Section 1
The vocabulary, in plain English
Three terms do all the work here, and founders who blur them make expensive mistakes. Base salary is the guaranteed pay a rep receives regardless of what they sell. It is your fixed cost and their security. OTE (on-target earnings) is the total a rep is expected to earn if they hit exactly 100% of quota: base plus the variable pay earned at target . When you advertise a sales role at "$120k OTE," you are promising that a rep who hits target takes home $120k, split between guaranteed base and earned commission. OTE is the headline number; it is not what you pay unless the rep performs. Pay mix is the ratio between the two, expressed as base/variable. A 60/40 mix means 60% of OTE is guaranteed base and 40% is variable commission . A 50/50 mix splits it evenly. The pay mix is the single most important design choice you make, because it decides how much of the rep's income, and how much of your risk, rides on results.
Section 2
Why pay mix is a risk dial, not a detail
Pay mix is the founder's risk dial. Turn it one way and you carry the risk; turn it the other and the rep does. A more aggressive mix (50/50 or 60/40) puts a large share of the rep's pay on the line. Half or nearly half of their earnings only materialize if they sell, which means a rep who does not produce costs you relatively little in fixed salary, and a rep who overproduces earns it from the revenue they actually generated. This is the standard for closing roles, account executives typically sit at 50/50 or 60/40, precisely because their output is directly measurable in deals . A conservative mix (70/30, 80/20, 90/10) guarantees most of the pay regardless of results. This suits roles where the individual does not directly control the sale, sales development reps commonly run around 70/30, and technical or customer-success roles push toward 80/20, because their work influences but does not close revenue . Guarantee more when the person cannot fully control the outcome; put more at risk when they can. For a first closing hire at a service firm, the 50/50 to 60/40 range is the right neighborhood . It gives the rep enough guaranteed base to feel secure and stay, while keeping enough of their pay tied to production that a non-performer is not an expensive fixed cost you cannot unwind. The 50/50 point is often the cleanest starting position: it balances the founder's influence over behavior with the rep's need for stability . Here is the structure laid out.
Section 3
The service-firm trap: commission on recurring revenue
Here is where service founders torch margin, and it is not in the base. It is in how they structure the commission on a retainer. A retainer is recurring revenue. Pay a rep a large one-time commission on the full annual value of a retainer, and you hand away a huge slice of margin the instant the deal signs, before the client has stayed long enough to be profitable, and regardless of whether they churn in month three. That is how a "great new client" arrives already unprofitable. The software world, which lives on recurring revenue, does not pay this way for exactly this reason. The margin-protecting alternative is to pay commission as a modest, ongoing percentage of the retainer while the client is active, so the rep's reward tracks the revenue as it actually arrives, and so a client who churns early stops generating commission. This aligns the rep with retention, not just the signature, and it keeps the commission a controllable fraction of margin over the client's life rather than a lump you can never claw back. Pair it with a sensible quota so the OTE math works, and the whole structure stays inside your margin instead of eating it.
Section 4
The BGA framework: the First-Hire Comp Design
Five steps to structure the hire without torching margin. 1. Set OTE from your deal math, backward. Decide what total earnings a strong rep should reach at 100% of quota, and make sure the revenue they would generate at quota comfortably covers that OTE plus your delivery cost and target margin . If the numbers only work at 100% quota, the plan is too tight. 2. Choose the pay mix as your risk dial. For a first closing hire, start near 50/50 to 60/40, enough base to retain them, enough variable to keep a non-performer from being a heavy fixed cost . Guarantee more only if the role is pipeline generation rather than closing. 3. Pay commission on recurring revenue as an ongoing percentage, not a lump. Tie commission to the retainer while the client is active, so the reward tracks the cash and a fast churn stops the payout. This is the single move that protects service margin. Never pay a fat one-time bounty on the full contract value of recurring work. 4. Compute the fully loaded cost of a closed deal. Before you launch the plan, model what a signed retainer costs you: delivery cost plus commission plus overhead, against the retainer's margin over its expected lifetime. If a closed deal is not comfortably profitable after commission, the plan is broken and needs fixing before you hire. 5. Cap the downside, not the upside. Keep the base low enough that a non-performer is affordable to carry while you decide, and leave commission uncapped so an overproducer keeps selling. You want to be able to survive a bad hire and reward a great one, which the pay mix and margin-based commission together make possible.
Section 5
You are running the First-Hire Comp Design right when…
You are running it right when you talk about the hire in terms of OTE and pay mix rather than a single salary number, because you understand that base and variable are two different levers doing two different jobs. You are running it right when your first closer's commission is paid as an ongoing slice of the retainer while the client stays, not as a lump at signing, so a client who churns in month three does not leave you having already paid away the margin. You are running it right when you have modeled the fully loaded cost of a closed deal and confirmed it is profitable after commission, so growth adds margin instead of quietly eating it. And you are running it right when you could survive a rep who does not produce and would happily overpay a rep who does, because the structure caps your downside and leaves the upside open, which is the only version of a first sales hire that a margin-conscious service founder can afford to make.
Section 6
Key takeaways
• Sales pay is a two-part machine, base plus variable, sized inside an OTE (total earnings at 100% of quota); design the machine, do not just pick a salary . • Pay mix (base/variable) is your risk dial: closing roles typically run 50/50 or 60/40, while pipeline and support roles run 70/30 to 80/20 because they influence but don't close revenue . • For a first closing hire, start near 50/50 to 60/40, enough base to retain, enough variable that a non-performer isn't a heavy fixed cost . • The margin killer is a fat one-time commission on recurring revenue; pay commission as an ongoing percentage of the active retainer so a fast churn stops the payout. • Model the fully loaded cost of a closed deal (delivery + commission + overhead) against lifetime margin before launching the plan, so growth adds margin rather than eating it.