The Topic of FAUX-TE

Meet Host, Mary Grothe

Mary Grothe is a former #1 MidMarket B2B Sales Rep who after selling millions and breaking multiple records, formed House of Revenue®, a Denver-based firm of fractional Revenue Leaders who currently lead the marketing, sales, customer success, and RevOps departments for 10 companies nationwide. In the past year, they've helped multiple 2nd stage growth companies between $5M - $20M, on average, double their MRR within 10 months, resulting in an average ROI of 1,454% and an average annual revenue growth eclipsing $3.2 million.

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Hey, Revenue Radio®. I’m Mary Grothe. Today, we are talking about Faux-TE. Faux like a fake. Faux-TE like OTE or fake OTE.OTE is On-Target Earnings. Before I jump into this topic, I must give credit where credit is due. I did not come up with this, but I cannot remember who did. So, hear me out. I read it on LinkedIn. Somebody in our revenue community wrote a post about Faux-TE. I, for the life of me, cannot remember who it was. So, this is my task for our audience, if you know who it was. Tell me. Put a comment here. I will look. I'll edit this. I’ll add it to the notes and the transcription. I’ll ensure this person gets credit, but I don't remember who it was. I always want to give credit where credit is due, especially in this day and age, where I feel like people rip off a lot of each other's content. I want you to know this was not my original idea. However, I am psyched that someone is talking about it because it needs to be discussed.

Now, let's talk about OTE. What is OTE anyway, and where did it become fake along the path? Okay, here we go. OTE is On-Target Earnings. It’s something that's been used in the sales world for a long time. It’s an indication of on-target or quota. What will your earnings be? Salespeople earn variable compensation. We have a base salary. Let’s say my base salary is $75,000. Then, my OTE might be $150,000. That’s a common comp plan, 75 / 75, 75 in base, and 75 in the upside. But the calculation of that other depends on performance and quota, where you should be hitting that $150,000 annual target. That’s what comes up with the odds of on-target earnings.

Where did Faux-TE come from? Most OTEs are just marketing campaigns to attract top talent. But no one in the company is achieving at that level. I got to tell you a story about my upbringing in sales and why when I first started to hear about Faux-TE years ago. It honestly broke my heart for salespeople. My professional sales career was at a Payroll and HR company. They were amazing when it came to comp plans and quotas. I felt everything was very fair and very clear. I understood my comp plan inside and out. I never had confusion about how I made money. I thought that the base salary was low. When I got into sales, the base salary was $42,00 a year. That base salary now for salespeople, I’ve seen the end of the six figures. I have a $40,000 base salary starting in sales.

I looked at my initial quota for my first year. It was a baby quota. It was $150,000. I thought, "Okay, at quota, I wasn't going to make much. I maybe would have made $100,000 that year. I may have been less, and I could have even been like. I was a district sales assistant for two years before I went into sales. I was able to help my manager file commission reports every month. I knew what the reps were making.

They gave me this baby first-year quota. I never sold anything 150 grand, but reps were doing far more than that. I knew how I could increase my earnings if I sold more. When I looked at the comp plan, I wanted to understand, would I make more money if I sold certain things more than another? Back then, the setup and implementation fees had a higher commission rate. We got 30% paid on setup fees. Then, the multiplier on the regular service revenue was 11%. The setup fees we're completely determined by the salesperson. You could charge anything. I thought, "Well, wait a second. If I charge more on setup fees --"

Most salespeople are waiving setup fees. If you bought anything, people would say, "We'll move forward if you can waive the setup." The salesperson's like, "Sure. No problem. “We’ll waive the setup fee." Then, they get the recurring revenue. I looked at the comp plan and said, “Well, wait. The multiplier is lower. What if --" This is called breaking the comp plan. Maybe I shouldn't tell people what I did. I decided to create a new phrase, along with my friend, Jennifer, who sold out of our Salt Lake City office, called the implementation, customization, and training fee.

We stopped calling it a setup fee because setup fees can be waived. We renamed it implementation, customization, and training fee. What we did is we made that ICT fees percentage of the annual value of the contract. If the contract's annual value were, we’d call it $20,000. We would take a percentage. Our percentage fees quoted as setup fees were anywhere between 30 to 40%. I can't do math; 20,000 times 10% is 2000 timed 3. $6000 setup fee in a $20,000 deal. I would get 30% of $6000. Then, I was able to get the 11%, then, on the 20,000 annual dollar deal.

Many salespeople were waving the upfront fee to get it. I thought, "This sounds super silly." But I realized if I was struggling to get a deal over the finish line and I was outside of their budget, why would I discount the upfront fee that I made 30% on? I will discount the ongoing fee because I only make 11% of that.

Then, I started charging so high on my implementation fees because that's where my money was made. On the recurring I was, in some cases, bringing in 20% or 25%. In extreme situations --I didn't believe in discounting, but to get something over the fence, I could discount up to 40%. I’m maximizing my comp plan and thinking, “Hey, I've got this thing down. I want to make a lot of money. “In that first year, I sold $758,000 in revenue on my 150 quota. So, I made a lot of money. I don't remember the exact amount, but it was more than five times my income. From being a sales assistant, it was a lot.

