on and so forth. I try to do this in a rapid fashion to see how the candidate does in a fast-paced environment, how well they do at explaining their answers, and if they are able to apply a problem-solving, scalability-focused mindset to their example.
Once we converge on the constraints in the situation in question, then we get into how to solve that problem. (This speaks to their figure shit out quotient.)
How would the candidate solve the issue of insufficient customers for the ice cream store, or whatever sales funnel they discussed in their example?
Could that funnel be made more efficient, for instance by serving more of those scoops of ice cream in a given time interval?
How could the candidate ensure that customers were happy with the value being provided?
How do we know that they like the ice cream and will tell others about it?
How can we do a better job of allowing sales reps to do more demos in a given period?
As I like to say, “If you were the king/queen of the world, how would you solve this?” And that’s an important question, particularly in startup sales hiring. If the candidate is coming out of an organization with a fixed set of processes, they may have a bit of tunnel vision. This is their opportunity to break out of that, and show me that they can break out of it. Because figuring shit out is going to be required in an early-stage sales go-to-market.
I try to execute all of this in less than 20 minutes. (You’ll note that the phone screen I’m describing is longer than the traditional phone screen. That’s because I’ve already confirmed with my written screen that these candidates are worth more time, so I can invest more of my time at this stage to extract better information for my hiring decision.) If it’s a successful exercise, I like to devote the last 10 minutes to questions they have about the organization—this would be the beginning of selling the job. The candidate made it through the initial hiring funnel and profile/resume screening, through written screening, and now through a verbal screen. It’s looking like this thing could have legs, so let’s start engaging with that and getting them excited about the organization, since we’re already on the phone!
You can even throw behavioral components into this, as well. I occasionally like to purposefully miss inbound phone screen calls (I always have candidates call me to test punctuality), so I can see what candidates’ voicemail sounds like, how long they wait to call me back, and if they email me immediately. All of this speaks to proactivity and persistence, which are behavioral characteristics that we value highly.
importantUnlike the written screen, which leaves an artifact—phone screens don’t naturally leave you with something to review later. It’s critical to either record the screen (for instance, using a presentation software like Zoom or call recording software like Chorus) or take good notes afterward. If you’re going to spend 20–30 minutes on the phone, the least you can do is jot down five minutes’ worth of bulleted notes structured as green flags (things you were encouraged by), yellow flags (things you weren’t excited about), and red flags (things you thought were actually concerning). This way you’ll have data to come back to when engaging with candidates further down the process or when comparing different candidates and making a choice between them.
As you can tell, this part of the process is focused on finding opportunities to authenticate a candidate’s ability to succeed in our sales organization. When it comes to market development staff, these screens are typically sufficient to progress candidates to in-person interviews.
But when it comes to staff who are moving from customer-facing presenting and closing roles in other organizations to closing roles in your organization, an incremental presentation screen is definitely called for.
While some sales leaders half-bake this with approaches like, “Sell me this pen” in an in-person interview, I find that sort of approach silly. I’m dealing with sales professionals, so I’m going to have them sell me their existing solution. I can learn about whatever solutions they’re currently selling, their competitors, and so forth with 15–30 minutes of web research, so acting as a mock-prospect is fine; I either ask the candidate to tell me what prospect I am, or I concoct a profile of a prospect I am going to inhabit (like Airbnb in the voicemail example above). I instruct candidates to treat me as a prospect that has agreed to a demo and run the process from soup to nuts the way they would with a prospect; this means sending me a calendar invite (complete with whatever online screen-sharing or presentation software they want to use), executing a full-blown 30–60-minute presentation and demo, and following up with a proposal.
Because this is essentially a mock funnel pass, it’s incumbent on you to pay attention to all parts of the sales and presentation process, looking for both excellence and soft spots.
Is the calendar invite clear, and does it include all pertinent coordinates for the online meeting?
Do candidates send you an email ahead of time confirming the meeting? Do they send a reminder?
How do they conduct the call?
What pre-call preparation did they do to ensure that they know pertinent details about my mock business (which they likely assigned me)?
Do they start with discovery questions?
