I've been operating under the assumption that I want to set the commission rate for my commission only sales reps based on: (# of sales) * (average deal value) * (r) = compensation or r = c/(N*V). c and V I have a good handle on but N I'm a little unsure about. All sales thus far have been done by a co-founder and we don't have a very good estimate of how many deals a fulltime salesperson who doesn't have operational and R&D responsibilities should be able to close.
So my questions are:
This is B2B btw and our sales cycle is typically about a month.
OK, there are a lot of ways of dealing with commissions, what you need to understand is that whatever you put in place will set the way they behave. The law of unintended consequences, have a read of Freakonomics and listen to the early podcasts to get an idea of just how strange setting the wrong incentive can turn out.
As for your questions, what you haven't said in your equation is
All of these factors, and many more play into the variables you would consider when engaging a sales team especially when it is on commission. Every time you setup an incentive scheme you have to ask "how is the person going to behave", "not how would I like them to behave". To answer that you need to think through how they can get their commission with the lowest amount of effort.
From their perspective
So your equation will most likely work if they are door to door salespeople, with low indivdiual, high volume sales (many a day or week) who don't expect to go back and the individual sale price is low so goodwill is not you key priority ...
Otherwise I would look at reformulting it based on "what do I want the end result with my customers to be" and playing through senarios with a few people to see how they could game the scheme. I would then play through the scheme in Excel to make sure your still profitable given the rest of your business model outside of the sales arena.