First Revenue Employee – Base Salary, Commissions, Titles and Stock Options
This is Part 2 for the First Revenue Employee Hire – What’s realistic for Startup. You’ve raised some convertible debt or a small angel round…
First, let’s talk about what do you need from your first Revenue Employee.
- Revenue (duh!)
- Customer Feedback by selling – not survey
- You can have an intern survey prospective customers; you need this person out selling the product even if it’s “vaporware” to start
- Asking for the order – to pay for the product is different
- NOTE – as the founder, your “closing ratio” in front of prospects will likely be twice as effective that a salesperson simply based on passion, knowledge of the product, etc. You need to close the first deals yourself – if you think that is beneath you – get over it!
- Short Sales Cycle <6 Months to close
- New subscribers
- Subscription Products – feedback will be gained through the product itself: how often to customers login, how long they are on the site, do they refer people to it (use the idea of Net Promoter Score as a model, do not try to implement it… )
- Long Sales Cycle >6 months to close
- They need to start building a sales pipeline
- Are there services you can sell in the meantime?
The net-net here is that you need to know your sales process. What are the steps and the timeline required to make the sale?
If you can’t hire someone that really believes in your company enough to work for stock options, beverages and ramon, you may need to sharpen your sales skills as a founder.
This sounds obvious, but you’re in a startup not an established corporation. Base salary can’t be $100k a year and hope that the experienced salesperson will shorten that sales cycle by half; the sales cycle is most often determined by the product not the salesperson. You should start at $3-5K in base salary per month. You need them to be hungry, not happy with their base. If they need a path to how they make $150k or more a year watch out. You don’t know the answer and your forecast is going to be wrong. So set the expectation correctly…
What do you get for the salary? You better get activity:
- Work with them to identify the “ideal customer profile” based on the current product – they need to ask for the order now
- How many prospects have they talked to weekly – Prospects – not “customers”? They are customers after they write a check or provide a credit card
- not planning… not strategizing… not working on Adwords… sales activity, calls, or appointments
To start, it’s OK to do a percentage of sales as a measure for Commissions. Ideally, you need to move to a higher percentage of profit. What should the percentage be? In general, you’re going to commit 10% or more of your budget to sales.
For a subscription business – you can pay 100% of the service fee, over the first 2-3 months – NOT THE LIFE OF THE CUSTOMER. You don’t know enough about your business yet to make that commitment.
For Services – you can pay 10-15% of the services contract. Just make sure you have the final approval over the price and price it accordingly. You should be able to price it up to cover the commission and the delivery.
Make sure that the document you use to capture the compensation guidelines states that Compensation can be changed from time to time. You don’t need to give such a high percentage of sales as the sales process improves and you have customer acceptance.
Start generic with Sales and Marketing. Don’t “over title.” They are not the VP of Sales and Marketing because they were your roommate in college. If they have done that job before, fine. Describe the role on the card.
What about Stock/Options?
One of the questions I received was that a senior sales guy wanted 20% of the stock pre-dilution, $5k a month to start. If your taking a salary your stock participation goes down, not up… 2-5% with a one-year cliff and three year vesting is fine for someone that is expecting to take cash out… That % goes down with the greater traction your get in the market. If they want to get a greater percentage, have them work for free like any other founder.
Have more specific questions? Ask away…