Do they then proceed to the problem and solution statements in a way that is tailored to what we discuss in the discovery questions?
Are they consultative in their approach?
Do they engage in presentation comprehension check-ins, making sure I’m paying attention?
Are they facile with ROI and business-driver calculations pertinent to my business?
Do they build agreement through the presentation?
How do they react when I feign confusion on an important topic?
How do they handle my objections?
How do they react to aggressive, verging on combative, questions?
How do they handle my questions about the competition?
And, importantly, do they ask for the sale?
Aside from judging how well they execute the pitch from discovery through next steps, this is also a prime opportunity to judge coachability in a rep. If you stop them partway through the pitch, provide them some pointers, and then request to start that section again, you can get a sense of how they take feedback and incorporate it, or don’t. As discussed above, coachability is a key trait in sales staff, and the mock pitch is a great place to authenticate it’s presence or absence.
I’ve done this dozens of times, with folks from Groupon, LinkedIn, Indeed, website hosting businesses, and payroll software businesses. And while I haven’t been the perfect prospect every time, that’s almost a feature of the process. Candidates should know what the key characteristics of a prospect would be and guide me as necessary, which is a good thing to do with a sale, regardless.
Based on the outcomes of this process—after comparing all my green and red flags against the hiring profile I am looking at—candidates will either progress to on-site interviews or end the process there.
Once you’ve progressed through all of your screens, you’re ready for in-person, team-wide interviews. Have you noticed that we’ve been through a ton of screens—resume/profile, written, phone, and mock pitch—before progressing to in-person interviews? That’s on purpose. First, your sales reps will likely be doing most of their work via phone and other telepresence (WebEx/screen share, email, PowerPoint); if a candidate can’t get the point across in those formats in a screening process, moving into face-to-face interactions won’t solve the problem.
Secondly, face-to-face team interviews are extremely time-intensive—not just for you, but for your team. A four- or five-person team doing multiple interviews across an on-site day will double or triple all the time you’ve spent on screening the candidate up to this point. Instead, guard your team’s time against wild goose chases by doing the heavy lifting yourself via a screening process. Keep your reps setting appointments and doing demos instead of interviewing candidates you should have kicked out of your funnel way ahead of time. A candidate shouldn’t be coming on site unless you’re already pretty damn sure that they’re a hire. Otherwise, you’re wasting your team’s time.
That said, there is definitely value to the on-site interviewing process. First, there is the chance that you may have missed something that kicks a candidate out—not likely, but possible. Second, and more important, is the opportunity to get your team’s perspective and build consensus among the team about the validity of the hire. If you are running an organization that is highly mission-driven, passionate, and bought-in, they’re going to want to feel a candidate out themselves. Of course, you should remind your team of the rigorous screening process that candidate has already passed, and that you feel that they meet the bar of the team. But folks will still want to road test the potential hire.
You should have specific goals for every staff member assisting in the interview process. In our rep hiring process at TalentBin, we have one of our reps who’s particularly expert in recruiting conduct the interview on recruiting understanding and acumen. We have our sales ops lead interview on tooling adoption and technology understanding. And we have one of our most socially attuned reps interview on culture fit. At this point, the only reason a candidate is spending any time with the team is that I believe they’re probably a hire, so I spend my time running the interview process. In my allocated interview segment, I ratchet up the selling part of hiring, answering questions and articulating very directly the organization’s and the sales team’s culture—what’s OK and what’s not OK.
It isn’t enough for each part of your hiring team to know what they’re interviewing for, though. They should have a set of questions and interactions scripted so that they are applying them to each candidate in the same way. Either sit with them to set up these tools or set them up yourself; even a simple Google Doc that can be copied for each new candidate is fine. Moreover, interviewers should have a unified method for recording the outcomes of their interviews. Again, I like the green-flag, yellow-flag, red-flag approach, followed by a summation (strong hire, hire, unsure, pass, strong pass), with rationale bulleted under each category.
importantWhen scheduling interviews, I make sure to allocate time specifically for sufficient note-taking after the interview is concluded. Again, if you’re going to take 30 or 45 minutes to interview someone, take five minutes to record the outcome of that effort.
