Base Pay: A Ball & Chain for Top 10% B2B Enterprise Sellers
As 2023 dawns and talk of lean and smart growth fills the air, I want to shed light on a topic that some may not want to hear: the strange reality of professional sales-based careers.
Working in software and data, I've witnessed the top talent from schools flocking to sales and business development, drawn in by the promise of competitive base compensation that will only grow with their ascent within the company. And who could blame them? It's a smart move for companies looking to attract the best of the best, without giving up the holy grail of a "book" like an investment advisor would.
But here's the catch: while this may work well for the company, it's not the whole story. In David Sacks' article on SaaS Metrics, he delves into the world of LTV Gross Profit, showing that there's more to a company's success than just lifetime revenue. And acting in the shoes of a CEO or CRO, I would attest that there's even more to consider beyond the numbers. If you look at Section 4, titled “Margins”, he rightly digs past the LTV metric, lifetime revenue, when looking at companies, and introduces LTV Gross Profit. This is great, but if I am a CEO or a CRO and I truly want to get my revenue yield management right, as I’m scaling, it doesn’t end there. What about the rest of the operating expenses? They don’t actually stay fixed as we scale, do they.
If I’m looking at a 3-5 year growth roadmap I want to know how my operating income varies as I pull my revenue levers. If my software reselling channels doubled and my account support is lean, these numbers can hit my operating income line unscathed by the growing SG&A line items that inevitably come with growth. If I did this internally over a course of three or more years, how much fatter would my operating expenses get? Do we know? Performance marketing with outside partners or a lean centrally-run program could yield similar incremental benefits vs people-heavy functions requiring more operating overhead to support. What about the people in these companies?
If a sales and marketing organization, including all departments rolling in, are planned based on revenue and related expenses coming in, then this means as a seller, the actual expected revenue your team will bring in is on or about what the company is building their infrastructure around. If average goal attainment is 100% and management plans around that (let’s keep the math simple and assume this is the case), and average goals are $900,000, then all things equal, that’s what they’re planning for you to sell. In software and data sales a common rule of thumb is a 50:50 base/bonus split, varying to 40:60 or 60:40 base/bonus split to make up OTE, but what’s interesting is that companies can only pay so much for accelerators. It might be common to see accelerator percentages in the 10%-18% range for Account Executives depending on a lot of factors I won’t delve into like is there a BDR function supported there too, how complex is the sale and who else is involved, incremental software margins, what is the average ACV and net dollar retention on new business, other factors. But going back to that article in the above link on SaaS Metrics, companies would beg for incremental CAC of sub 20% as it doesn’t exist in most cases. They even coined a phrase called the Magic Number, your revenue divided by sales and marketing costs – if it is equal to “1” or better you are “doing great”. This number ignores gross profits or the operating expenses that come with scaling said “sales and marketing” expenses. Even just looking at one dollar in incremental revenue; keeping it to even close to 50% is incredible. So why do accelerators only pay in the 10%-18% range, generally? Because it can throw things out of whack in the finance department and in the culture department. And, frankly they don’t usually need or want to given they are paying healthy base salaries and covering other costs of having people internally.
If you are a top 10% performer, you are potentially sacrificing significant income if you aren’t making extreme outlier comp versus your peers. There’s a fear problem, and there is a culture problem that got us here. Most software and data sales that at 100% commission is in the SMB and affiliate world where, on average, “enterprise folks”, wish not to tamper with, or so our culture has driven us to think. But, what if you were able to sell sophisticated products to sophisticated audiences where sales efficiency metrics were off of the charts? For example, what if demo-to-close rates were 20%+, net revenue retention >110%, pre-sales cost margins > 97%, and little-to-no support was required once they became clients so that your focus was on relationships and revenue-generating activity? What if you made 50-150% more than you made today, with accelerators in the 35-40% range, and you were able to capture significant compensation via trailer pay? Conversely, if you are in the bottom 10% - 20% in a medium-to-large org, then you are getting a great deal so I would stay put.
Recently, Silver Birch Growth kicked off several exciting revenue partnerships and we have started to build out our A-teams of independent enterprise and mid-market superstars. We are tracking to be one of the fastest-growing companies in Canada our size.
We are helping companies accelerate revenue more efficiently than they could before, and sophisticated individual contributors get to represent one to two sought-after solutions they can put in front of clients with trailers that pay like they “own a book”.
If you are looking for support to help you grow your B2B business, contact Silver Birch Growth today. We offer a free consultation to discuss your growth goals and how we can help you achieve them.
