Incentive compensation for exceeding quota (Sales, and SDRs)
Quotas are highly specific to a company’s stage, objectives, and sales strategy. Providing opportunities for sales reps to overachieve and earn beyond their variable compensation is a critical lever in driving performance.
Designing incentives for exceeding quota
Here's a breakdown of how you can structure such incentives:
1. Linear progression model
In this model, incentives scale directly with achievement. For instance, at 150% of quota attainment, a rep earns 150% of their variable compensation.
This straightforward approach ensures alignment between performance and rewards, making it easy to communicate and understand.
2. Kicker system at milestone levels
Sales kickers activate at specific achievement thresholds, with higher rewards at higher levels.
For example:
- 100% quota achievement = 1x variable compensation.
- 150% quota achievement = 2x variable compensation.
This model encourages reps to push beyond standard targets and unlock significant bonuses.
3. Tiered commission system
In this structure, a percentage of sales is tied to different achievement levels.
For example:
- 10% commission for sales up to 100% of the quota.
- 15% commission for sales between 100% and 150% of the quota.
- 20% commission for sales above 150% of the quota.
This system rewards incremental sales efforts and ensures every dollar beyond the quota earns a higher return.
Linking incentive models to business objectives
The choice of incentive model should align with your company’s goals.
Consider the following:
- What are you optimizing for? For instance, are kickers tied to bookings or activations?
- Do you want aggressive growth? Uncapped kickers can motivate reps to exceed expectations, but they can also lead to higher costs.
- Do you need cost control? Capped kickers limit spending but may encourage reps to defer deals once they hit the cap.
💡
Capped vs. uncapped kickers
# Uncapped kickers: Ideal for aggressive growth scenarios, allowing reps to maximize earnings with no ceiling.
# Capped kickers: Kicker or commission caps are useful for cost control, but they risk reps optimizing their performance to just hit the cap and defer deals to future periods.
A balanced approach can include a high cap or structured multipliers that diminish returns after a certain point.
# Uncapped kickers: Ideal for aggressive growth scenarios, allowing reps to maximize earnings with no ceiling.
# Capped kickers: Kicker or commission caps are useful for cost control, but they risk reps optimizing their performance to just hit the cap and defer deals to future periods.
A balanced approach can include a high cap or structured multipliers that diminish returns after a certain point.
To remember
Key metrics to track:
The metrics used to calculate kickers should align with your sales priorities, such as:
- Bookings: Driving top-line growth.
- Activations: Ensuring revenue realization and retention.
Rule of thumb: Cost of sales
To ensure incentives remain sustainable, keep the cost of sales at approximately 20% of the quota size. Modeling different kicker scenarios can help you evaluate the financial impact and ensure alignment with company goals.
Use ElevateHQ to set up kickers and caps easily for your overachieving team
ElevateHQ, a sales incentive compensation software, lets you design and automate any complex incentive plan. You can easily add kickers and caps once someone exceeds quota. The calculation is real-time as the software is integrated with your data source, such as CRM and spreadsheet.
Sales reps and SDRs can also use the platform's simulation feature to see how much they will earn when they close particular deals. This gives them an accurate idea of their earnings and clarity for prioritizing deals.
