*REVEALED* MSP Compensation Plans That Actually Work
Drawing from my 15+ years of sales management experience, I'll show you how to design a comp plan that attracts top talent, motivates your sales team, and maximizes your ROI.
Whether you're struggling to retain great salespeople or want to supercharge your sales performance, these insights will help you build a compensation strategy that truly works.
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Welcome to Repeatable Revenue, hosted by strategic growth advisor , Ray J. Green.
About Ray:
→ Former Managing Director of National Small & Midsize Business at the U.S. Chamber of Commerce, where he doubled revenue per sale in fundraising, led the first increase in SMB membership, co-built a national Mid-Market sales channel, and more.
→ Former CEO operator for several investor groups where he led turnarounds of recently acquired small businesses.
→ Current founder of MSP Sales Partners, where we currently help IT companies scale sales: www.MSPSalesPartners.com
→ Current Sales & Sales Management Expert in Residence at the world’s largest IT business mastermind.
→ Current Managing Partner of Repeatable Revenue Ventures, where we scale B2B companies we have equity in: www.RayJGreen.com
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Transcript
Speaker 1
If you're hiring a salesperson for your mssp of any kind, I guess you know, inside sales rep, somebody to go out and close deals doesn't matter what it is, your comp plan is going to be the highest leverage decision that you can make in the entire process. And the reason is it's going to influence who you have available to hire from, like the pool of talent, because you would think, well, the highest leverage against the person.
::Speaker 1
While you're not going to get the right person if you don't have the right comp plan, and your comp plan is how you how you manage when you're not there to talk to your sales rep. James Clear says. In Atomic Habits, we don't rise to our to our goals. We we fall to the level of our systems or something like that.
::Speaker 1
Your complaint is the ultimate system. It is the thing that's going to tell you exactly what you want and the behaviors that you want, and the results that you want, the activity levels that you want. So you design the comp plan the right way. It makes your life a hell of a lot easier as a manager. And of course, that's how you get people to perform at the highest level.
::Speaker 1
If you design it the right way, you're going to get the optimal performance. I'm going to bring everything that I have as a sales person to your business to get results. If you've incentivized me the right way. So it can't be understated how important this is, but only if you get it right. When you don't get the comp plan right, it ends up resulting in losing good people, right?
::Speaker 1
Like if the comp plan is not designed properly from the get go, the good people leave, which is like huge, huge impact on your business or it results in not getting the results that you want, not getting the people that you want, wasting a lot of time, a lot of money, a lot of energy, a lot of focus.
::Speaker 1
It takes something that's supposed to be a multiplier of your money and turns it into a money pit. And I know this from experience. I've been in sales management leadership roles for over 15 years. I've turned around eight sales teams. I've built national sales teams from the ground up, and I've worked with hundreds of MSPs to build better sales processes and better sales teams.
::Speaker 1
So I've seen a comp plan or two, and I've seen what good ones are really capable of, and I've seen what shitty ones can do to the top and the bottom line. So what I'm gonna do is give you six principles to operate by. When you sit down to create your comp plan for any sales rep that you're hiring into your MSP, these are the six things that you want to take into account.
::Speaker 1
First is, you want to make sure that your comp plan is realistic. And what I mean is, when you say you're on target earnings, your O.T. is going to be 100 grand or whatever that's going to be. Is that based on real numbers? Is that based on achievable targets? And I can't tell you how many times that I've seen boards or executives or managers create these comp plans and go to market and say, oh yeah, like you can make 400 grand sales person, but you get people that are excited and then like, you peel the onion back a little bit and you go, holy shit.
::Speaker 1
Like, this is never been done in this company. Like they actually never achieve this. And you don't have the lead follower, you don't have the marketing or you don't have this. And it's predicated on all of these things that need to happen in order to hit that number. And when that happens, it blows up. Like and the thing is, if your comp plan isn't realistic, they're gonna find out it's not going to take very long, especially for an experienced salesperson to step into the role and say, hey, this is kind of bullshit, right?
