Organizations with multiple products must decide whether these are sold by a single type of AE/AM, a primary AE in partnership with an overlay specialist, or by separate AEs/AMs. The main characteristic that distinguishes overlay specialists (aka co-primes or product overlay sellers) is sales of the overlay product are credited to both the primary seller and the overlay.

Separate AEs/AMs receive SPIFFs for cross-referrals but this is different than dual-crediting a primary AE and an overlay specialist. Also, sales engineers typically receive credit for the entire sale whereas overlays only receive credit for sales of their assigned product(s).

Overlay Specialist ROEs & Considerations

The following are rules of engagement (ROEs) and other considerations:

• Compensation plans for overlay reps are typically 60/40. As you would expect, VC % increases with the degree of influence the overlay has on the sale. I used 50/50 in the example below but that is easily updated.
• Just as you would for a (technical) sales engineer, the overlay quota should be tied to the product quota for the team the overlay supports. Don’t split hairs on the overlay’s degree of involvement in any given deal. In addition to the product quota for the team the overlay supports, we also recommend having some part of VC tied to the overall product quota. That way, the overlay has an incentive to help out in other territories as needed.
• Avoid differential discounting among products. Otherwise, the overlay rep may be arbitrarily disadvantaged.
• If an organization has sufficient scale, overlay reps should report into overlay managers.
• For a given overlay product, each primary rep should be supported by a single overlay rep. Overlay reps can and typically do support multiple primary AEs. When supporting multiple primary reps, strive to align overlay reps with individuals who work for the same primary rep first-line manager.
• Account engagement between the primary seller and the overlay specialist should be crisply defined. Between the primary rep and the overlay, determine who is responsible for whitespace identification & prospecting. If the primary rep is, then the primary rep pulls the overlay into deals. Things get a bit more complicated when the overlay is responsible for whitespace identification. Specifically, one must decide if overlay reps are permitted to independently engage accounts; typically, this is not permitted.
• Compensation plans for overlay reps should be constructed similarly to those of AEs/AMs except they will only be credited for sales of assigned products in their assigned accounts / territory. See here.
• Give the primary rep 100% quota credit for sales of the overlay product. As outlined below, update quotas for the primary and overlay reps to meet your cost-of-sale target.
• Since both AEs and overlays will receive credit for sales of the overlay product, one must be very thoughtful about quota setting to keep the cost-of-sale under control.
• I generally recommend that the company NOT give the primary AE separate quotas for each product. This increases compensation plan complexity and can break alignment between the seller and the buyer; the primary rep should sell the solution that best serves the customer’s needs.

Quota Setting For Overlays

Let’s delve deeper on primary and overlay compensation. If each overlay supports N primary AEs, the primary product is A, and the overlay product is B, then the compensation cost of sale (CCOS) is as follows

Overlay Product Quota Assuming Known OTEs

The the OTEs of the primary rep and the overlay rep are known, then the product B quota is as follows:

where r = ratio of the overlay OTE to the primary OTE.

By way of example, assume the following:

• r = 1 (the OTE of the overlay and the primary rep are identical and here assumed to be $200K)
• N = 4 (each overlay supports 4 primary reps)
• Quota for Product A = $1M (Primary reps were ate 5x OTE-to-quota before adding product B
• CCOS = 20%

Then,

Since it was an input, we know the overall CCOS = 20%. But what are the commission rates for the primary and the secondary assuming a 50/50 base/variable split? With an OTE of $200K, the overlay earns $100K on a $1M quota so their commission rate is 10%. The variable target for the primary rep is $100 but they have a quota of $1M for Product A plus $250K for Product B. Hence, their commission rate is 8%.

Overlay OTE Given Equal Commission Rates

In the example above, the primary reps are likely to find it unfair that overlay reps earn higher commission. Here, I address this by determining the overlay OTE that guarantees equal rates.

To add some flexibility, I’ve added some variables to represent how the quota-to-OTE ratios are related (Note: We are no longer using the variable “r” since we a making a different assumption).

Where

• c = variable target as a % of the primary rep’s OTE
• d = variable target as a % of the overlay’s OTE
• m = ratio of the primary rep’s commission rate to that of the overlay

Now we solve for the overlay OTE:

By way of example using similar assumptions as before:

• c = d = 0.5 (both the primary and the overlay are on 50/50 base/variable plans)
• The quotas for Product A and B are both $1M
• Overall target CCOS = 20%
• N = 4 (each overlay supports 4 primary reps)
• m = 1 (to ensure the commission rates are identical for the primary rep and the overlay)

This yields an overlay OTE of $166K. The overlay commission rate is thus ($166K*0.5/$1000K)=8.3%.

Given the relationship in the first question in this sub-section, OTE for the primary rep is:

We verify the primary rep’s commission rate is $207.5K*0.5/$1250K=8.3% — the same as the overlay as designed.

Finally, the overall compensation could of sale:

Overlay Decision Tree