New sales rep. agreement: setting expectations for your new sales reps

Alexander Green
May 11, 2021

Before your new sales hire makes their first sales call or visit, it is important to have a written sales agreement in place that outlines the expectations of their role, details of their quota and comp. plan and anything else that a rep needs to understand. By having a signed mutual agreement or sometimes called a sales level agreement (SLA), in addition to your nominal employment agreement, expectations are set up-front and help to avoid any future confusion or disputes.

What is a Sales Rep Agreement or SLA?

A good sales rep agreement outlines both the rights and responsibilities of a company and the expectations of an individual, to provide transparency for all parties. Hubspot defines an SLA as 'a contract that establishes a set of deliverables that one party has agreed to provide another.'

In the context of a Sales team, an SLA can help define the varying sales roles and clearly state sales activity requirements and goals for performance. It is important to note that it is an addendum to an employment agreement and specifically explains how a rep earns their variable compensation and other expectations of the role. This type of SLA can be updated regularly with new terms (eg. every quarter but more likely once a year), whilst the employment agreement will not usually change during an employees tenure.

What to include in an agreement:

RingDNA outlines the below items to include in a Sales agreement or SLA:

  • Summary of the agreement
  • Key definitions of important terms
  • Goals of both parties
  • Responsibilities of both parties
  • Reporting frequency and metrics to track (plus who tracks them)
  • Consequences of failure to meet targets and how injured parties are compensated
  • Conditions to terminate or update the SLA.
Example from the Sales Rep Agreement Template

Why is it important?

An SLA is important because it sets expectations and designates responsibilities from the start. Here are three important benefits:

  • Accountability - Having responsibilities clearly stated allows individuals to know what must be done to reach goals. SLAs can also state the ramifications of failing to reach stated goals as well as the steps that should be taken to remedy the situation. SLAs with your sales team provides clear accountability and assist to prevent misunderstandings and finger-pointing.
  • Process - Outlining procedural steps (like hand-off process of leads between sales roles), clear definitions of key sales terms (eg. what constitutes an official opportunity) and clearly defined pipeline stages ensure a solid and transparent process is in place. This ensures there is much less chance for anyone in the team to plead ignorance because the process has been clearly laid out from the beginning.
  • Compensation - An SLA will go hand in hand with your compensation plan and will help to explain any exceptions to the compensation plan and what a rep can expect and when. We discuss exceptions in more detail below.

Exceptions & fair compensation

Any type of SLA or sales agreement should have clear policies around exceptions for a compensation plan. There are a number of situations where compensation payout is not cut and dry so your business should plan for this as exhaustively as possible to avoid disputes arising within your sales team. It should be very clear when and under what circumstances your reps will receive comp payouts and what could affect this. Here are some considerations for your agreement:

  • Splitting deals: Commission payments can be split between reps if multiple people have worked on a deal. This needs to be very clearly defined up-front so there are no disputes over who was entitled to what.
  • Clawbacks - Your SLA should include a policy around clawbacks as this can be a contentious area for sale reps. You can read more about clawbacks on our blog, but Clawbacks are simply commission payments that are returned to a business by an individual sales rep or team when a customer refund is requested or when a customer churns within a set period of time (after a deal has already been won and or paid). A clawback policy should be very specific about how and when clawbacks should be applied (eg. if a customer doesn't stay on for longer than 3 months, or pulls out of a deal - a clawback is to be applied).
  • Overrides: An override commission is a commission that a Sales Manager earns when a sales rep that they manage makes a sale. This is usually a percentage of the sale and often applies to the whole sales team that is being managed. It should be clearly defined what the percentage is, which sales staff and what deals it is applicable to.
  • Approval process: Any approval processes need to be documented to avoid confusion and errors. For example, what authority does the individual sales rep have for sign off and when do they need to seek approval from their manager? Do they have responsibilities to approve of changes in activities/expenses etc for other team members?  What limit of expenses are they allowed before they need approval? Usually, businesses will have dollar limits on sign off authority depending on the seniority of the role so it is useful to have all this in writing.
  • Dispute resolution: Gartner discusses how disputes or enquiries should be submitted and will be addressed. "Ultimately, you want to ensure that the company has a process that allows sellers to seek consideration and understand how disputes will be resolved. Importantly, be clear on who has the right to decide or adjudicate these issues."
  • Expenses - Your SLA should clearly outline how and when expenses will be reimbursed eg: The Account Executive will be paid for all travel and lodging expenses related to sales activities within 30 days of a submitted receipt and an approved expense reimbursement form. This provides transparency and stops your Finance Dept receiving endless queries. As mentioned above, it should also outline what the daily expense limit is, what expenses can be claimed and what is the procedure if a rep feels they have a claim outside of this.**
  • Ramp / onboarding plan: Sales ramp-up period is determined from the day a new sales rep is hired, until the day they reach full productivity and hit their targets. Even for the most experienced sales reps, it will take time to fully understand their new company's sales process, the customer and competitive landscape, and the products and solutions they need to sell. Your SLA should outline how the sales quotas and comp. will be adjusted during onboarding to match the ramp time. We discuss ramping quota in more details in our recent blog: Why using ramps in your sales comp. is critical for new reps.

Finally, set up a regular review of the SLA metrics to monitor your progress, and make sure Sales have access to these reports and are discussed in 1:1 meetings. This step helps to maintain accountability and transparency and to address issues quickly. It is also an opportunity to celebrate the successes of individual team members when they are fulfilling the requirements of an SLA.

By putting in place a set of watertight procedures, you will not only be protecting your company from disputes, you will foster a culture of transparency and trust from the moment your new sales hire sets foot in your business. If you are at the stage of putting together an SLA or sales compensation plan and need some assistance, we are here to help with our world-first sales compensation planning tool. We take the guesswork out of planning using real-world data and best practice to create robust plans that your sales team will love.

CEO at motiveOS, a realtime commission app that provides accuracy and visibility to the sales, finance and management teams, whilst automating the entire process for our customers. Our vision is to help growing businesses build world-class revenue teams. Previously the Co-Founder and CEO for HANDS HQ, a profitable prop. tech. startup in London. I studied Building and Construction Project Management and led the refurbishment teams of many global head offices in London.