::Speaker 1
Like, this isn't like, this isn't what I was told. This isn't what I thought. Like, I hit ten times what's realistically possible. And I think a lot of times this is just overoptimism, right? Like people just sitting down going, well, you know, I mean, I know we're not getting any appointments in today, but, you know, somebody was doing this full time.
::Speaker 1
They should be able to set like a 30 a month, right? I mean, like that's that seems pretty easy. Like we should just be able to knock on some doors. And I think a lot of times it's not even malicious. Like, it's not even trying to mislead people, although that's certainly how it comes across to a salesperson that steps in that role.
::Speaker 1
But the overly optimistic approach to this still has the same effect. You want to make sure that the on target earnings, that the comp plan that you have in place and that you're marketing to attract good talent in is actually realistic in the way that you look at that is you say, has this actually ever been done before?
::Speaker 1
And more and more specifically, has it been done in our company before? Like what you don't want to do is look at a company you call a well, like listen, like so-and-so's doing it and they're, they're getting X number of meetings for per month and they're closing X number of deals per month. So we shouldn't be able to do that.
::Speaker 1
There's so many variables that can go into that and change the outcome. So the question will look at to say has it been done before in your company. And if it hasn't then the next question you ask is, have I worked it backwards to the level of activities that are necessary to achieve those goals and the conversion rates that are going to be necessary to hit those goals?
::Speaker 1
For example, let's say you're hiring an inside sales rep for your for your MSP, and you want them to set ten appointments per month. Okay. Have you worked backwards on that? Have you said, you know, to set ten appointments per month? How many conversations do I think that they need to have? Like what's what? What percentage of the conversations that they're going to have do I think are going to actually convert into an appointment?
::Speaker 1
And then from that, how many connects do they need to make in order to have that many conversations? In other words, how many phone calls do they need to connect on in order to get to that many decision makers and have that many presentations or conversations to get the conversion? Okay, and then how many calls do they need to make in order to, to get there?
::Speaker 1
Okay. And then how many leads or like what's the list size that they're going to have to work with in order to attain those goals? Like, I always want to work backwards as much as possible and then determine, hey, are these realistic numbers? And the thing is, like today with AI, you can actually say, hey, you know what?
::Speaker 1
GPT or Copilot like, these are some assumptions that I'm making for an inside sales rep that I'm going to be hiring. How realistic are these in my particular market and in my particular industry? And that's the kind of work that you can do to make sure that it's realistic. Now, there's nothing wrong with aggressive targets. There's nothing wrong with trying to set a high bar.
::Speaker 1
But when you tell someone this is what the on target earnings is going to be, this is what the on target earnings is for this role. And this is a realistic and achievable number. Keep in mind there's a person on the other end of this that's potentially taking care of a family, that's saving for something, that's taking care of something.
::Speaker 1
And I was like I was picture that I was a sales person and I could not imagine how frustrating it would be to step into a role and have somebody give me goals and targets and, you know, sell me on this idea or concept that, you know, I can hit 150, I can hit 200,000. And then you get there and none of the foundations in place, it's never been done.
::Speaker 1
The lead flow isn't there based on either history that you have in the actual company or at minimum, work it backwards and do your best to objectively evaluate, hey, are these realistic targets right? The second principle here is you want to compensate on the controllables the entire purpose of your comp plan is to change behavior, right? Like if your comp plan doesn't change behavior, then it's pointless, right?
::Speaker 1
Like that's why you have this thing in place to incentivize them to do specific things that are going to get different results, which is what you want for your business. If you are incentivizing somebody on something that they can't influence, then the comp plan is meaningless because top performers want to earn top money, right? Like if you hire me as a salesperson into your business and I am a top performer, I'm going to look at the on target earnings.
::Speaker 1
I'm going to say, all right, that's my baseline. How can I earn more? How can I max this comp plan out? How can I maximize my personal income? Now, if you have me being incentivized on things that I can't significantly influence or aren't in my control, it's going to deflate me. I'm not able to change my behavior in order to get the result that you want.
