Thread by @DavidSacks

1/ Let’s say you're a SaaS founder who’s looking to build a sales team for the first time. How do you structure quotas & compensation for the initial sales reps and their manager? Oftentimes, the biggest hurdle in hiring the first rep is not knowing how to incentivize them.

2/ There are actually a number of simple math-based rules that you can use to set up a sales team.

First, the standard commission rate for SaaS products is 10%.

Second, in constructing an OTE for an AE, a 50/50 split between base and variable compensation is typical.

3/ Taken together, these standards generate a third rule: the typical quota will equal 10x base salary. I call this the Rule of 10. This generates the following pay scale for AEs:

4/ For simplicity, I’ve presented annual numbers, but quarterly sales plans are actually ideal. (I explain why in The Cadence.) Just divide the numbers by 4 to put your AEs on a quarterly plan.

sacks.substack.com/p/the-cadence-…

5/ “Quota Capacity” refers to the total team quota. For example, 10 AEs with quotas of $500k each = $5M QC.

Avg team attains about 70% of QC.

A manager’s quota should be set at 80% of QC.

If the team is hitting 80%+ of QC, that’s a sign you can hire more AEs.

6/ If an AE is unable to generate at least $400k/year in New ARR (implying $80k-100k OTEs), a sales-driven distribution strategy may not pencil.

7/ Since OTE is 20% of sales, the fully-loaded cost of an AE will represent 25% cost of sales. Sales overhead will typically cost another 15-25% of sales. That means you can spend about 50% of New ARR on Marketing CAC (lead gen) and still keep your payback under 12 months.

8/ For more on how you can use simple math-based rules to set up a sales team, read the entire post here:

sacks.substack.com/p/simple-math-…