Challenges in sourcing top-tier sales talent at your startup? The solution could lie in your compensation structure and in particular, the concept of uncapped commissions.
Startups face unique challenges when it comes to hiring sales talent. Limited resources and brand recognition can make it difficult to compete with established companies. However, by implementing the right compensation structure, startups can level the playing field and attract the best salespeople in the industry.
Using an uncapped commission model not only motivates top salespeople to excel but also aligns their interests with the success of your startup.
In this article, we will explore why uncapped commissions are the best compensation structure to attract high-performing sales talent to your startup, how to implement one, and if there are any alternatives worthwhile to consider.
What is uncapped commission?
Uncapped commission is a sales compensation strategy that offers salespeople the opportunity to earn unlimited commission based on their performance. Unlike capped commission, which limits the amount of commission that can be earned, uncapped commission allows sales reps to truly tap into their potential and maximize their earnings.
With uncapped commission, sales reps have the ability to earn more money as they achieve and exceed their sales targets. Most sales reps will agree that this approach is a powerful motivator. It provides a clear incentive for salespeople to work harder, close more deals, and drive revenue for the company.
One of the key benefits of uncapped commission is the unlimited earning potential it offers. This can attract top sales talent who are motivated by financial rewards and are willing to put in the effort to achieve exceptional results. Moreover, it fosters a competitive environment where high-performing sales reps are rewarded accordingly for their contributions.
Comparing uncapped commission to capped commission
When it comes to sales compensation plans, two common structures are uncapped commission and capped commission. Understanding the differences between these structures can help founders and sales leaders make sure they are setting up the right structure.
Uncapped commission allows sales professionals to earn as much as they can without any restrictions. This provides them with unlimited earning potential and can be a powerful motivator. With no cap on their earnings, sales reps are encouraged to continually push themselves and strive for higher sales targets. This performance-driven culture can ultimately benefit the company.
On the other hand, capped commission sets a limit on the maximum earnings that sales reps can achieve. While this structure provides some level of stability in terms of compensation for the company, it may limit the financial rewards for high performers. Sales reps may also be more prone to postponing deals to the next quarter if they have already reached their commission cap for the current period.
If you're thinking about a standard capped commission plan, where reps can only achieve a certain level of total earnings off of their sales stop.
That is the fastest way to find the lowest level of sales talent on the market.
We recommend offering a competitive base salary for sales reps with an uncapped commission structure.
Benefits of offering uncapped commissions
Unlimited earnings are a powerful motivator for sales reps
With uncapped commission, sales professionals have the opportunity to earn as much as they can. The knowledge that their efforts can directly translate into higher earnings provides a sense of ownership and control, driving them to consistently perform at their best.
Higher sales performance
The absence of a commission cap encourages sales reps to continually push themselves, striving for higher sales targets. The need to surpass previous achievements fosters a performance-driven culture within the sales team, leading to increased productivity.
More focus on closing high-value deals
Uncapped commission motivates salespeople to focus on closing high-value deals. Since their earnings are not limited, they are more likely to invest their time and efforts in pursuing lucrative opportunities that can significantly impact their income.
Attracts top sales talent
Offering uncapped commission can attract top-tier sales talent, increasing the chances of recruiting and retaining high-performing individuals. The allure of unlimited earning potential can also serve as a competitive advantage for your sales organization in the job market.
Challenges with uncapped commissions
While uncapped commissions offer significant advantages, it is important for founders and sales leaders to be aware of the potential challenges and drawbacks that come with this incentive structure.
Consider the following:
Overpromising on sales calls to increase commission earnings
Unlimited earning potential can be a double-edged sword. It is crucial to set realistic expectations and ensure that sales professionals understand the variables that can impact their commissions. Overpromising can lead to disappointment and decreased motivation if targets are not reached.
Overemphasis on closing deals over other workload
The pursuit of higher commissions can lead to an imbalanced distribution of work. Sales professionals may prioritize high-value deals over other essential tasks. It is important to monitor workloads and ensure that all aspects of the sales role are being adequately addressed.
Ethical concerns on sales calls
The potential for high earnings can create ethical dilemmas, as some sales professionals may be tempted to engage in unethical practices to close deals and maximize their commissions. Founders and sales leaders must establish and enforce ethical guidelines and ensure that sales professionals prioritize long-term customer satisfaction over short-term gains.
Potential demotivation for average sales representatives
While uncapped commissions can be motivating for high-performing sales professionals, it may also lead to demotivation for those who consistently struggle to reach their targets. This can result in decreased morale and productivity. It is essential to provide support, guidance, and training to help struggling sales professionals improve their performance.
By considering the challenges and implementing necessary measures, uncapped commissions can still be a highly effective incentive structure that drives exceptional performance and rewards sales professionals for their efforts.