At this point, I’m typically looking for red flags. If someone sniffs out an issue that somehow didn’t arise previously, it’s good to dig into it. However, barring that, and assuming that the interview team gives the green light, we like to do one last pass with the rest of the sales team in a group cultural interview by having the team take the candidate in question out for a beer or two.
A beer interview (could be a coffee interview, if you prefer, but let’s be honest—this is sales) serves a few purposes. First, it allows the broader team—outside just the interview team—to interact with the candidate, looking for cultural fit and potential red flags. But it does so in a way that is far more time-efficient than giving each person a 30-minute session. It also allows the staff to share their experience with the candidate, further establishing the norms of the sales organization in the eyes of the candidate (who, if they don’t like it, can self-select out). And it allows the candidate to ask more candid questions in the context of a social atmosphere. This usually helps cement a feeling of transparency, so the candidate can believe what I, and others in the organization, have been telling her. Lastly—and these are partially closing tactics—I get to leverage our high-quality staff, who are great to be around, as a fringe benefit of being in our organization and start building a sense of camaraderie. That can help in the offering process if there are compensation sticking points or it’s a competitive offer situation.
As with all parts of the interview process, outcomes should be documented. In this case, I require all participants (and who doesn’t want a beer or two on the boss’s dime and the chance to meet the new potential teammate?) to give me their feedback in the standard green/yellow/red flag and summary format. Again, I’m mainly looking for red flags from the staff here.
Based on the outcomes of the event, we’ll either offboard the candidate or move toward offering them a role.
Ideally you want to be running a parallel process with multiple candidates to fill the roles that you have open, and biasing toward filling your pipeline to ensure full classes of staff to onboard.
As a result, especially if you do a good job of filtration at the top of the funnel, you may end up with more candidates making it through the bottom of the hiring funnel than headcount allotted. So how do you choose? Well, the good news with sales in an early-stage environment is that it’s all largely greenfield. On balance, it’s far worse to have accounts going uncalled than extra salespeople who may initially consume salary, but then quickly become value-positive. If you’ve done a good job of filtration (and later do a good job of onboarding) and you have sufficient customer lead generation, even your silver medalists in the hiring process should be revenue-positive in short order.
So if you have extra folks who make it through the funnel, and they meet your bar, hire them. More rainmakers are a good thing. They might even buy you some shiny new engineers.
Once you’ve decided that you want to move forward and have compensation largely agreed (this could come before that step, too, but often candidates want to know what their offered compensation is before they will entertain an offer), you’ll want to do some reference checking.
There are two types of reference checks: a provided reference from the candidate, and back-channel references that you dig up yourself from their network. Both can be helpful, but need to be approached differently. In the first case, the candidate is going to provide the references, so you know they’re going to be good! The challenge here can be getting signal out of those references. All references are going to be loathe to provide anything in writing, but you can usually get folks to hop on the phone for a chat.
My favorite approach is typically asking something along the lines of “On a scale of 1–10, how highly would you recommend the candidate?” At this point, they’re going to drop an 8, 9, or 10 on you. (If lower, wow, you need to find out why.) I let them chat a little bit about all the great things the candidate did, and so forth, and then go for the good information by asking: “What would ____ need to do to become a 10?” This is where you can often get improvement areas surfaced that otherwise would never be talked about. This isn’t saying that these will be kick-out questions, but it’s good information to have.
A back-channel reference entails finding a reference that is jointly known by you or someone on your team and the candidate, who can provide information that either validates or potentially discounts what you’ve learned in the interviewing process. The best way to do this is to look for shared LinkedIn and Facebook connections between you and the candidate, or people on your team and the candidate, and then look for folks who are closer to you and your team than to the candidate—they aren’t in his back pocket, per se. This can sometimes be a crapshoot, and there may not be any, but if you can find one or more, it can help provide more signal to validate your existing decision. These types of references can be extremely helpful, as they may surface potential knockouts that the candidate-provided references have been pre-vetted to hide.
