Hi friends - Here's a pattern I see far too frequently:

A founder makes their first sales hire, offers a competitive base salary, maybe throws in a commission percentage, and calls it a day. No quota. No clear OTE. No math connecting all the pieces.

Then six months later, everyone's frustrated.

The rep isn't making the money they expected. The founder doesn't know if performance is good or bad. And both sides are left wondering what went wrong.

The answer is almost always that the comp plan was broken from the start.

The good news is - I’ve got a guide for you to follow to fix it. 👇

Sales compensation isn't just about paying someone fairly - it's a mathematical system that aligns expectations and incentives between you and your rep. When the math doesn't work, both sides end up unhappy.

Let me give you the four components every sales comp plan needs:

Here's the problem: I regularly see founders offer a base salary and a commission percentage without ever setting a quota. Or they set all three, but the numbers don't reconcile. A rep can't back into what they'll actually earn, and the founder can't define what "good" looks like.

This isn't just a founder problem, though…

If you're interviewing a sales candidate and they accept your offer without asking detailed questions about quota, OTE, ACV, and how commission is calculated - that should concern you.

Salespeople are money-motivated by design. That's the whole point. A strong candidate will immediately do the math: "If my base is $70K and my OTE is $130K, that means I need to earn $60K in variable. What's my quota? What's my commission rate? How many deals do I need to close to hit that number?"

If they're not asking these questions, one of two things is happening: Either they don't understand how sales comp works (which means they're inexperienced), or they're not actually motivated by the money (which means they might not have the hunger you need).

A good sales hire will pressure-test your numbers before accepting. They'll want to know:

This is exactly the conversation you want to have. It forces you to think through the math together, and it shows you that this candidate will hold themselves accountable to clear targets.

⚠ Bottom line: Pay attention to the questions the candidate is asking you! It’s a signal.

Now let's walk through how to actually build a comp plan that works. I'm going to use general market benchmarks from RepVue and a framework that's realistic for early-stage companies.

If you are looking for more specific benchmarks based on your revenue, valuation, etc - I’d recommend using Pave.

Before you attempt to structure a comp plan, anchor yourself on the current market benchmarks. OTE varies significantly based on whether you're selling to small businesses, mid-market companies, or enterprises.

According to RepVue's 2025 data:

These are medians - so of course some companies pay above, some below. But if your OTE is significantly under market, you'll struggle to attract strong candidates. If it’s significantly over, you might struggle to hold them to a quota that makes it an attractive ROI for you as the employer.

The industry standard is a 50/50 split between base salary and variable compensation. This means if you're offering $130K OTE for an SMB AE role, you'd structure it as $65K base and $65K variable (earned at quota).

Some companies run closer to 60/40 (more base, less variable) or 40/60 (less base, more variable). A higher base feels safer for candidates but reduces the performance incentive. A lower base may be a hard sell for your startup, the candidates already know they are taking a ‘risk’ trying to sell for an early stage company - lower guaranteed pay may make that risk too high.

For most startups, 50/50 is the sweet spot. It's what candidates expect, and it creates meaningful upside for performance.

This is where most founders go wrong. They either don't set a quota at all, or they pick a number that sounds good without testing whether it's achievable.

The startup-friendly approach: Set quota at 3-4X the base salary.

Using our SMB example with a $65K base, that means quota would be $195K-$260K in annual closed revenue.

This approach results in commission rates around 25-33%, which feels generous and attracts candidates. It also creates achievable targets for early-stage companies still building their sales infrastructure.

The enterprise approach: Mature companies typically set quota at 4-5X OTE (not base).

According to SaaStr's analysis of sales compensation data, this 4-5X ratio "remains the standard," with enterprise quotas often pushing to 5X or higher. QuotaPath's research confirms that "a quota with a multiplier of 5x the OTE is what we've observed as the SaaS standard." Using our $130K OTE example, that translates to $520K-$650K in quota, with commission rates around 10-12%.

This approach works when you have documented close rates, proven messaging, consistent lead flow, and existing reps hitting quota. It doesn't work when you're still figuring out product-market fit or in the early stages of founder-led sales transitions.

