My SaaS startup has gained some early traction (a slowly growing number of paying customers built up over our first few months after launch). It's now time to "step on the gas" and grow the customer-base at a faster rate.
This is a bootstrapped, self-funded startup. We have some revenue, but not enough (yet) to pay a high FT salary. So I'm leaning towards a commission-only approach to hiring sales reps.
The 1-year revenue of a customer is ~$500. 30% commission of 1st year revenue would be $150.
I'm coming at this from a UK perspective so please bear that in mind.
I agree that commission should be the large % of any remuneration for a sales exec / business development director, but even if you're a start-up you cannot simply pay zero basic salary. You will simply not attract the right candidates, and the initial "gain" you get early on by paying commission only, will be far outstripped by the gain in getting someone good in on a reasonable and fair basic salary.
I do not believe that paying someone $0.00 basic incentivises them to work harder - actually the opposite.
In fact I'd sacrifice my own salary as a business owner to get a great sales guy on-board, knowing that they'll be grabbing market share far quicker than the only free guy available.
I'd always want and expect my sales guy to be the biggest earner in the company (with commission included) as this means he's doing something right - and you're do
I was exactly in the same situation just several weeks ago.
So, here's my advice:
Also keep in mind that an experienced sales person can easily move your pricepoint from $500 to $1000+ by repackaging/redefining the product.
While I'm sure sites like Craigslist make for good hunting grounds for sourcing sales staff, I'd recommend you rather hire someone you know who understands your business model and, more importantly, believes in its long-term viability. Your salesman needs to be proactive, and there's no better driver than having a shared vision.
With regards to compensation, you're basically saying "Hey, I don't have the money to pay you market-competitive rates right now, but I will one day, so in the mean time, I'll offer you above-average commission until I can afford to pay you a fair rate."
This sounds like a good deal to your salesman, but bear in mind that he is taking on up-front risk, because whilst his commission-rate will be above-average, given the low sales volumes of your software, his actual earnings will still be relatively low. Therefore he should be compensated for the up-front risk he is taking on by being rewarded with above-average commission / bonuses after he has reached market-competitive earnings (but not indefinitely), otherwise he has no incentive to take the risk of joining you.
What should his above-average compensation be? I would offer him as high a commission fee as you can afford whilst still breaking even (and by breaking even, I literally mean the bear minimum necessary for survival). Then once your revenue is high enough so that you can afford to pay him a market-competitive rate, I'd continue to pay him above-average commission rates for a little while longer - perhaps a year - to reward him for his up-front risk. After that you can revise his package accordingly.
The other risk you have to be mindful of is his ability to sell, because if he's a poor salesman, his above-average commission will sap most of what little revenue you're currently earning, without adding much value to your business in the long run. With this in mind, I'd work out a performance-based contract so that you have grounds to let him go should his salesmanship prove ineffective.
Do you have a channel strategy? You need to find a method of promoting your product to people who are already selling product/related products to businesses that can bundle your SAAS line in as a solution.
If you are willing to pay 30% you should be talking to the major vendors like CDW and others.
It is really irrelevant if you are bootstrapped or funded. Good sales person is there to make money and method of your funding is your problem and not their. I have worked in both customer revenue and venture funded companies. I have brought in several sales teams and people you really want selling for you will not work on commission only at your ACV (annual contract value). If your average transaction was $30K - sure. $500 - you will have major challenges attracting those who produce. SaaS inside sales people average $57K bases and expect to make $100K total in year two (1st year there is a 3-6 month ramp-up time, so ~$80K for 1st).
Personally, never seen a business model work where you use sales people for anything in sub $1K ACV. Highly recommend you read Pacific Crest Private SaaS Company Survey and especially take in the slide on how SaaS in your price range is usually sold.
If you are selling your software for $500/account then your sales rep is going to have to sell a lot of accounts if he wants to eat.
What I would do is look around and see if you have a friend who is in sales (and good at it) and ask her what she things.