Understanding VP of Sales Compensation in Startups

When it comes to compensating a VP of Sales at a startup, there’s a lot to consider. The role is crucial, as these leaders drive revenue growth and influence the overall success of the company. So, what does compensation typically look like, and what should startups aim for to attract and retain top talent?

Breaking Down the Numbers

At the Early Stage:

For startups just reaching $2 million in Annual Recurring Revenue (ARR), the compensation range is fairly broad. A self-funded or bootstrapped company might offer $200k in on-target earnings (OTE). For a more established startup, you might see $250k, and if the company is venture-backed and generating buzz, this could jump to $300k.

As ARR Grows:

When startups scale to $6-10 million+ ARR, especially those that are venture-backed and growing quickly, the compensation for a VP of Sales can easily double. In these cases, a $500k+ package isn’t uncommon. It’s a high-stakes role, and the rewards reflect that.

Base vs. Bonus:

A typical compensation structure for a VP of Sales includes a base salary and an OTE bonus split 50/50. This means if the OTE is $300k, the base might be $150k, with the other $150k tied to performance metrics.

The Importance of Upside Participation

In a fast-growing startup, ensuring that your VP of Sales fully participates in the upside is key. If they exceed their targets and stretch goals, there should be no ceiling on their earnings. No implicit or explicit decelerators, no caps—just a direct correlation between their performance and their pay. This encourages rockstar performance and aligns their goals with the company’s growth objectives.

Why ARR Speed Matters

It’s important to consider the pace at which a startup reaches certain ARR milestones. If it takes 5+ years to reach $2-3 million in ARR, that’s respectable, especially for a bootstrapped startup, but it’s not a rocketship. In contrast, companies that hit these milestones faster typically have higher revenue per employee and can afford to offer more competitive compensation packages.

A lean setup, with 40 employees at $2-3 million in ARR, suggests a very efficient operation, but it might also mean the company isn’t paying as well overall. For these startups, the VP of Sales might find themselves on the lower end of the compensation scale.

Should Clawbacks on Commissions Be a Concern?

Clawbacks can be a contentious topic. Essentially, they involve reclaiming commissions from salespeople if certain deals don’t pan out. While they might sound like a necessary safeguard, in practice, they’re often overrated.

Salespeople typically prefer getting paid early, even if there’s a potential clawback down the line. After all, it’s better than waiting for cash to hit the bank. And in most cases, clawbacks are for relatively small sums and often occur when the salesperson has already left the company. These clawbacks can feel like a rounding error, and if they’re a big concern, it might be worth considering paying commissions only when cash is received.

Industry Trends and Insights

According to Forbes, the industry is expected to grow at a compound annual growth rate (CAGR) of 11.7% from 2021 to 2028, which underscores the critical role of sales leadership in driving this growth. In a hot market, competition for top sales talent is fierce, making it essential to offer compensation that not only attracts but also retains the best in the field.

Need help to Find Your VP of Sales?

Navigating compensation packages and finding the right VP of Sales can be challenging, but it’s a crucial investment in your startup’s future. If you’re looking to explore the right strategy and get connected with top-tier sales leaders, why not book a demo with Alariss Global today? We’re here to help you build a team that drives your business to the next level.