Salesforce compensation in startups

Abstract

Startups have traditionally found it difficult to survive, and this is evident by the Startup Genome 2019 report, which claims that 11 out of 12 fails (Startup Genome, 2019). Startups are often cash strapped and find difficulty in recruiting and retaining the right talent across all departments, more so in sales and marketing. Expenditures for salesforce compensation represent a large portion of many sales organizations’ operating expenses, typically in the range of 10% to 22% of sales and sometimes as high as 50% (Madhani, 2013). According to 2016, the Pacific Crest survey of SaaS companies found that “companies that spend more on sales and marketing (as a % of revenue) generally grew at a faster rate than those that spent less (Pacific Crest Securities, 2016). This clearly shows the importance of sales and marketing in any organization. According to the Inc.42 report, startups should spend more time and resources on sales and marketing correspondingly less on product development (JAMES, 2014). The critical resource for any startup is its employees, and having the right compensation structure is essential. However, designing a salesforce compensation structure is a complex process, and it is being influenced by various factors of development and change occurring at the individual, product, organizational and environmental levels (Madhani, 2013). It helps determine the motivation of the salesforce and the long-term profitability of the company. This was the primary motivation to look at the salesforce compensation structure in startups.