::Speaker 1
So a perfect example of this is a lot of times when MSPs are hiring stars, ISR somebody that's going out to prospect and what they do is they comp them based on closed deals. Right? So they say, hey, we want you to get more appointments in the door. And what's going to happen is once we get those in the door, we're going to hand them to Joe.
::Speaker 1
Joe is going to run that discovery in that assessment, and he's going to deliver that proposal and close that deal. And we want you to work with Joe really well, and we want you guys to be fully aligned and, you know, fully incentivized on the same thing that I want, which is closed deals, completely understandable way of thinking about it.
::Speaker 1
However, if I'm the person that's setting appointments and I'm doing a kick ass job and I'm putting the ball on a tee over and over and over and over, and Joe sucks in his job, that is deflating. That is frustrating. Top performers will bounce. I want to earn as much money as possible. That's why I'm in a sales role and I'm being commissioned.
::Speaker 1
I'm being incentivized on something that's out of my control. Now, you could flip that around. What if I'm a bottom performer? What if Joe is a killer? And like almost anything, it's up. He's going to go close. But I can't manage to put the ball ality. Right. Like I get lucky and I stumble across an appointment here or there.
::Speaker 1
Joe gets that deal. He closes it half like I'm laughing all the way to the bank like, is that what you want? It's a complete misalignment, right? So you want alignment? Yes. As much as possible for the end result. But you want to break that down into the components and say, what is it that this particular rep in this particular role can actually influence?
::Speaker 1
And what do I need them to do in order for all of us to win? And then I want to compensate them almost exclusively on that. My personal preference is actually exclusively, but some people really just insist on like, hey, I want I want a comp on the the end deal, something like that. If you do, fine. Don't have that be the core of their compensation plan.
::Speaker 1
You want to incentivize them on the activity and the results that they actually influence. And you want to try to avoid penalizing top performers for what may be somebody else who isn't getting results. Don't be greedy. If you do a good job of recruiting and hiring and training and onboarding, and you get the comp plan right, then your sales hire is going to be a revenue multiplier in your business.
::Speaker 1
Okay? And that means I'm going to put a dollar in and I'm expecting three, five, ten, $50 back. I make the investment in an appointment center somebody who to to. Don't get me appointments in the door. That investment is going to multiply itself because they're going to put a certain number of bookings on the calendar. A portion of those are going to move into the deal stage, and a portion of those are going to get closed.
::Speaker 1
And the lifetime value of those deals dramatically outweighs the investment that I'm making here. Right. So that's how I look at the entire sale system. And it's not uncommon for a sales hire to triple, quadruple what I've seen even 50 the return depending on, where you're making the investment and what the returns actually are. But given the lifetime value of an Mssp client, do $3,500 a month times 60 months on average.
::Speaker 1
Like what do you have for the lifetime value? What is one client worth to you? Now, keep in mind that the difference between a mediocre rep and a really good rep isn't like a little bit more. It's not a linear type of thing. If a mediocre sector can get for a good one can often get 12 right? And if a good closer can get 33% close rate, a really good one might get you 50 or 60% close rate.
::Speaker 1
All things the same, right? So the difference between mid-grade and top grade is huge. I mean to say nothing of bottom and top like that is that is massive. But we don't want like we just roll out the bottom performers. But when you think about it that way, you say, man, I really want the best talent. I really want really good people in here because I know the impact that that's going to have.
::Speaker 1
Well, if you do that, then you're not looking at the comp range, you're not looking at the pay range in your market and saying, hey, how do I how do I can get away with the cheapest person, right? Like, how do I compensate, like way over here on the bottom quartile of this and expect top quartile results. Like I go into this, I want top quartile results and I'm going to invest top quartile money.
::Speaker 1
But you don't want to find yourself doing is stepping over dollars to save a dime, right. Like you're like, you know what, I'm going to pass on this really good rep because they want 15,000 more a year. They can produce three times what the average rep is going to get. So I'm going to save $15,000 at the expense of losing 2 or 300% of the production.
