How to build a sales compensation plan that matches your growth stage

Executive overview

Most founders copy a standard revenue-based commission plan from a mature company and apply it from day one. That creates misalignment: reps chase revenue while the business needs healthy, successful customers.

The right comp plan depends entirely on which stage the business is in. Each stage — product-market fit, go-to-market fit, and growth — demands different rep behaviour, so the incentives must change with it.

Align the comp plan to the strategy, not to what the last company used.

Product-market fit stage

• Goal is healthy customers, not revenue — so don't pay on revenue
• Paying commission against a quota leaves reps unable to pay rent while engineers earn full market rate; that's structural unfairness
• Preferred approach: market-rate base salary plus equity
• If any commission is paid, tie it to the leading indicator of retention — the early signal that a customer will stay
• Split structure: half on signature, half when customer hits that leading indicator
• This keeps rep behaviour aligned with customer success, not deal volume

Go-to-market fit stage

• Product-market fit is proven; now unit economics must work
• LTV:CAC becomes critical — sales comp is a major driver of CAC
• Set a proper OTE (on-target earnings) at market rate for the role and geography (e.g. $60k for Midwest SMB; $500k for California enterprise)
• Quota must be sized so the business math works: a $500k OTE rep likely needs a $2M quota
• Common structure: 50/50 base-to-commission split at OTE
• Still protect customer quality: retain the half-on-signature, half-on-retention-indicator split
• Clawbacks are an alternative mechanism to the split commission if preferred

Growth mode

• Scaling fast means reps will get bored if the only promotion path is into management
• The best salespeople often make poor managers — forcing that path wastes talent
• Create explicit promotion tiers within the sales role itself
• Tier path by market segment (BDR → SMB → mid-market → enterprise):
  • BDR: ~$60k OTE
  • SMB rep: ~$150k OTE, $600k quota
  • Mid-market: ~$200k OTE, $800k quota
  • Enterprise: ~$300k OTE, $1.2M quota
• Even with a single product and customer type, tier promotion works using install base and churn metrics as advancement criteria
• Higher tiers carry higher commission rates and additional equity
• HubSpot result: average sales tenure rose from 2.2 years (industry) to 6+ years using this model

Key principles

• Never delegate comp plan design to the sales leader — they will paste in whatever worked at their last company
• The comp plan is the single most powerful lever a founder or CEO has to reinforce business strategy
• Always trace comp design back to the question: what rep behaviour does this stage of the business need?