How to Pay Your First Sales Hire Without Losing Sleep (and Money)

“Hey Matte, how much should I pay my first AE?”

I get this question all the time.

If you’re at the stage where you’re ready to stop selling yourself, that’s great, congrats! 🐎

It’s time to start building your first sales team.

Whether you’re hiring your first SDR, AE, CSM, or AM, it’s an exciting milestone for any founder.

But here’s the tricky part: How do you pay them?

What’s the right mix of base salary and commission?

How do you tie their compensation to their performance?

Let’s break it down together.

Understanding OTE (On Target Earnings)

When setting compensation for your sales team, the starting point is their OTE - On Target Earnings.

OTE is what someone earns if they hit their sales target.

To get OTE right, you’ll need to consider two key factors:

1. Role: Are you hiring an SDR, an AE, or even a Head of Sales? Different roles come with different expectations and pay ranges.
2. Seniority: Is this person just starting or a seasoned professional?

For simplicity, let’s focus on two typical roles in an early-stage startup:

• SDRs (Sales Development Representatives): These folks bring in leads and book meetings.
• AEs (Account Executives): They close deals and bring in revenue.

And let’s break seniority into two tiers:

• Junior: Someone early in their career, with maybe 0-2 years of experience.
• Senior: A more experienced salesperson who has 2+ years experience.

* ARR goal is stretched at 4X in this table considering a late-stage startup with ACV >20K

The OTE-to-Sales Goal Ratio

Here’s the next question I usually hear: How much should this person sell to justify their OTE?

A good rule of thumb is that their annual sales goal should be 3–4 times their OTE.

For example, you hire a junior AE with an OTE of €100K.

• At 3X OTE, their annual sales target would be €300K.
• At 4X OTE, it’d be €400K.

This gives you a rough idea of how much revenue they should bring to make their compensation worthwhile.

Your sales goals might be lower in the early days. If you're just starting out, aiming for 1–2X OTE in the first year is reasonable.

Later, you can raise the bar as you scale and gain traction.

* ARR goal is stretched at 4X in this table considering a late-stage startup with ACV >20K

The Full Cost of Hiring a Salesperson

One mistake I see founders make is forgetting to account for the full cost of a salesperson. OTE is just part of the picture.

I recommend multiplying OTE by 1.3 to factor in taxes, benefits, and other overhead costs for simplicity.

So, if your AE’s OTE is €100K, their total cost might be € 130 K. Keep this in mind when planning your budget.

Motivate, Don’t Burn Out

Here’s a quick reality check: Sales targets are made to be hit, not missed.

Nothing crushes morale faster than setting high targets that no one can realistically hit them.

If your AE consistently achieves only 50 - 60% of their goal, they will quickly lose motivation.

My advice? Be ambitious, but don’t overdo it.

Use the 3–4X OTE rule as a guide, and be ready to adjust in year one as your sales process matures.

Your team will thank you, and you’ll set a strong foundation for your company.

Building your first sales team is exciting and a big step toward scaling your business.

Take the time to get their compensation right - it’s worth it.

Remember, happy and motivated salespeople close more deals.

That’s it for today. Thanks for reading, and I’ll see you all next week.