Other approaches where you have more than a few references can involve trying to divine patterns through multiple conversations. If you ask four people, “What are the top three characteristics of the candidate?” you’ll start seeing patterns emerge. And if none of those characteristics include those that the candidate has positioned to you as being key reasons to hire him, that’s a potential flag. Further, if the candidate has cited any particularly large projects or wins, and those don’t show up without prompting, that might be a yellow flag.
Again, the goal here isn’t malevolent or to trick the candidate, but simply to validate our decision to move forward and make sure we have all available information to support that.
The purpose of screens and interviews is to authenticate that a candidate has the characteristics and skills to do the job, and will fit within the culture of your organization. Once you’ve done that, step on the gas, fast. The sort of high-quality staff you’re recruiting will not be on the market for long, and much like a sales deal, there is a tempo and momentum to hiring. If you let that excitement start to cool off, it will make things much harder for you. You will lose that candidate to another opportunity, and none of the work that you did to authenticate them will be recoverable. Dilly-dallying sets the hard work you’ve done on fire. And it will create questions in the mind of your team—if you can’t close a candidate, should they still be working here? So stop agonizing, Hamlet, and get this show on the road.
If you’re not sure, on the other hand, then pass. “If there’s doubt, there is no doubt” is a helpful way to think about it. Move on to the rest of your pipeline, where you can find someone that you’re truly excited about. This is why recruiting, like sales, tends to be a volume game; if it’s a bad deal, close it and move on.
The hire doesn’t represent just the hire and their salary expense. You will be investing substantial time and energy onboarding him. He will be looked at by his colleagues as a reflection of what is deemed valid in your sales culture. You will be filling his pipeline with valid opps and giving him bluebird deals. If you’re not sure that the candidate in front of you is worth that investment, then pull the ripcord. Trust your process and know that you will find those who are worth the investment.
When making an offer, compensation will be a key part of your discussion. Firstly, you need to know what you’re paying. You can’t make this crucial decision based on whatever a candidate asks for or has earned previously.
The better way to think about this is that there is a market for the sort of labor that you need, with an associated market rate. At the same time, there’s a certain value that you’re going to be able to get out of your hires—this will go to quota and commissions. If the mechanics of your market and solution tell you that your average deal size is ~$10K, and that a sales rep can close five of them a month, netting you ~$50K in bookings (at a 20–25% cost of sales), you can’t be paying that staffer more than ~$10K a month in base and commission. So talking to sales staff who are targeting a ~$100K base and ~$200K on-target earnings (netting to ~$16K a month) is simply a non-starter.
This can be hard early on, when you’re not sure of the natural rate of sales for a typical rep. That’s why I like to look at analogous roles at analogous companies—for TalentBin, that was looking at LinkedIn’s SDR and AE teams—for guidance. It’s generally pretty easy to surface compensation specifics at these benchmark organizations, either by asking agency recruiters or by using tools like Glassdoor or PayScale.
When it comes to variable compensation, or commission, nearly all sales roles follow the concept of variable compensation derived from bookings, appointments set, or some other key performance indicator. Typically you’ll see a 50% base/50% commission split for new-business acquisition account executives, with more of a 60/40 or 70/30 for market development (appointment setting) or account management farming existing accounts).
On the other hand, quotas are somewhat vestigial, leftover from a time when sales activity was not sufficiently instrumentable (via CRM, and sales instrumentation) to help sales management see if sales staff were doing the requisite activities, and doing them well. In pre-CRM sales organizations (or present-day sales orgs with abysmal CRM execution), it was hard to see how many calls, emails, appointments, and so forth were being done by a rep. So the backstop was a macroeconomic carrot/stick combo in the form of a quota: if the rep didn’t do the work needed to generate sales, their missed quotas would demonstrate that, eventually (over a series of quarters) leading to dismissal.
If you run your organization like a modern sales org, that particular function of the quota has largely gone away; instead, you have activity charts and graphs, win ratios, and so forth, which are far better tools for instrumenting and verifying activity. Moreover, this sort of activity instrumentation presents that underachievement information much faster than the three quarters of quota under-attainment historically needed to realize that a rep wasn’t doing his job and should be fired. With all that said, incentivizing and focusing incremental activity is still an important part of variable compensation, so it’s worth implementing quotas.
