Category: Sales Compensation

Sales

The Nature and Necessity of Uncapped Commission

As a sales rep, you have to reconcile the fact that you’re trying to make as much money as possible with the fact that you can only make a finite amount of sales in a given quarter. The sky isn’t the limit — but however far the best of your abilities can take you is.

But in some cases, the money your company allows you to make stops short of your full potential. Some businesses impose a cap on commission — a strict limit on what you’re allowed to earn. Generally, that’s not the way to go. 

Here, we’ll learn about the benefits of uncapped commission, some insight into why some companies might not be interested in it, and the pitfalls of including the term in job listings.

A cap on commission might mean a cap on effort. That’s why uncapped commission can be a powerful incentive for sales reps to exceed expectations. If a sales rep’s commission is capped at $50,000 for $500,000 worth of sales in a quarter, what incentive do they have to try to go beyond that?

Many salespeople won’t be receptive to a pat on the back, and a trophy that doesn’t come with some sort of tangible incentive might not be enough to set your highest performing reps on the right track. A financial reward is often the most powerful motivator for reps — leaving commission uncapped can provide just that.

In many cases, uncapped commission is a given. Several — if not most — companies don’t put a lid on how much an exceptional rep can earn for going above and beyond. Businesses should want the most out of their reps, and you won’t get that by imposing hardline restrictions on compensation.

Why would a company want to cap commission?

It wants to avoid overpaying its reps.

That’s probably the bluntest, most obvious answer to that question. Companies often want to look out for what they believe to be their most immediate financial interests. In many cases, they want to be able to present definitive budgets and save money. But that strategy often backfires.

A sales rep who closes a massive deal only to find out they’re going to receive a fraction of the commission it warrants is going to be disappointed. They will be less interested in giving the necessary effort to bring in as much business as they can.

That loss of initiative often means less revenue from and lowered morale within a sales org, so it’s fair to say that capping commission is often counterintuitive and unproductive.

Why You Should Avoid “Uncapped Commission” in Job Descriptions

Job seekers should be wary of any job description that touts uncapped commission as a major selling point. In a lot of cases, that could very well be a big-time red flag. Uncapped commission is often an implied benefit for most sales positions — it’s almost always a given.

Advertising uncapped commission is like bragging about providing salespeople with a company computer and an office with Wifi access. Sure, it’s important to have, and a sales role would be tougher without it, but it doesn’t look particularly impressive to prospective candidates.

For businesses in the hiring process, putting “uncapped commission” on your job listing can make you look cheap and spammy. It might lead candidates to believe they’ll be underpaid — that you’re unwilling to state what a sales rep at your company can actually expect to earn.

Instead, your job descriptions should be straightforward and honest. Detail factors like the types of insurance your company can provide, the amount of PTO candidates can expect to see, other financial incentives like tuition reimbursements and commuter benefits, and any other meaningful incentives that you feel your potential hires should know about.

As far as mentioning compensation, be frank with candidates. Give them a picture of the pay structure you intend to offer them, like “base plus commission.” And consider giving them a picture of their on-target earnings — the average amount of money they can expect to earn from their base salary coupled with a realistic figure of their potential commission.

Capping commission can mean putting a lid on sales reps’ effort. In most cases, salespeople will be less inclined to pursue that extra deal or push themselves that much further if they know they won’t be appropriately paid for it. If you’re a sales leader interested in getting the most out of your reps, it’s in your best interest to leave commission uncapped.

Uncapped commission generally means uncapped effort. If you want that kind of commitment out of your team, don’t restrict that element of their compensation.

Sales

On-Target Earnings: What They Are & How to Determine…

English poet Alexander Pope once said, “Blessed is he who expects nothing, for he shall never be disappointed.”

It’s a bleak, melancholy sentiment that’s true in its own right, but doesn’t hold up too well in terms of real-world application. Any person who “expects nothing”  doesn’t actually exist.

Expectations are a fact of life — especially for sales professionals.

A lot is expected of a sales rep. They’re expected to meet a quota, conduct themselves professionally, and consistently make good on several other promises, benchmarks, and standards. But expectations in sales go both ways.

Sales reps expect a lot from their employers as well — particularly when it comes to compensation. Every salesperson should approach their position with some expectation of what they can earn from it. And the number behind that specific expectation is most commonly known as on-target earnings.

Let’s explore the concept a bit further and see how sales leadership can determine that kind of figure for its new reps.

On-target earnings are often calculated on a candidate by candidate basis — pulling from each prospective hire’s established W2 earnings. Still, if you have multiple candidates vying for the same position, their respective OTEs probably won’t be radically different.

The OTE figure you present to a candidate needs to be definitive and realistic. It’s unethical and potentially detrimental to your company’s reputation for it to be anything else.

It can be tempting to artificially inflate the number you show prospective hires — to entice them with a figure that will inevitably be beyond their reach during the interview and contract negotiation processes — but you have to remain grounded.

Almost anyone involved in a sales rep’s professional development has to be on board with their OTE figure. Hiring managers, sales managers, and new hires themselves need to have a mutual — if unspoken — understanding that the on-target earnings number they agree on are ambitious enough to keep the rep in question motivated but realistic enough to actually be met.

On-target earnings provide a benchmark for reps and managers alike. Sales management needs to commit to thoroughly guiding reps to hit their OTE marks, and reps need to have appropriate reference points to let them know if and when they need to pick up some slack.

Company leadership and accounting departments also need to be mindful of these figures. They need to be able to budget for each new hire’s on-target earnings. If your sales reps’ collective OTE exceeds what your company is prepared to accommodate financially, everyone involved in the process is in trouble.

How to Determine OTE

In many cases, a candidate’s OTE will hover around one-fifth of a rep’s annual sales quota — meaning a rep with an annual quota of $500,000 should have on-target earnings of roughly $100,000.

Still, that calculation isn’t definitive or universal. It will vary from business to business based on factors like your industry, your company’s scale, a sales rep’s experience, the revenue your sales org generates, and the nature of your sales process.

As I mentioned, you can’t artificially inflate on-target earnings, but that doesn’t mean you have to be too conservative. You still want to attract capable, high-achieving candidates. Remember, there’s a good chance you’ll have access to a candidate’s previous W2 through the hiring process.

You can use that reference that document when determining an appropriate OTE figure — take it into account and try to offer some degree of improvement in compensation from their previous position.

You also have to commit to the figure you’ve presented to a candidate. You don’t get to adjust or renege on the on-target earnings you promised during the hiring process once a sales rep commits to your organization.

Both sales reps and sales leaders need to have a strong grasp on the concept of on-target earnings. OTE figures are central to any sales hiring process. They let reps know what to expect from the positions they’re applying for and, in turn, whether those roles are worth their commitment.

And sales leaders always need to remain mindful of the OTE numbers they present — striking a balance between reasonable and attractive with these figures can be the difference between landing an exceptional, happy candidate or losing out a marquee new hire.

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