I am going to start this blog with an image that absolves me of all issues if I go wrong. As a career Ops person, one of the hardest things in compensation management is to arrive at an ideal PreSales compensation plan that all parties are aligned with.
Most of my experience comes from working for a Unicorn startup at Freshworks, with more than 400+ SEs overall today. During my time, I have set up and experimented with SE compensation from scratch from a small 5 to 10 members to a 70 people SE team as well.
Every 6 months, we ended up getting back to the drawing board to see how we could make the compensation plan that was fair for the SEs.
If you are new to this, let me explain to you why this is an almost impossible problem to solve, generally speaking.
Problem #1 - PreSales is a thankless job that is hard to quantify.
Overachieving on revenue targets is considered as peak sales performance, yes? But when it comes to peak PreSales performance, it’s all about convincing prospects of product value- add and bagging the technical win.
But, you cannot equate the impact of a technical win with the MRR of the deal won. It is as simple as that. Some wins require creative solutions that will add value to all subsequent deals your product might come across.
Problem #2 - Unlike sales reps, PreSales is a fluid role that might touch upon multiple deals based on seniority, specialty, and the needs of the region.
Sales reps operate on a one-to-one basis. They get revenue attribution only if they own the customer. Multiple sales reps are rarely involved in a deal unless it is a cross-regional, overlay, or partnership deal.
Conversely, PreSales reps are constantly pulled in to help bigger deals and cross-region deals, as well as provide special vertical expertise. So, this makes it infinitely more difficult to attribute a PreSales rep to all deals that they get involved in.
Why? If a PreSales rep is not restricted to a pod or territory and ends up spending valuable time across various deals, how would Ops be able to set targets in this scenario?
Problem #3 - PreSales is a role too close to the business to not have variable incentives.
When you see a big deal giving a sales rep 400% of their variable incentive, an equally important part of the victory belongs to the technical win. To not have PreSales on a similar incentive structure will create misalignment and unnecessary conflicts.
With all these variables, let’s understand why companies decide to have a compensation plan for PreSales reps by understanding how various teams feel about creating compensation plans for PreSales.
The perspective of Teams in Creating PreSales Compensation Plans
- Sales Leaders: PreSales need to have skin in the game. They need to carry equal risks and rewards as sales.
- Finance Leaders: PreSales need to be on variable pay as they are a core part of the GTM organization.
- PreSales reps: They want to have performance incentive-based pay with comparable compensation as sales. They understand it can’t be exactly the same.
- RevOps: Make it a win-win for all the above teams. The important thing to address here is the PreSales team’s morale more than finance or sales mandates.
Creating the Compensation Plan
Every time a new sales leader says PreSales must be on V-pay, this is what happens:
When creating a PreSales compensation plan, it is important to not get carried away with what sales reps have and replicate the same for PreSales.
Sales compensation plans won’t work for PreSales if replicated in full due to the following reasons:
- Sales reps operate one-to-one while PreSales reps operate one-to-many.
- PreSales teams get involved in a lot of non-transactional goals compared to sales such as making a demo portal, working with the product team for feature requests, implementation, etc.
- Sales compensation rewards only revenue attainment and this puts PreSales’ fate completely outside their control.
So, how do we design a PreSales compensation plan? I’d split it into revenue and non-revenue goals.
Don’t mind me sliding a few memes or two. They somehow just make explaining things so much more entertaining. Now, getting to the goals. Here’s how I would lay them out:
Revenue goals of PreSales need to be limited with crystal clear conditions:
- Unlike sales reps, PreSales reps will carry pod or regional-level attainment goals instead of individual attainment goals ensuring that their pay is tied to their pod or region and not to specific reps. This way, they have no conflicts of interest when collaborating within the region across multiple deals.
- The weightage given to revenue goals should only be between 50 to 65% of their total variable pay. 100% of pay based on region or pod attainment is not the ideal way to go as it demotivates them causing them to underperform when they foresee a shortfall of revenue targets.
Measure revenue goals this way: for every % slab attainment, a rate is applied based on how they fall under the overall rate plan. You can check the below chart that I made for sales reps which can be applied to PreSales as well. Based on the region or pod’s overall performance, PreSales reps can be given a percentage of that deal value as commissions.
If you want to understand how sales compensation plans are usually created, you can check out this guide I put together which explains them in more detail.
Here is where things get interesting for PreSales. There are 3 main metrics that you can use to measure performance:
- Demo-to-opportunity conversion metric: Relevant only for high-velocity businesses.
- CRM hygiene maintenance: Inputting reasons for lost deals diligently in the CRM and working with the product team on sustained problems in their region.
- Vertical collateral creation: This can be a half-yearly goal as well where PreSales reps are assigned to create dedicated content around a particular vertical like thought leadership, demo portal with relevant configuration, targeted webinars etc.
Some of these goals are definitely subjective, true. So, usually, the recommended approach is to give the PreSales leader or manager the responsibility to dictate the payouts for the above components as MBOs rather than set up systems to track them.
Subjectivity aside, this is one of the best, tried-and-tested ways to compensate, based on my experience with unhappy PreSales reps. The non-revenue MBO-based goals work well for sales leaders and they get tangible results every quarter in the form of collateral or product improvements.
You might worry that this caps their potential. I would add a small caveat here. Let’s say 50% of a PreSales compensation plan is made out of this component. The manager can give up to 150% of this component. This is similar to capped commissions. The revenue part like any other sales plan should be uncapped while the mbo part will be capped at 150%. At 100%, you'll make 50% of this component. At 150%, this 50% component will be paid out at 75%.
Here’s what a well-balanced PreSales compensation plan looks like:
PreSales compensation plans can never be set in stone. You need to iterate on them every quarter to ensure that they are working properly. After 3 to 4 iterations across multiple teams and regions, this is the final version that worked.
PreSales folks were satisfied with this approach as they had some rewards from revenue goals being achieved and some control over their non-revenue goals in the form of MBOs.
I hope this guide gives you enough and more insight on how to create better compensation plans that keep your PreSales teams motivated.
This article was written by Adithya Krishnaswamy, head of RevOps and Growth at Everstage, a Sales Commissions automation platform. Before that, he was part of Freshworks for 5 years where he headed their RevOps efforts for Global Partnerships and Rest of the World markets. Connect with Adithya on LinkedIn!