Your sales team employs several different roles. One in particular—the business development sales rep (BDR)—can be challenging to compensate. BDRs typically earn higher pay because they face infrequent (lumpy) sales with long, complex sales cycles, and uncertain sales levels. As a result, companies often struggle to recruit and pay these reps competitively.
No single sales incentive plan design seems to capture as much attention as it is difficult to pay someone a high dollar amount for infrequent sales (or sales that may not materialize until down the road) on uncertain goals. This makes designing compensation plans for these reps more difficult for sales operations teams. To help navigate BDR compensation, we've put together tips for tackling the top BDR pay challenges.
1. Paying Highly-Skilled Reps
Business development sales relationships require reps to cultivate C-suite relationships—a special talent in the sales world. With their high skill level, these reps often require a higher total pay to attract and keep in their role. Unfortunately, C-suite relationships typically have a longer sales cycle (6-12+ months). As a result, company leadership attempts to compensate by making compensation plans incentive heavy.
What is the magic percent of target pay that should be base? The answer is… it depends. Compensation often varies for different sales roles, and the right base pay depends on the cadence of sales. Ultimately, to be successful, sales pay mix should differ by role and tenure.
Consider a first-time business development sales rep. At the start, expectations for new reps won't be as demanding. Later on, for example, the expectation might increase so BDRs will eventually be closing five strategic sales per year.
For example, you may start BDRs with 80 percent of pay in base during the first year. After reps are fully ramped, the base rate might fall to 65 percent of pay (often companies will use guarantees instead). If there is not a steady flow of business by year two, sales leaders would assess the individual reps' tenure and determine the next best steps.
2. Uncertain Production
We have extolled the merits of annual quotas when production is uncertain in past blogs, and the same logic applies here. The business development sales role will often have 4-5 large sales that they are trying to close, and the timing of the close is often uncertain or lumpy. Stretching out the quota measurement period will avoid a situation where a paycheck is zero, or conversely, a situation where a BDR makes their total annual pay in a single quarterly paycheck.
If there is a need to meet more frequent quota goals and it makes sense for shorter pay periods, consider paying quarterly with a maximum payout of 100 percent. The quarterly goals can be cumulative (i.e., each quarter would essentially be a checkpoint on the year-to-date sales). Any overachievement would be banked against the next quarter, and at the end of the year, overachievement pay would be released.
3. Long Sales Cycles
What happens if a sales cycle is very long? The BDR can do everything a company has asked of them, but their activities may not generate revenue for years. Leadership will often want to pay a BDR for increasing the probability of a sale. A handy tool to accomplish this is milestone pay.
Many companies abuse this type of measure (pay on number of meetings is a particularly bad measure), which is why many sales compensation professionals advise against using them, but when designed properly milestone pay can be very effective. Good milestone measures are directly linked to a specific sale and reflect an increase in the probability of a sale. For example, milestones may include initial contract signing, trials, or transfer of a percent of business to your company.
I worked with a finance company where the business development sales targeted the top trusts. We instituted a milestone measure that paid on the initial funding of an account and increased pay as the BDR pushed for an increase in the funding level of the trust over time. Any milestone pay would cumulatively add up to the total pay expected for a sale.
4. No Direct Sales
What if there are no sales that are directly attributable to a BDR? Business development sales roles are often responsible for establishing C-suite relationships or getting a “license to hunt” for the field reps. For example, a BDR establishes a pricing agreement with a customer that in turn allows the territory reps to sell into individual stores.
The gut reaction of most companies is to pay a commission override as a percent of any sale made by a territory rep at the targeted account. These sales usually take time and this creates a “tail,” where the BDR gets payments over a long period of time. This trickle of payments can be a lengthy process, so the BDR may feel that they are not getting properly paid for their effort (or worse, they get involved with managing the territory reps).
At this point, the sales incentive plan (SIP) loses its motivational traction. A more effective alternative is to pay an upfront bonus. I worked with a manufacturing firm where the BDR was tasked with making high-level relationships at strategic accounts. We worked with the company to create a mechanic that classified each strategic account into three tiers by an estimate of their future sales potential based on their revenue size.
If a “license to hunt” was established at a target account, a bonus was paid based on their tier. Once a territory rep made a sale to a local office of the strategic account another smaller bonus was paid. Reps receive a final bonus after the total territory sales made to the client exceeded a specific amount in revenue.
Setting Business Development Sales up for Success
Business development sales reps might only make up a small portion of your sales team. However, they are one of the most challenging roles to compensate for a variety of reasons. Most importantly, these reps are a crucial part of your sales team to bring in new business and achieve goals. Ensuring you can competitively attract and retain these roles starts with a solid compensation plan. Luckily, Xactly can help build your plan, manage pay outs, and improve performance. Learn more about SimplyComp.
Want help designing and managing your compensation plan? Schedule your strategic services consultation today.