::Speaker 1
And I'm telling you, that's not wild. That's not something I've only seen like once or twice in my career. I've seen it very consistently. When you've got a range in your market and you're looking at who do I want, just keep in mind chances are you're going to get what you pay for and if you look at the range and immediately go to the bottom and see, how can I get away with the cheapest rate, there's a very, very good chance that you're going to be getting the lowest quality talent, which means you're going to be getting the poorest returns on your investment.
::Speaker 1
All right. Fourth principle is this a straightforward, never cap commission of any kind anywhere, any time in any comp plan? I actually just reviewed a comp plan for a client. They sent it over and it was for it was actually for a inside sales rep in SDR, and they were giving them a portion of, of the deals close.
::Speaker 1
f examples at like, you know,: ::Speaker 1
We have twice as much waiting on on the closed deal as we do on the actual appointment. So we fix that. But to let's just if you if you insisted on that, like if you said you know what I'm I'm dead set on doing this. Remove that cap. It's just a bad look. Right. Like if I'm if I'm a high performer and I'm looking for the role that's going to help me earn the most amount of money.
::Speaker 1
and it says there's a cap of: ::Speaker 1
Everybody is getting rich and I know I know that like, wow. It's like, you know, it's so much money, but it's relative. Like you're bringing on somebody that is going to do 100,000 a month. Why not have it in there? And so when when anybody sees that in a comp plan, it's just a flag and they say, I don't know.
::Speaker 1
Typically it's actually a symptom of a bad comp plan. There's something that's kind of wonky in the sense that if they are earning more money, you're somehow not earning more money. And if that's the case, you need like, you just need to fix that piece of it because you should actually want every person in your organization, your sales team, to get rich.
::Speaker 1
Like, because if they're getting rich, you're getting rich. Like there's there's never been a time where I thought, oh my gosh, this sales guys is earning too much money. And and I'm not right. Like that's again, that's a bad comp plan. Every time I've seen a rep and I've gotten them like, that's a big check. It's also come at a time where the sales go, damn, that's a that's a lot of money.
::Speaker 1
Right. So in that case you want alignment and you want a scenario where you want to root for your sales reps to try to get rich. And I want them to earn as much money as humanly possible, because if we've done this the right way, they're earning a ton of money. We're earning a ton of money. Everybody's happy.
::Speaker 1
So anytime you see a cap, even if that cap represents a very lucrative amount, and I completely get what the when people see like these large numbers, I get it. And just remove it and make sure that your comp plan is an invitation to a top performer who says, I want to earn as much money as humanly possible.
::Speaker 1
The fifth principle here is kiss ass. Keep it stupidly simple. Now, if I've said it once, I've said it 100 times. Comp plans are intended to change behavior. And here's the challenge. When you have a comp plan that is difficult to understand, when you have a comp plan, that's like, all right, well, this carries over to this and this is weighted by this.
::Speaker 1
And I think if I, if I do eight of these and four jumping jacks and I run outside and, you know, do a couple cartwheels and then, you know, come back in and fire the administrator and you go back and you go, okay, then I can earn this. That's not going to change the behavior because it's too much complex.
::Speaker 1
Adding complexity creates confusion. Confusion does not create the clarity that you need to get people to do the thing that you want them to do. I've seen comp plans that have been written by people who've never sold, and so they they have these spreadsheets and they're really proud of them. Like, hey, like, this is this is great. In fact, here's the thing, like, if all of these things work out and, you know, like these formulas are tied to these formulas and, you know, we've got this, we've got four different behaviors.
::Speaker 1
And if we get them all just right, and this is going to be the outcome, and you hand it to a salesperson and they and their eyes glaze over and they go like how do I earn more money. Like what do you what do you need me to do? That level of complexity has created a sense of confusion that now makes it unclear to me how to move the needle on that.
::Speaker 1
Like, I want to know as a salesperson, how do I move the needle? How do I make more money? What exactly do I need to do to make more money and help them understand that at every level in sales, like the entire sales organization? And I would say all the way up to the CRO, the Chief revenue officer, it should be abundantly clear what I need to do in order to get the results that are going to help me earn more money.