An alternative to the uncapped commission structure—guaranteed commissions
An alternative to the uncapped commission structure is implementing guaranteed commissions. This compensation structure ensures that sales representatives receive a base level of commission when starting a new role, while still providing opportunities for additional earnings based on their performance in future.
Here's how guaranteed commissions work and why they can be a beneficial alternative:
Base level of commission
With guaranteed commissions, sales reps are guaranteed a certain amount of income, regardless of their sales performance. This provides them with a sense of stability and job security when they get started, as they know they will receive a minimum level of compensation every month.
Additional future earnings based on performance
While sales reps receive a base commission, they also have the opportunity to earn additional commissions based on their performance in the future. This incentivizes them to still work hard and strive for higher sales targets, as their earnings can increase significantly beyond their guaranteed amount in the future.
Predictable income stream
Guaranteed commissions help create a more predictable income stream for sales reps when they first start. They can plan their finances accordingly, knowing the minimum amount they will earn each month, while still having the potential to earn more in the future through their performance-based commissions.
Helpful option for building out sales teams
Implementing guaranteed commissions can be beneficial for building out sales teams. It attracts talented sales professionals who value the stability and security of a base total compensation, while still offering the potential for additional earnings based on their performance. This can help companies recruit sales talent when scaling.
Case study for guaranteed commissions—an effective compensation structure to build out sales teams
In 2018 and 2019, we worked with a high-growth PLG (Product-Led Growth) where we implemented a guaranteed commission structure for their sales team. This compensation structure proved to be highly effective in attracting and retaining top sales talent, particularly for more junior positions like senior SDRs (Sales Development Representatives) and account executives.
The company offered a guaranteed total compensation package to all their sales reps. The total compensation was set at around 80-90% of the market rate, providing a sense of financial stability. For example, if an account executive had been earning $250,000 in total compensation at a standard company, this organization offered a guaranteed total compensation ranging from $210,000 to $230,000.
The guaranteed commission structure created excitement among candidates who saw this opportunity as their top choice. Many of them were motivated to excel in the interview process, knowing that their efforts would be rewarded with the guaranteed compensation. This approach proved particularly effective in rapidly scaling out the sales team.
However, we faced some challenges when recruiting for leadership positions or higher-level sales roles such as enterprise account executives. Top-performing leaders and experienced sales professionals often had higher earning expectations. They were accustomed to outperforming their compensation plans and saw the guaranteed commission structure as a potential hindrance to their unlimited earning potential.
We learned that guaranteeing commissions can be a powerful motivator for building out the lower ranks of a sales team. It helps attract talent in large numbers, especially for more junior positions.
However, for top leadership and highly experienced salespeople who thrive on outperforming their compensation plans, a guaranteed commission structure may not be as enticing.
Consequently, when aiming for hypergrowth, it is essential to strike a balance between guaranteed commissions for stability and incentivizing high performers to excel beyond their goals.
How to present uncapped commissions in job descriptions and in interviews
When it comes to attracting top sales talent, being transparent and honest about your compensation structure is essential. This is especially true when it comes to offering uncapped commissions. Here's how you can effectively present uncapped commissions in job descriptions and interviews:
Clearly state the compensation structure
In your job description, be upfront about the base salary and potential commission. Candidates should know exactly what they can expect in terms of their earning potential.
Provide a realistic figure of on-target earnings
It's important to give candidates a clear understanding of what they can realistically earn with uncapped commissions. Include specific examples or ranges to help them visualize their potential income. Candidates will ask what percentage of reps or AEs hit OTE.
Highlight additional perks and incentives
Beyond uncapped commissions, make sure to mention any additional perks or incentives that come with the role. This could include bonuses, stock options, or other financial rewards that can further motivate your sales team.
Emphasize the unlimited earning potential
During interviews, highlight the unlimited earning potential of uncapped commissions as a way to attract candidates who are motivated by ambitious goals and financial rewards.
By being straightforward and transparent about your compensation structure, candidates will have a clear picture of the potential opportunities and rewards that come with joining your sales team. This will attract the right candidates who are motivated by uncapped commission structures and help you build a high-performing sales force.
Final thoughts on uncapped commissions
Uncapped commissions can be an effective tool for startups looking to hire and motivate sales teams quickly.
While guaranteed commission structures are attractive to some candidates, they may not appeal to experienced sales professionals or high-level leaders.
It is important to strike a balance between offering stability with guaranteed commissions and incentivizing top performers with uncapped commissions.
By being transparent and clear in job descriptions and interviews, you can attract the right candidates and build an effective sales team.
If you need help hiring sales reps or account executives, or just need help better understanding sales compensation plans, reach out to us! We're always here to share market trends and provide feedback.
