Your first sales compensation plan will probably be wrong. That is fine. Every company's first plan has problems. The goal is not perfection. The goal is a structure that is simple enough to explain in 60 seconds, fair enough that your first hires trust it, and flexible enough to evolve as you learn what actually drives revenue.
What follows is the startup-specific guide we wish existed when we started advising early-stage companies. No jargon. No enterprise complexity. Just the decisions you need to make, in the order you need to make them, with an interactive wizard at the bottom that builds your plan for you.
The five mistakes every startup makes
⚠ Copying an enterprise plan
You hired an AE from Salesforce. They bring their old comp plan. It has 4 measures, tiered accelerators, and quarterly MBOs. Your 8-person startup does not need this. Start simpler.
⚠ No plan at all
"We will figure it out as we go" works until your first rep closes a big deal and asks what they earn. Verbal promises create disputes. Write it down before the first hire starts.
⚠ Pure commission, no base
100% commission attracts desperate reps, not good ones. Good reps have options. They want a base that covers their cost of living and a variable that rewards outperformance. Pay both.
⚠ Paying on the wrong thing
Paying on revenue when you need new logos. Paying on meetings booked when you need closed deals. The measure you choose is the behavior you will get. Choose deliberately.
One measure. Simple curve. Generous upside. That is the formula for a first comp plan. One measure so reps know exactly what matters. A simple curve so everyone can calculate their own payout. And generous upside so your first hires are rewarded for the risk of joining an early-stage company.
What you need to decide (in order)
1. What are you paying for?
Pick one measure. Seriously, one. At your stage, the most common options are: new ARR (annual recurring revenue from new customers), total bookings (all contract value), or closed revenue (recognized revenue). If you are pre-product-market-fit, you might pay on qualified pipeline or signed LOIs instead. Do not add a second measure until you have at least 5 reps and a clear reason why one measure is not enough.
2. What is the OTE?
Look at market data for your role, geography, and stage. Our OTE Benchmarker can give you a starting range. Early-stage companies typically pay 10-20% below market on cash OTE, offset by equity. Be honest about the equity value. If your equity is not meaningful, you need to be at or above market on cash.
3. What is the pay mix?
For a closing role (AE), start with 50/50 or 55/45. This signals confidence in the opportunity and attracts reps who back themselves. For an SDR, 65/35 or 60/40. Do not go above 70% base for any sales role. If you are that risk-averse about variable pay, you are not ready to hire salespeople.
4. What is the quota?
Your first quotas will be guesses. That is fine. Start with a quota-to-OTE ratio of 5-6x. If your AE OTE is $180K, set the annual quota at $900K to $1.1M. Adjust after two quarters of real data. Do not set quotas based on what you need to hit your board plan. Set them based on what is achievable given your pipeline, market, and product.
5. What does the payout curve look like?
Keep it simple. No threshold for your first plan (reps earn from dollar one). Linear rate up to 100% of quota. Accelerator above 100% (1.5x is a good starting point). No cap. You want your first reps swinging for the fences, not managing their number.
Equity is part of total compensation but it should not be part of the incentive plan. Equity rewards tenure and company growth. Variable pay rewards current-period performance. Mixing them creates confusion. Offer equity as part of the employment package. Keep the comp plan focused on cash.
How the plan evolves with your stage
Pre-revenue to $1M ARR: the founder-selling phase
You might not need a comp plan yet. If the founder is closing deals, that is not a comp problem. When you hire your first 1-2 reps, keep the plan dead simple: one measure, linear payout, no threshold, no cap. The plan's job is to attract your first hires and not get in the way.
$1M to $5M ARR: finding repeatability
You have 3-8 reps. You are learning what your sales cycle looks like. This is where you might add a second measure (new logos alongside revenue, or a product mix component). Introduce a light threshold (50-60% of quota) so there is some consequence for underperformance. Keep the accelerator generous.
$5M to $20M ARR: scaling the machine
You have 10-25 reps. You have enough data to set informed quotas. This is where role differentiation matters. Your SDR plan should differ from your AE plan. Your AM plan (if you have AMs now) should differ from both. Introduce territory-based quotas instead of uniform numbers. Consider quarterly measurement if your sales cycle supports it.
$20M+ ARR: you are not a startup anymore
Read the rest of the Academy. You need the full toolkit now.
First Plan Builder
Answer 5 questions. Get a recommended plan structure designed for your stage.
After you launch: the 90-day check
Your first plan is a hypothesis. After 90 days, check these three things:
Are your reps selling? If activity dropped after the plan launched, the incentive is not motivating. Either the quota is too high (feels unachievable), the variable is too low (not worth chasing), or the measure is wrong (rewarding something reps cannot control).
Are payouts where you expected? Model what payouts should look like at different attainment levels before you launch. If actual payouts are wildly different from your model, your plan math has an error or your quota assumptions were wrong.
Can every rep explain their plan? Ask them. If they cannot tell you their OTE, their quota, and roughly how their payout is calculated, the plan is too complex or the communication failed. Fix it.
Building your first plan?
We help startups design comp plans that are simple, fair, and ready to scale. No enterprise overhead. No vendor lock-in. Just a plan that works.
Talk to usFrequently asked questions
For your first 1-2 reps, a non-recoverable draw for the first 3 months is reasonable. It reduces their risk of joining an unproven sales org. After that, switch to standard variable pay. Recoverable draws (where the company claws back the draw from future earnings) create resentment and should be avoided at early stage.
No. Not at your stage. Your first reps are taking career risk by joining you. If one of them closes a massive deal and earns a huge payout, that is a success story, not a cost problem. Caps tell your best people that there is a ceiling on their earnings. At early stage, you want the opposite signal.
If your sales cycle is under 30 days, pay monthly. Immediate feedback is powerful for transactional roles. If your cycle is 1-3 months, quarterly is cleaner and reduces the noise of month-to-month variance. If your cycle is 6+ months, quarterly with interim pipeline bonuses keeps reps motivated during long pursuits.
Varies widely by stage and role. A first AE at a seed-stage company might get 0.25-0.75% with a 4-year vest. At Series A, 0.05-0.25% is more typical. At Series B and beyond, equity is smaller but cash OTE should be closer to market. The key: be honest about the equity value. Do not use inflated valuations to justify below-market cash.
Most companies do not need a dedicated comp person until they have 15-20+ reps. Before that, the founder or head of sales can design the plan, and an ops person (or outsourced partner) can run the calculations. When disputes become frequent, when plan changes take weeks instead of hours, or when you are spending more time on comp admin than on selling, it is time to invest.