In my first year, when I started to have a lot of success, I started advocating for how I got there and how I sold so much. When I went into my second year, the comp plan changed. They took away that 30% on setup fees. A huge percentage of my annual revenue was an upfront setup fee, not recurring. So, how are you getting all this money upfront? The company started paying out a lot of money. They changed the common comp plan. Companies do that. You break the comp plan, and then the company changes it. So, it changed. I had to get more creative on how we made money in future years.

Thankfully, when I switched to a different role in my third year, there were multipliers. You were incentivized to discount the ongoing revenue. The more ongoing revenue you sold, the more you'd hit these thresholds. Rather than making 11% now, you’d earn 13% for every dollar. Then, it went up to 20. Eventually, the highest year it went up to 39 or 40%. You’re incentivized to race through the different tiers and levels so that you would make more. I had a very fair comp plan in the corporation, where I learned how to sell. I was spoiled because I always knew how to make money. I always understood my comp plan, and I felt that it was very fair. Even though I had a low base salary of $42,000, I didn't even care. Consistently, I was selling, and consistently, I was making big commission checks.

I took an equity position with one of my clients when I left that company. They were a startup, and I became a VP of Sales and Marketing. We won't discuss the comp because I took an "equity position “in the company. I went down to an "equity position," which was worth nothing, and took my salary down to $36,000 a year. Not so bad. I had some money in savings, so it was okay. That's when I fell in love, you know, scaling companies. I went and started my own business. Don’t even talk about that come plan. That’s a nonexistent comp plan because you decide to pay yourself.

Before returning to the payroll company, I worked at a big I.T. hardware manufacturer out of Boston. You probably guessed what it was for those who have worked in the industry. This is the first time that I saw an OTE at 50/50. It was a 75% base, 75% OTE or 75% variable. So, 150. Okay. That was the first time that I saw it. I looked at the complaint, and it was way more difficult to figure out than the one I was used to. I looked at it and thought, "Wait, you have to sell 1.2 million to make $150,000. I said, "That stink. “At my old company, I’d sell $800,000 and make almost $400,000. "This comp plan is not so good.” Then, I had to dig into it. "Who on the team is achieving this?“ If you sold more than 1.2, you made more than 150, which was what they call "uncapped. “

I started to dig in and figure out, “Wait. Who on the team is selling more than.? Who was in my territory before me, and what did they sell? I started to dig into that. I wanted to make sure that I could blow past it. For me, $150,000 was low. I started to dig in, but I wasn't smart enough to ask all the questions. The hiring manager was a very old-school "bro culture" sales manager. Yeah, not good. That role didn't last long. Just so we're all clear, I'm not cut out to sell in the I.T. industry. It’s not for me.

I go into this role. I'm making this base salary, which I was excited about. It’s a cool base salary that was awesome. It was way more than I had made in my payroll role. I thought, "Well, that's cool. “I have a good base salary. You can live off that. “Now, I'm going to work on this variable, the commission component. I started to dig in, and there were so many splits. It was like an outside person was paired with an inside person. You had a split between those two on the commission. Then, you couldn't sell directly to the customer. You had to sell through a VAR or Value-Added Reseller. So, there was a split there. The sales process was outside of your control. It went through the VAR.

Then, I started to realize making money here is very difficult. I started chatting with the person I got into on the team. We had a sales kickoff together. I had one-on-one relationships and time to chat with other salespeople and asked, “How do you sell millions of this company? How do you make money?" What I found out was barely anybody was hitting that number. The turnover on the sales team was super high.

The turnover was practically nonexistent at my payroll company, where I was working. It was such a lucrative job. The comp plan was clear and clean. Everything was fair. The path to sales was very clear. We had great management, and I just felt the culture was unbelievable. Everybody was set up to win.

This was way, way, way, way, way different. Toxic culture is where they beat you down and make you feel you're not good enough. They want that pit in your stomach. That feeling of, “I got to go make everyone so happy. I’m not good enough and whatever. “Not a good way to be a sales leader. So, we're all clear. It’s an old-school style.

With that, I saw the writing on the wall and out of the gate. I mean, I'm a high-performing salesperson. I like to figure things out. I hacked my way through it, and I was pacing extremely well. I finally figured out, "Okay. Here's how to be successful with this company. “I was pacing extremely well. I must tell you, the culture in I.T. hardware sales was not for me. If you want to know what it was like and maybe it's changed. Back then, the tighter your dress and the shorter your skirt, the more wining, dining, taking these nerdy I.T. guys out to fancy dinners, and having a suite for that avalanche playoff game. They want pretty women to look at and to spend time with. They wine and dine. They take advantage of your budget.

One monthly sales manager said, “I looked at your expense report, and you were under $2,000. We need you to spend more money. We need you out and about. If you're under $2,000, you're not networking enough. You need to be doing more events." Do not make me go to one more dinner with these guys who just want to stare at me. It's not appropriate. It turned into a prospect petting zoo. These guys wanted you to come to their office and hang out all the time. They weren't always buying.

