Guide: How to build a comp plan for a new territory or product

When businesses prepare to expand, be it through a new product, vertical, region, or market, a ton of work follows.

You’ve got your market research that informs a business plan and go-to-market strategy. The call for new hires across Product, Sales, Marketing, and Leadership to support and execute the expansion. Ongoing work to establish relationships with local partners and keep existing customers privy to expansion news — and, of course, new sales compensation structures to drive market entry. 

Keep in mind that compensation plans for new territories and products are especially tricky because of the lack of visibility into buyer behavior, purchase power, and product or brand recognition. Local culture and preferences, market messaging to a fresh audience, and new competitors introduce more unknowns. 

What’s more, strategies that have historically worked well for one company, or in one territory, won’t necessarily work elsewhere.

So, as you prepare your comp plans for your expansion, start by finding out as much as you can through your network and existing organizations in the space.

The more information and data points you have, the easier it will be for you to create territories that deliver results and support your sales reps.

How to build a comp plan for a new territory

When building a comp plan for a new territory or product, remember the following:

1. Vary comp plans by location and product.

If you’re entering a new market, the pay mix will vary across regions and countries.

Pay mix represents the ratio of base salary and on-target commission. It’s similar to on-target earnings (OTE) but a bit different. Pay mix describes how a sales rep gets paid, which we most frequently represent as a percentage. 

For example, in the U.S., the most common pay mix for account executives is a 50/50 split according to our 2023 Sales Compensation Trends survey. Meaning, 50% of the rep’s compensation plan makes up base pay while the remaining 50 consists of variable compensation.

However, Nordic countries often implement a higher base-to-variable pay mix like 80/20. Other common ones include 60/40 or 70/30.

For a new product, if you’re existing sales team is going to sell it, consider adding a SPIFF that (temporarily) increases the commission rate on it to excite reps to pitch it. Once they gain confidence selling it, you can then consider paying out the same commission rates as your existing product lines.

If you built out a new team specifically to sell this product, then view this as your first compensation plan and follow best practices accordingly. 

These include referencing historical and market data, taking a look at the organization’s very first comp plan and how it performed, and starting as simple and as standardized as possible. It’s much easier to start simple and adjust as the business grows than the reverse. 

This Single-Rate Compensation Plan template is a perfect “first comp plan” example to work from. 

2. Set lower quotas than your existing markets and products.

With little data, it’s best to set conservative and lower quotas than your established markets and products. 

For example, if your existing comp plans follow $200K quarterly quotas, consider cutting that in half or even in thirds to accommodate for lack of region- and product-specific marketing, resources, and knowledge of how buyers buy. 

For help setting quotas, follow these tips. 

3. Your commission structure should be different.

Avoid copying and pasting an existing commission structure for your new territory. Instead, focus on a simplified and standardized structure. Something like the Single Rate Commission Plan.

This plan pays 10% on all deals regardless of attainment and deal size. It doesn’t include decelerators or accelerators and is easy for your reps to grasp and execute.

If you do want to add another lever of motivation, look into new logo bonuses to promote getting a few early customers in the door. 

4. Conduct adequate research.

To learn more about the pay mix difference between countries or regions, or products if it’s an entirely new industry, talk to people from these areas. Ask them how much they are paying reps, what their effective rate is, average OTEs across their team, sale cycle lengths, and more.

If they can’t make time to talk with you, ask them to connect you with other people or resources that they’ve found helpful. 

5. Offer your reps a non-recoverable draw. 

If you plan to create a designated team of reps for this product or territory, meaning they don’t sell anything else or anywhere else, we suggest offering a non-recoverable draw.

A non-recoverable draw pays a rep an advance payment before they have earned any commissions. It is typically used to help cover the salesperson’s expenses while they are building their book of business. Additionally, it differs from a recoverable draw in that it does not need to be repaid. If the salesperson does not earn enough commissions to cover the draw, the company will not ask them to repay it.

Non-recoverable draws can be a helpful way to attract and retain top sales talent. They can also help to offset the risk that salespeople face when they are first starting out at the company, in a new territory, or selling a recently launched product.

Additional territory planning best practices

Lastly, remember to keep the following in mind when designing your new GTM team for an expansion territory or product. 

• Create your ICP for your new territory or product. You can create a hypothetical ideal customer profile (ICP) before entering a new market but be sure to evaluate this monthly or quarterly. As time progresses and you close more business, your true ICP will reveal itself.
  
• Implement multidimensional account scoring: Based on your hypothetical ICP, create dynamic account scoring models that you evolve over time.
  
• Align territories so they are fair and equitable: Give reps equivalent books of business when it comes to size and quality to ensure equitable distribution of earning potential. You can leverage your account scoring models to rate accounts and ensure an equal number of the most-probable-to-close accounts are shared across your team.
  
• Spread opportunities evenly across your team: For lead and demo requests, use a round-robin demo model so that all teammates have the same opportunity to succeed. In doing so, you’ll create a scalable model that prevents favoritism.
  
• If using SDRs, assign them their own accounts: Separate accounts from your AEs and your SDRs so that there isn’t any overlap. We recommend handing accounts with the greatest probability of opportunity conversion to the SDRs since they spend more time prospecting. 

In conclusion, designing a compensation plan for a new territory is an important task that can have a significant impact on the success of your business. By following the tips in this blog, you can create a plan that will motivate your salespeople to succeed and help you achieve your business goals.

For additional compensation plan templates to customize and test with your business inputs, visit Compensation Hub.