sales-compensation
refoundai/lenny-skills
Design sales compensation plans that align incentives with business goals and customer retention.
What is sales-compensation?
Help users create effective sales compensation structures using proven frameworks. Use this when hiring first sales reps, restructuring comp plans, aligning incentives with business outcomes, or addressing issues like sandbagging and churn.
- Understand business model factors like sales cycle, ACV, and customer retention patterns
- Identify misaligned incentives and retention problems in current comp structures
- Design compensation plans that reward the right behaviors and customer outcomes
- Guide ramp periods and quota structures for new sales hires
- Simplify complex comp plans to improve clarity and reduce gaming
How to install sales-compensation
npx skills add https://github.com/refoundai/lenny-skills --skill sales-compensationHow to use sales-compensation
- 1.Understand your business model by documenting sales cycle length, ACV, and customer retention rates
- 2.Assess current comp plan alignment by identifying what behaviors are actually being incentivized
- 3.Design a baseline structure starting with the 50/50 split (50% base, 50% variable) and adjust for your business
- 4.Incorporate customer retention metrics into comp to reward sticky deals over churny ones
- 5.Define ramp periods (3-6 months for SMB, 6-12 months for enterprise) with guaranteed draws for new hires
- 6.Simplify the plan so reps clearly understand how their actions increase earnings
Use cases
- Designing a comp plan for your first sales hire
- Restructuring existing compensation to reduce customer churn
- Aligning sales incentives with net dollar retention instead of just bookings
- Creating ramp periods and draw structures for new sales team members
- Fixing comp plan issues where reps are closing low-quality or churny deals
- Founders and early-stage leaders building sales teams
- Sales leaders restructuring compensation plans
- Product leaders designing incentive alignment
- Companies transitioning from founder-led to rep-led sales
sales-compensation FAQ
A common baseline is 50/50: 50% base salary and 50% variable commission. However, this should be adjusted based on your sales cycle, customer retention patterns, and business model.
Yes. If your business depends on retention, tie comp to customer outcomes and net dollar retention, not just closed deals. Reps closing sticky customers should earn more than those closing churny deals.
Typical ramps are 3-6 months for SMB sales and 6-12 months for enterprise. New hires need guaranteed draws or reduced quotas while learning the product and market.
Complex plans with many variables confuse reps, enable gaming, and obscure the connection between actions and earnings. Simple plans where reps understand exactly what increases their pay are more effective.
Incentivizing only bookings without considering quality, over-complicating structures, lacking ramp protection, misaligning bonus thresholds, and ignoring churn in the comp design.
Full instructions (SKILL.md)
Source of truth, from refoundai/lenny-skills.
name: sales-compensation description: Help users design sales compensation plans. Use when someone is hiring their first sales rep, restructuring sales comp, trying to align sales incentives with business goals, or dealing with comp plan issues like sandbagging or churn.
Sales Compensation
Help the user design effective sales compensation plans using frameworks from 2 product leaders.
How to Help
When the user asks for help with sales compensation:
- Understand the business model - Ask about their sales cycle, ACV, and customer retention patterns
- Identify current problems - Determine if there are misaligned incentives or retention issues
- Design aligned incentives - Help them create comp plans that drive the right behaviors
- Consider ramp and quotas - Guide them on structuring pay for new hires
Core Principles
The standard 50/50 split is a starting point
Jason M Lemkin: "It's usually 50/50, right? 50% base, 50% bonus for a sales rep." The standard OTE structure is 50% base salary and 50% variable commission. This is a common baseline for quota-carrying roles.
Traditional comp plans are misaligned
Sahil Mansuri: "Sales comp plans are stuck in the stone ages... What we haven't done is built a modern technical sales compensation plan that actually aligns the needs and incentives of the business, the customer and the rep." Consider designing comp that rewards long-term retention and net dollar retention, not just closed deals.
Align incentives with customer success
If your business depends on customer retention, comp plans should include components tied to customer outcomes, not just initial bookings. Reps who close churny deals should earn less than those who close sticky customers.
Ramp periods matter
New sales hires need ramp periods with guaranteed draws or reduced quotas while they learn the product and market. Typical ramps are 3-6 months for SMB and 6-12 months for enterprise.
Simplicity drives behavior
Complex comp plans with many variables lead to confusion and gaming. Simple plans where reps understand exactly what actions increase their pay are more effective.
Questions to Help Users
- "What percentage of new deals churn within the first year? Does your comp plan account for this?"
- "Is your comp plan so complex that reps don't know how to maximize their earnings?"
- "What behaviors are you trying to incentivize? Does your comp plan actually reward those behaviors?"
- "How long is your sales cycle, and how does that affect cash flow for reps?"
- "What's your ramp structure for new hires? Is it working?"
Common Mistakes to Flag
- Incentivizing only bookings - Paying for closed deals without considering customer quality or retention
- Over-complicated plans - Too many variables that confuse reps and enable gaming
- No ramp protection - Expecting new hires to hit full quota immediately
- Misaligned accelerators - Bonuses that kick in at the wrong thresholds
- Ignoring churn - Comp plans that don't account for customers who don't renew
Deep Dive
For all 2 insights from 2 guests, see references/guest-insights.md
Related Skills
- sales-qualification
- product-led-sales
- pricing-strategy
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