Earlier this month, in our initial post, we saw that software sales reps perform significantly better when their comp plans are more heavily weighted to variable comp.
In another “shocker”, today’s post shows that higher total payouts to AEs — as measured by the Quota-to-OTE Ratio* — are also correlated with better performance. Significantly so. Here’s the chart:
What Percentage of Quota Capacity Did Your AEs Achieve?
(Median metrics from 60 companies)
- Companies paying their AEs <4x Quota-to-OTE — the most generous bucket — delivered over 100% of their Quota Capacity* (QC)
- Companies with less generous pay packages delivered 15% to 30% points less QC
Wow! So maybe variable compensation doesn’t matter as much as we thought? Just pay them more overall! It’s a tempting conclusion. But reality is certainly more nuanced. Why? Correlation does not tell you “cause and effect”.
Consider this alternative explanation: Let’s assume that the strongest companies are determined to recruit the best AEs and do so, in part, by paying them more. It’s indisputable that strong companies can recruit better reps and pay them more. But these reps don’t perform better because they’re paid more. They were better to begin with!
No doubt, the answer we are looking for is: “it depends”. We’ll need to dig further and will do so as our membership grows and we collect more data. But the correlation cannot be ignored. As a final note, consider the fact that 42% of our users paid Quota-to-OTE below 4x. More than we would have suspected. So if you’re thinking it’s uncommon to pay this much, you’d be wrong.
Want more data like this? Join BenchSights. We’re building a “Data Co-op” for the software sales industry. Your data is always kept anonymous and confidential. Membership is free and all active members providing data gain access to our free BenchSights reporting. Go to https://benchsights.com to get started.
* Quota-to-OTE Ratio is: Quota (target ARR bookings for a rep in a fiscal year) divided by the compensation that rep would earn if they deliver quota precisely (base salary plus variable comp @ OTE)
* Quota Capacity (QC) is the aggregate dollar bookings that would be achieved by the AEs if all ramped AEs delivered quota exactly in the fiscal year