::Speaker 1
And there's a temptation a lot of times, especially with technical founders, to overcomplicate this process. So I want to keep it as simple as I possibly can, because that's going to clear out all the noise, and it's going to ensure that my sales rep knows exactly what they need to do to hit that number to earn that amount.
::Speaker 1
Now, the sixth principle is we want to keep it transparent. We want to keep our comp plans transparent between everybody. It doesn't mean everybody in the organization needs to know what that sales rep journey. What it does mean is that sales rep should have a clear, easy understanding of what they're going to get paid unless the paycheck is going to be accompanied by a lot more money than I expected.
::Speaker 1
Nobody likes surprises on payday. There's never been a time that a sales rep gets their check and it's less than they expect. And they went, oh, okay, that's fine. That sucks. Like I have generally ever rule with salespeople. I was like, don't mess with their paycheck, right? Like, don't just don't screw with the paycheck. And if they don't know what they're going to get paid, right.
::Speaker 1
Like if the plan isn't simple and it's not transparent and I can't see the reporting and I can't see the activity that drives the results that are necessary for me to get paid. It creates a sense of distraction. Right. And I'm telling you right now that a sales rep who is distracted by how much money they didn't earn, or whether their check is right or what is happening in these areas of the business that they don't have insight into, but they're actually paid on.
::Speaker 1
That is not the most productive rep. A distract and rep is not your most productive rep. Your most productive rep is somebody who sees a clear target, understands exactly what they need to do to get the results, to earn more money. And they all the obstacles and everything else is basically clear so that they can go do that thing.
::Speaker 1
Every element of complexity and distraction and everything else that you bring into that is actually hurting yourself. Now, the other thing is, when you've shown consistency here and you've had a plan that is transparent and they do understand it, then that level of of predictability, that level of consistency that actually creates trust, like between a salesperson and an organization.
::Speaker 1
And that goes a long way. That is a lot of goodwill, because far too many salespeople right now are dealing with organizations that aren't transparent, that are, you know, darkened paychecks, that they're not getting their full commissions, that they're doing all this shit and finding an organization that simply makes it easy to understand how I get paid, easy to see what what it is that's, that's happening to, to get compensated and then pays me according to what they said.
::Speaker 1
We take it for granted a lot of times, but that means a lot. And that oftentimes turns into discretionary effort. That oftentimes turns into going the extra mile to help you hit your goals. And it really goes a long way. So what I want to ensure that I'm not doing in any sales plan that I've got is, you know, comping people on these like black box incentives and, and things throughout the organization.
::Speaker 1
And a lot of people disagree with me, but for me, that's even things like, you know, for company bonuses and shit like that, like this goes to like, what can they specifically do to to move the needle on it. And you know what? What are the numbers like? Let's say it's a net profit number. Like, hey, if we net, you know, 5 million next year, then you're going to get like a really, really big chunk of money.
::Speaker 1
And they go, well, what do you mean net like what? I don't have any control over who's getting paid. And it's like, what's what are you getting paid, boss. Like what's you know what I mean? So I try to avoid anything. It's a black box that they don't have access to or that they can't easily see and understand and keep that plan as transparent as possible.
::Speaker 1
So there you have it. We want to make sure that it's realistic. We want to make sure that you're incentivizing on the controllables like comping on the Controllables you're not going to be greedy with your comp plan. You're not going to cap commissions, and you're going to keep this stupidly simple and transparent for them. If you use those principles when you're building your comp plan for your salesperson, I promise you you will increase your chances of attracting top talent, keeping top talent, and maximizing your ROI for the long run.
::Speaker 1
I hope this has been helpful. If it has, go and subscribe to the channel. I also drop an email every single week to my email list that has additional sales tips and advice, so you can hop on my list at the link below, as well as access our mSRP sales tool box that has just a bunch of resources that templates and playbooks and all sorts of things that you can dive into to help increase your sales.
::Speaker 1
So grab any of those and if you like this video, then you may like some of these others that we have on sales. Coming up next.
