Differences in AE/AM sales comp

A friend of mine asked about differences in customer acquisition cost (“CAC”) relative to new customer acquisition, upsell, and expansion. When I said there’s loads of material on why expansion CAC is less than new logo CAC with respect to marketing costs, he said what he was really interested in were differences in sales comp plans and their effect on CAC.

We narrowed our conversation down to the two comp plans of Account Executive, a role typically responsible for new customer acquisition, and Account Manager, a role typically responsible for upsell and expansion.

I’ve seen a handful of differences between AE & AM comp. Using an AE comp plan as a starting point, AM roles typically have:

  • 30-50% of AE on-target earnings (OTE)
  • 70-90% of AE quota
  • Less-aggressive OTE split with 60-70% going to base

Then there are different ratios in the sales units – e.g. all the people supporting the different sales roles. The AE:SE ratio may be 2:1 or 3:1 while I’ve seen as high as 8:1 for AMs. AE Managers might have 4-6 AEs while AM Managers may have as many as 8-10 AMs. All of this has a major impact on the cost of doing business (inclusive of CAC).

Sales Compensation & Ramp Goals for New Hires

Sales comp is a huge challenge for a lot of companies. Recently, someone asked me for advice on a comp plan design that takes the “new hire” factor into account and I sent them the following:

Give the new hires a full-year compensation plan like anyone else would get, and then,
Based on start date we (a) prorate their quota and goals and, (b) prorate their variable comp.

As an example, someone starting June 1 has 214 days remaining in the year (assuming we align fiscal year to calendar year).¬† Let’s say their annual plan has a $75k variable on an $800k quota. Since they won’t be here a full year, we prorate everything, which loosely works out to the following:

Their quota for this fiscal year is $470k. That’s $800000 x (214/365), or 58.63% of $800k.

Next, their variable for this fiscal year is $44k. That’s the same 58.63% weight against their $75k variable.

You can implement this in your monthly goals if you aren’t already. The M1 goal would be prorated as (days remaining in the month) divided by (total days in the month) then multiplied by (the standard monthly goal).

A standard monthly goal of 20 assumes 28, 29, 30, or 31 days (depending on month/year), right? Thus, assuming a 30-day month, someone who starts on day 15 gets a goal of 10, since ((15/30) x 20) = 10.

Starting day 21 of a 30-day month gets you a goal of 6, since ((9/30) x 20) = 6.

You could then provide a draw to acknowledge the fact that they’re ramping.¬† Note adding a draw would change some numbers around a bit, namely the multiplier and any accelerator.