Setting quotas works better when you have a sense of what the natural rate of sales will be, but looking at existing market examples will be helpful. And if you have been selling yourself, and have a sense of what is achievable, you’ll be able to set goals that are attainable. That last part is key: unrealistic goals will lead to unhappy sales staff who will be looking for new jobs, leaving you without an engine for your revenue growth. In fact, if your would-be hires are smart (and they better be, if you’ve been following along!), they’re going to want to know what proportion of their would-be colleagues are hitting their numbers. It’s all well and good to tell a potential hire a narrative of how she’s going to make ~$200K a year if she hits certain goals. But if she digs in and no one is attaining those goals, you’re going to lose that hire (and likely your existing staff). It’s a bit of a balancing act, which may require retooling as you go.
Let’s look at how the numbers play out for two key sales roles.
Compensation for appointment-setting roles depends on what you’re selling. High-end, high-ticket software that is more complicated and hard to set appointments for will be compensated at a higher rate. But a LinkedIn/TalentBin/Box.net/Salesforce SDR in the San Francisco Bay Area will be making a ~$45K–~$55K base with on-target earnings (OTE) of ~$65K–~$75K. For something higher-ticket like Workday, it may be something more like ~$50K, with a ~$75K OTE. The ~$15K–~$20K of variability is based on the number of appointments that are set and subsequently held. Your mileage may vary based on region.
Some people determine variable compensation by counting verified qualified opportunities; if the account executive has the meeting and says that the account isn’t qualified, it doesn’t count. I don’t like this approach because sometimes the aspects of the account that made it unqualified aren’t discoverable from external information (like employee counts, job openings, and so forth), or even on an initial discovery call, and you shouldn’t be punishing SDRs for something outside their control. But it works for some organizations.
The number of appointments that are required to attain the total on-target earnings will vary, again, by how hard it is to set those appointments. If you’re setting appointments with CIOs of Fortune 500 companies for ~$1M average-deal-size opportunities, then one or two a week is probably a good number! For something higher volume and more transactional, it could be 10–15 a week. You’re going to have to experiment. The important thing is that you want your goals to be attainable with the correct amount of quality work.
If an SDR makes 100 calls a day and sends 100 emails, and they are quality and not BS, whatever number of appointments that turns into should be a good target (and you’ll note that quota is the carrot and stick that backstops your activity tracking). You also don’t want to cap attainment here. If you’re paying ~$50 per appointment set and held (this would target 8 appointments set and held per week for ~$20K variable compensation), do not cap the upside. If someone can set 16 appointments for you per week, by all means, go for it!
If you set your quota too low, allowing this upside will allow them to reveal what maybe the true goal should be, so you can later adjust it. Also, don’t require the attainment of the goal in order to achieve an all-or-nothing payout. If you don’t have a lot of data supporting that someone can attain five meetings set and held a week, and that person hits four, and doesn’t get their payout, that’s going to be a demoralized rep.
All or nothing variable compensation attainment is something that far, far more mature organizations can dabble in, like payouts only occurring when a rep attains 85% of attainment in a quartet, though usually this is an account management capacity—like what AEs do—versus lead gen or new business acquisition.
AE compensation can be a little more complicated. But generally speaking, for account staff who are acquiring new business (hunting as compared to the farming of account managers who are focused on maintaining, renewing, and proliferating existing business), you’ll be seeing a 50/50 split between base and variable.
As with SDRs, this will typically vary based on the average deal size you’re talking about. Higher deal sizes will mean more expensive AEs. Again, to benchmark off a San Francisco SaaS AE—out of LinkedIn, for example—you’d be looking at something like ~$50K–~$60K base, with an OTE of ~$100K–~$120K. Again, for a higher-ticket item like Workday, that could be a ~$100K base, with a ~$200K OTE. Usually you should be able to benchmark against other organizations selling similarly priced software as yours. (And if you’re pulling people out of a related company, their approach to compensation will certainly influence yours.)
