On Target Earnings per Inside Sales Rep – Are Your Inside Sales Reps “Pay-As-You-Go” or Overhead?
On target earnings or OTE for inside sales reps in your company clearly have an effect on your bottom line. You need to pay well enough to attract sales talent of the level required to meet your revenue goals. Yet you also have to maximize profit on each sale. And just to spice things up, your choice of the base-salary-to-variable ratio of such on-target earnings will also have an impact on your finances, particularly in the first few months of existence of your SaaS or software company.
The Cloud is More Elastic than Sales Reps’ Salaries
Many cloud service companies now use the pay-as-you-go sales model for their customers. However, earnings for their inside sales reps may still be weighted towards a fixed base (overhead) rather than towards commission earned per sale or bonuses (the equivalent of pay as you go.) If inside sales reps achieve their targets, the split between fixed and variable earnings may count for less. On the other hand, in a period of Productivity Ramp Up for Sales Personnel as in a company launch, it will take time to start achieving revenue goals. In this initial period, a larger fixed base will require more funding.
Base-to-Variable Salary Split is a Function of Your Sales Process
This benchmark – “On Target Earnings per Inside Sales Rep” – shows you average levels of compensation of sales reps that sell from within your company (as opposed to field reps, who travel to see customers.) It also shows you average splits between fixed and variable/bonus payments. These averages can be widely different.
For a similar base salary, the variable/bonus payment varies from an extra 12 to 24% ($6.5K on top of a $51k base according to Salary.com, $22k on top of a $90k base, from The Bridge Group) to 100% ($65k on top of a $65k base, from Insight Partners.)
- Companies with a robust inside sales process may prefer to hire inside reps for assiduity rather than sales hunter talent, pay a reasonable base salary and smaller commission, and reduce inside rep churn.
- Other companies with more aggressive sales targets may seek to attract top performers by offering bigger on-target earnings through higher commissions. Savings on lower performers thanks to smaller base salaries may however be mitigated by higher ISR churn and the expense of hiring and training new inside reps.
When the high variance in OTE for ISRs (between $60k and $135k) is explained like this, it shows that the choice of the OTE and the split between the fixed and variable/bonus components is not an arbitrary one. Instead, it is determined by factors including both the expected sales revenue and the nature of the sales process.
Keeping the Variable, but Removing the Uncertainty
Increasingly, insides sales reps are the sales vehicle of choice for SaaS companies. By using software-driven customer contact campaigns (emailing and auto-responders, for instance) and leveraging the web for setting up appointments, a significant part of the sales cycle is already accomplished with efficiency before an inside rep becomes involved. There is less variability and greater predictability about sales revenue, helped by the possibility for inside reps to focus on and perfect the later stages of closing sales.
A Quick Calculator to Determine On Target Earnings
For the purposes of business planning, a possible model for relating quota to salary and commission for a SaaS inside sales rep is the “3x rule”. By this rule, the annual recurring revenue to be generated by a SaaS inside sales rep is about three times his or her OTE. As an example, using the highest OTE figures for this benchmark of a $65k base plus $65k variable/bonus, quota would be $390k in annual recurring revenue.