Solutions Compensation 101: Creating Winning Plans for Sales Engineers
Getting PreSales compensation right is mission-critical to building revenue-generating teams that are incentivized to win for the company and themselves.
With little to no public information, we seek to uncloak the mystery around PreSales compensation and empower leaders to create effective plans that help hire and retain top talent. In the 2021 Benchmark Report: The State of PreSales Compensation Edition, 40% of PreSales leaders didn’t think their compensation plans were effective and 69% didn’t fully own their compensation plans.
That’s why we created the PreSales Compensation Calculator for Emerging Teams & The Complete Guide to PreSales Compensation—all built and written with the expertise of our VP of PreSales, Brett Crane. (He will also be leading a webinar on how to design a comp model that drives results on June 29.)
In this blog, I’ll review the drivers—quotas, on-target earnings, support models, commissions—that impact a PreSales compensation strategy and the salary of Sales Engineers, and how they can be put together to create effective plans for PreSales teams at startups to Enterprises. If you already have plans you can take away insights and ideas on how to improve existing ones.
- PreSales Compensation Plan: Quota
As the target bookings of an individual or group, quotas are fundamental to the leadership team strategically planning hiring and forecast growth. From a PreSales perspective, the following are often the most important elements of quota:
Metric is used for defining quota and attainment results. As companies transition to recurring revenue, metrics such as “Monthly Recurring Revenue (MRR)”, “Annual Contract Value (ACV)”, and “Total Contract Value (TCV)” become the dominant metrics for measuring quota. In a B2B sale where PreSales is most commonly involved, ACV—the annual recurring value of a contract of at least 12 months in length—is the most commonly used metric.
Support models indicate how opportunities are assigned to PreSales individuals and/or teams. PreSales teams may leverage a variety of support models which will impact PreSales quota based on the number of Account Executives (AEs) being supported and the projected hiring across regions.
Period defines if the quota is established on a quarterly or annual basis. This forms the foundation for total payout to the individual. Quarterly periods are highly effective for businesses with higher volume segments or businesses that have less predictability in their business model. Annual periods are more appropriate for businesses who sell large deals to Enterprise segments where the deal cycle times are long.
- Compensation Plan: On-Target Earnings
On Target Earnings (OTE) refers to the total payout an individual can expect when 100% of quota is achieved. Depending on the company and PreSales team, there will always be a base salary but the mix of variable commission and bonuses may vary.
OTE for PreSales individuals is based on the following formula:
OTE = Base Salary + Variable Commission at 100% Quota Attainment + Bonuses (Management by Objectives – MBOs)
It is important to determine the split between base and variable to create an effective PreSales plan. For example, Sales is typically split 50/50. Yet, PreSales has a variable portion to their plan but with a lower percentage of their overall OTE tied to closed deals when compared to sales. The most common base/variable split for PreSales individuals is 70/30.
- PreSales Compensation Plan: Support Models
PreSales is a sales support function which adds complexity as a variety of different support models may be utilized. These models are examples of how to set the quota and focus for the PreSales individual to make it clear for them what to focus on and how they will get paid.
Pooled by Geography
PreSales resources focus on a geography, EMEA for example. Opportunities are worked on by individuals within the pool, but the individual PreSales quotas will be aligned to the overall success of the geography. The benefits of this model include incredible flexibility for PreSales leadership to manage workloads across the team while creating a culture of shared success and team comradery.
Pooled by Segment
Similar to above, PreSales resources may be focused but are further aligned by segment, for example, Enterprise West (US) vs. Healthcare and Life Sciences. A “segment” may be a focus on companies of a specific size or industry/vertical. Opportunities are worked on by individuals within the pool who support the particular segment. For businesses who require different PreSales skill sets across segments, this model may make the most sense. Downsides include onboarding and long ramp times.
In this model, PreSales individuals are directly aligned to AEs, so that they become comfortable working together deal after deal and can achieve more consistent results. The working relationship (personality clashes) and win rates (success) of these pairs are important to monitor. Most often seen in Strategic segments, this support model is expensive and resource-heavy but may make the most sense for companies that focus predominantly on large deals.
Some PreSales teams have a model where they pay their PreSales professionals a commission on the deals that they individually work on as the primary PreSales resource. Often this is referred to as their “revenue influence”.
There are often multiple pools in which a single PreSales individual might have a plan so that their variable commission may be split into 50%, where they get paid on the deals they individually work on that close (individual model), and then 50% of their commission is tied to their other pool, for example, geographical. Therefore, PreSales individuals are both incentivized to win a plethora of deals they are the primary PreSales individual working on but also want to help their teammates in their geography to close their deals because that is tied and important to the Sales Engineer’s pay.
- PreSales Compensation Plan: Commissions
As described above, PreSales teams leverage a variable component to their compensation plan. The following represent common strategies for selecting the appropriate commission structure for the variable compensation component.
Continuous vs. Step vs. Hybrid
In a continuous model, the PreSales individual will earn commission continuously. In a step model, commissions are only paid out when certain targets are achieved. In a hybrid model, there may be an initial target that must be cleared prior to commission payout at which point commissions are then earned continuously.
Flat vs. Accelerators
In a flat model, commissions are paid at the same rate regardless of quota attainment. An example would be a PreSales individual getting 1% commission on every deal. In an accelerator model, the commission payout may vary as certain targets are achieved. While the PreSales individual may earn 1% for all deals up to 100% quota attainment, they may then start to earn 2% for all bookings above their quota.
Uncapped vs. Capped
In an uncapped model, the PreSales individual will continue earning commissions regardless of quota attainment. In a capped model, commission payout will cease for any achievement over a certain quota attainment (175% for example).
Putting it all together
By considering all the drivers that make up a PreSales compensation, you can combine these concepts to create compelling compensation plans that meet your specific needs. Compensation plans should strive to ensure that PreSales teams have variable compensation tied directly to the work PreSales individuals are doing to make their focus clear.
With a strong foundation of the drivers of PreSales compensation plans, leaders of emerging teams (best for ~10 or fewer PreSales professionals) can build the perfect single commission plan in just a few clicks with our PreSales Compensation Calculator for Emerging Teams!
If you lead a larger team check out the Guidebook—The Complete Guide to PreSales Compensation—to dive deeper into the drivers above and to potentially help overhaul current processes or validate the ones in place.
PreSales compensation plans should be geared toward motivating Sales Engineers to work at their peak performance and improving morale as well as for leaders to support their team and the company’s overall business strategy.