Quota and commission can also be challenging with AEs. Once you know what a natural rate of execution is, and thus what a reasonable goal is, it can be straightforward to set quota. Usually you don’t want your entire cost of sales to be more than 20% of your revenue. So if you’re shooting for a ~$100K OTE, with ~$50K variable, that AE will have to bring in ~$500K of bookings a year to keep that cost of sales under 20%. That would mean that a commission rate of 10% would be fine in this situation, and you’d expect ~$42K of bookings a month, or else the rep would be let go. However, it’s important that those numbers are clearly attainable, and job candidates will want to know that they’re attainable. Conveniently, since you’ll be such a CRM-excellent sales founder, you’ll know what your win rates are and how many opps a typical rep gets a month from SDRs, and you can show that either you or others on your team are hitting their goal, making their commissions, and paying their bills.
When setting this number, you want it to be attainable to start, so look at how much you were able to sell in a given interval of time, what your win rate was on new demos, and such, and then figure out what you think that someone whose full time job is just doing demos and closing deals should be able to do. Understand that this is a work in progress, and you can characterize this to reps what the math-based rationale is behind the numbers, and note that if they go above goal, they get paid on that. Like SDRs busting through their appointment goal, AEs who have a ~$40K number, but are doing ~$60K a month is a great problem to have. It pumps them up, gets them excited to recruit others (who will be excited about an environment where they can make great money), and later on, you can choose to raise the goal to be inline with this natural rate of selling, once you have more data from more staff.
If you can, you’ll want to pay commissions on cash in the door, not bookings that then get collected over time. If your reps can sell a ~$10K deal for a year, and have that cash paid up front, that’s great for your cash position. So if you make it clear that you pay commission when the cash comes in the door, that will create an extra bit of focus for those AEs to sell those types of deals, and not let customers negotiate for quarterly payments.
There’s another approach popularized by Jason Lemkin, founder of EchoSign, who likes to hedge against potential low performers and bad hires by pushing the risk onto the rep. He suggests allowing reps to make a very strong upside when they execute well, provided they have covered their own costs.
The broad strokes look like this: Offer a competitive base, say ~$4K per month, or whatever the best alternative is at a comparable company. The only wrinkle here is that reps don’t start making commission until they cover their own cost. They have to bring in ~$5K (or whatever 125% of base is, to cover benefits) before they receive any commission. Then, once they cover that, pay 2x the commission. So, instead of paying 10% of a deal, push the entire 20% cost of sales to the rep. And there’s one accelerator: pay 25% for cash up front.
This creates a large incentive for reps to do up-front deals, because cash is king when you’re a startup—it’s money you don’t need to take from a VC. Importantly, though, you only pay that commission upon receipt of cash, not signing of the contract. You don’t want to be cutting a ~$10K check to a rep for a ~$50K deal that is paid quarterly. He gets his 20% of each paid installment. And if the account becomes a bad debt, that’s on him.
Since a lot of this is a work in progress at this stage, you want to keep things flexible. And typically you want to be understanding and generous with your reps. Early on, you may have to get pulled into closing calls to be the heavy. Just because you’re helping out doesn’t mean the rep should get paid less on the deal. Or if a company goes out of business and doesn’t pay the second part of their biannual billed contract, just pay the commission. As long as you have money to support it, don’t put acts of god onto the reps’ shoulders.
importantHowever you structure your compensation, be sure to have a unified plan that is based on market comps and the economics of your business, not gut feel. Typically I prefer to discuss compensation with staff after concluding the interview process that authenticates them as someone we would actually want to hire. If it shows up earlier than that via candidate proactivity, I like to articulate that we pay competitive market compensation for the well-defined roles we hire for, but that we’ll dig into specifics after it’s clear that it’s a fit on both sides, from both a competency and cultural-fit standpoint.
Part of the attraction of working at early-stage companies is the opportunity for equity upside in the event of an exit. This is typically a meaningful portion of the compensation of engineering and other non-sales staff. With sales, it can be more mixed. Generally speaking, sales is compensated with cash commensurate to the amount of revenue that is acquired. That said, there is value to instilling an ownership mindset in your staff.