Why do I recommend the startup-friendly approach?

Because unrealistic quotas kill motivation and drive turnover. RepVue data shows quota attainment rates ranging from 24% to 52% depending on the company - meaning at many organizations, fewer than half of reps hit their number. Setting achievable quotas keeps your reps motivated while you build the systems to support higher productivity over time.

ℹ Note: You can and should restructure sales comp plans as your company and sales process matures.

A quota number is meaningless if the underlying math doesn't work. Before finalizing it, pressure-test it against your ACV and required deal velocity.

The formula: Quota ÷ Average Contract Value = Deals Required

Let's say you set a $240K quota and your ACV is $20K. That's 12 deals per year, or one deal per month. That feels achievable.

But if your ACV is $8K, that same quota requires 30 deals - 2.5 per month. With a 90-day sales cycle, can one rep manage that many concurrent opportunities?

Now factor in close rates. If you close 20% of qualified opportunities, you need 60 opportunities to get 12 deals. That's 5 new qualified opportunities per month, every month. Is your marketing engine producing that volume? Or do you think the rep can realistically create that many net new opportunities on their own, while also working open deals?

Once you've set a validated quota, work backwards to determine the commission percentage.

The formula: Variable Compensation ÷ Quota = Commission Rate

Examples using a $65K variable target:

You can structure this as a flat rate (same percentage on every dollar) or tiered/accelerated (higher percentages after hitting certain thresholds).

Accelerators reward over-performance and make top performers very happy, but budget carefully - a rep at 150% of quota with accelerators can get expensive fast. However - the expense may be 100% worth it if you’re in logo acquisition mode and not yet as focused on unit economics.

Here's another reality founders often miss: Even with perfect onboarding, a new rep won't close deals immediately. If your sales cycle is 90 days and you need a month of training, you're looking at 4+ months before the first commission check.

Ramp time = Onboarding period + Sales cycle length

Paying only on closed deals during this period creates financial stress and turnover risk. Instead, structure activity-based bonuses for the first 90 days that reward the behaviors leading to future closes:

This keeps your rep financially stable while building pipeline, and gives you leading indicators of whether the hire is working out before you've invested 6+ months.

There's another reason to think carefully about ramp period structure: early wins predict whether a rep will stick around.

The logic chain is straightforward. When a new rep closes their first deal, it validates their decision to join your company. It builds confidence that they can succeed in your environment with your product. That confidence translates to engagement, and engaged employees are far less likely to leave.

The inverse is equally true. A rep who goes months without closing anything starts to doubt themselves, doubt the product, and doubt whether they made the right choice. That doubt compounds quickly - and before you know it, they're interviewing elsewhere.

This is why some sales leaders intentionally set up new hires for early wins. They might assign a "softball" opportunity that's likely to close, or let the new rep shadow a deal that's already in late stages so they can share in the commission and the victory. The goal isn't to inflate their numbers artificially - it's to give them the confidence boost that comes from proving they can sell here.

When you're designing your ramp period, think about how you can engineer opportunities for early success. The faster a rep experiences a win, the more likely they are to stay long enough to become a consistent performer.

You don't want to wait until quarter-end to know if your rep is on track. Establish weekly and monthly activity targets based on your quota math.

Using our 12-deal quota example with a 20% close rate: The rep needs 60 opportunities annually, which is 5 per month or roughly 1-2 per week. That's your leading indicator.

If a rep consistently misses activity targets after ramp, you have early signal that something's wrong - whether it's the process, the market, or the individual's performance.

Every element of this plan should be documented in your offer letter or compensation agreement:

If your rep can't look at the document and calculate exactly what they'll earn at different performance levels, you need to simplify it.

Sales compensation is a system, and every piece needs to connect. A base salary alone isn't a comp plan. A commission percentage without a quota is meaningless. OTE without validated deal math is a fantasy.

Get this right from the start, and you set both yourself and your rep up for success. Get it wrong, and you'll spend months wondering why things aren't working - when the answer was baked into the numbers from day one.

Want to learn more about how I help startups increase their revenue by 150-590%? 👀

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With love and gratitude,