As a salesperson and a woman with integrity, I thought, "This industry is not for me. I'm a serious professional. I want to work with buyers who respect and value that. I’ve taken the time to learn about their pains and problems and understand that I have a product or service that can solve those problems, meet their needs, and make their lives better. I want to be honored and respected for that." That wasn't the industry, so I quit. I don't even have it on my resume. It’s funny; I haven't even talked about it since then.

I went back to work at the payroll company. Guess what? The base salary was $47,000 [laughing]. I don't even care because I'm going to crush it. I looked at the comp plan, and honestly, I didn't even care. I don't even care what the OTE was. I thought, "I'm going to blow past this. “I go back to that company, and that's exactly what I did. I got brought in, in the middle of the year. They gave me a baby quota. I smashed there in the President's Club for half of a year, selling a brand-new product. They had just upgraded to a different platform. It was a tremendous three years back at that company.

In my last year, somehow, this story became about me, sorry. In my final year there, I was pregnant. I worked nine months that year. I finished number seven in the country. I don't even think I worked the last two months. I was so large and pregnant in July and August I just laid on the couch and stared at my porcelain feet. I wasn't working that much, but I still finished number seven in the country. That’s just because I learned how to sell larger deals. I learned to have a 75% close rate because I was pregnant. I must be way smarter in my time. I must be the best I've ever been in sales because I cannot hustle as I have in previous years. I’m so grateful for that company. I’m so grateful for the transparency in the comp plan, management, and training. It's an unbelievable company to sell for.

Then, I left and started House of Revenue, formerly called Sales BQ®. My mission is to begin sales departments for small businesses or help them, refresh them, and make them better. We got into sales recruiting as part of our offering. I start hearing horror story after horror story. These salespeople had been burned, burned, burned by Faux-TE and comp plans that changed in the middle of the year without their warning.

Small businesses sometimes build a comp plan they don't think anybody can break. Then, someone sells the company's largest deal in history, and per the comp plan, they should be paid out X amount of dollars. The company's like, we can't pay that out. We’ll go bankrupt. When we built the plan, we didn't anticipate someone coming in here and selling this much or that big. Please. No, that is not an uncommon story. I have heard it from so many salespeople. I have heard of these stories of Faux-TE. It's a marketing tactic like a new player will come into town.

Let’s say there's a big investor-backed company. They just raised a huge round, hiring a person, person, or even a hundred-person sales team. To attract the best talent from their competition, they go to market with very overinflated OTEs. There's no track record. There's no history. There's no proof that this number can be hit because it's fresh, new, based on a new raise, and no one's ever done it. If these reps are not educated in Faux-TE, they take this role. They thought, "Yeah, but I can make $400,000 working here.”

These OTEs are so overinflated. They’re used as a marketing tactic to get great talent. Then, these poor salespeople come on board. They run into issues. There's no product-market fit. The executive leadership or the culture is toxic. They don't have the right people in the right seats. The product is not mature enough. There hasn't been enough testing. They don't have the right CRM or automation. The marketing team isn’t mature, helping, and supplying an inbound flow of leads. The operations team hasn't been built out yet, so they're selling customers, selling new clients, and then they're imploding when it gets to onboarding and implementation. That is a bad experience. There aren't enough referenceable clients. There’re all sorts of problems. They’re just struggling in the sales process to get the conversions because it might be a newer company or whatnot.

Even well-known companies with good brand recognition in hiring in waves or launching a new division will also use this tactic. They go to market with these massive OTEs. It's disappointing that these quotas are not scientifically created. They’re pulled out of thin air. They’re pulled out of Finance's air. The rep must sell this amount to justify this revenue plan. Okay, cool. But can they? Who’s creating these numbers? It is so broken in the industry. As an executive and leader, I challenge you to think about how you will market to salespeople. If you're using Faux-TE, maybe you don't even realize you're using Faux-TE. Perhaps this is the first time you’ve heard this, and you're like, "Oh gosh. I think we have Faux-TE. "This is an okay time to go back and evaluate your comp plan, your quotas, and your sales team performance.

One of the most motivating things that you might be able to do is lower the target so your people can win. If it's a January turnover in the calendar year, if you have a fiscal year, pull data by territory, customer type, segment, rep, or whatever. You can get the right trends and data to understand, “Hey, we need not give everyone the same quota." Maybe our Pacific Northwest region produces less than our mid-Atlantic region.

Don't assign the same quota because you're going to have one rep in a flourishing region that’s above quote and makes a lot of money who does the exact same work and effort and is equally talented as your person in a different territory that no matter how great of a salesperson they are, the territory can never produce that amount. They’re never going to win. You’re going to consistently have turnover in that market over and over and over again. It’s not good for you. It’s not good for your company. It’s not good for your people. It's not good for the customer.

Now that you know what Faux-TEs are, this is an opportunity for you to fix it. Salespeople deserve to have a fair and equitable comp plan. They deserve to have an opportunity to win. I will always be an advocate for the salesperson. As a CEO, fractional CEO, and the leader of a company that gets to build these departments for our clients, I will always advocate. Our team will always advocate for the salesperson and their ability to win and succeed. My suggestion is that you follow so.

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