Again, you can use market comps for this, but equity for sales staff will generally be substantially lower than for engineering or product staff. Depending on the stage of the organization, a few basis points of ownership, vested over four years, is fair. For management, charged with building an organization, this can be more generous. But the goal of sales is that the compensation you pull from your role is tied to the revenue-attainment value you bring to the organization. Eat what you kill.
In terms of offering and closing candidates, I find a two-step process helpful, a verbal offer via phone followed by a formal offer letter once I know the hire is interested in progressing. With the verbal piece, when you’ve concluded whether this is someone you want to bring onboard, email to let the candidate know you’d like to get on the phone to discuss outcomes. When you’re on the phone, let him know the result, whether you’ve chosen to proceed or not.
If you’re electing not to proceed, just say that the team conversed and concluded that it wasn’t a fit. Unfortunately in this litigious world, you don’t want to get deeper than that, for fear that it might come back to bite you. So even if the candidate tries to dig in for more information, politely let him know that you appreciated his time, but that the conclusion when weighing input from all stakeholders was that it wasn’t going to be a fit.
If you are proceeding, the approach I recommend is to let the candidate know that people were positive on him and that you’d like to proceed with an offer, if he’s going to accept it. This would be the point at which you would discuss compensation, and I like to proactively state what we pay, and the rationale associated with it. Some like to see if they can get a deal and ask candidates what they are looking for first, but I find that this starts a conversation that isn’t principles-based and grounded in the economics of the business. Also, if you are scaling many market development reps or account executive roles, consistency in compensation will prevent the cultural discord that can come from having varying compensation for folks executing the same role. Besides, your variable compensation helps ensure that everyone is compensated fairly for outcomes.
If you’ve done a good job on the interview process up to this point, and your team left the candidate fired up to work with a bunch of great folks, he will hop right on it. In that case, you can proceed to discussing start dates, and then send over an offer letter. Other times, the candidate may want to mull over the offer before agreeing, or may come back with a counteroffer. That’s fine as well, but I generally prefer to get verbal agreement before sending over an offer letter for digital signature. I would prefer that the offer letter not be used as leverage against a current employer to drive a counteroffer, or a competing offer from another suitor organization. I simply say, “I only want to send over an offer letter if you’re going to sign it, so will you accept this offer when I present it?”
When it comes to negotiation, I generally prefer not to do it. If the compensation being offered is principles-based, and backed by strong market comp and business economics rationale, then I prefer to state why an offer is fair. There is a large supply of qualified sales professionals in the market, and the potential issues that substantial compensation variation introduces aren’t worth making an exception. With that said, if there is back and forth, you can make sure to sell other parts of the role as well—personal development, the opportunity for career progression, and if needed, you can put a role and salary review on the books six months out from start. All of these are levers that can help you close a candidate, even as you want to hold the line with sales compensation plans that are consistent and principled.
Once you’ve got a signed offer in hand, move as quickly as possible to generate and maintain momentum. Try not to leave too much time between when the offer is signed and the start date. After so much time investment, you don’t want second thoughts to creep in. Furthermore, try to target starting classes of staff together. More on this in High-Impact Sales Onboarding and Training, but having three, four, five SDRs or AEs starting together offers all kinds of benefits.
Use whatever time you have, though, to set your inbound hires up for a successful start: That means less-fun things (lining up materials for onboarding and assigning trackable pre-work) and more-fun things, like including inbound hires in team happy hours. They’re not really on the team until they’re at their desks and doing their jobs, the same way a deal isn’t done till the contract is signed and the cash is in your bank account. Treat inbound hires with the same level of urgency.
Sales hiring is the engine of your organization’s revenue success. Treat it seriously and methodically, aiming for high-quality staff who are well matched to the needs of your go-to-market strategy, and you will be well on your way. Treat it haphazardly, and you are sabotaging any chances you have at success.
Hiring, Onboarding, and Ramping Salespeople (Cory Bray and Hilmon Sorey)
The Sales Acceleration Formula (Mark Roberge)
Leading Sales Development (Alea Homison and Jeremey Donovan)
The Sales Development Playbook (Trish Bertuzzi)