A Business Owner's Guide to Paying Sales People
Melanie French
Building High Performing B2B Sales Teams | $20-$100M | Fractional CRO | Sales Strategy | RevOps
Hi. I'm Melanie. I am a former VP of Sales turned solopreneur.
Today's topic is salesperson compensation. If it doesn’t keep you up at night as a business owner or CEO, it should. Get it wrong and the ripple effects into both the sales results and financials of your business are at best, not good and at worst, disastrous.
Salesperson compensation is one of the most difficult, yet important pieces of making a successful salesperson hire.
Creating a motivating compensation plan means it’s a win-win plan for the employee and the business. The company does well, the salesperson is rewarded accordingly. Swing too far one way or the other and someone is not happy.
Compensation plans have to tie into the overall picture and must motivate the sales person to produce the right results for the company. A tall order, right?
Questions that come up through this process and you should be thinking about:
There is no catch all right answer to any of these questions. The following have to be accounted for:
Do I pay a base salary? How much? What should my total comp package look like?
You should expect to pay your salespeople a base salary.
Hiring out of the gate at 100% commission is almost never a good idea. You might view it as a win being “low risk” in the $$ department. If the person doesn't sell anything, they don't get paid.
On the flip side, the salesperson does not view it as a win, as the company has no skin in the game and it feels like they’ve been thrown out on an island - and that’s if they even take the job. The candidate pool for 100% commission is going to be quite small.
If your company has proven systems and processes and you can show other reps successfully and consistently making commission at the levels of income it would take to attract the right kind of salesperson, 100% commission might work for you. If you don’t have those things in place, it’s best to adopt a plan that includes a base salary.
A big piece of the salary puzzle is dependent on the type of individual you are looking to attract. Any rep worth hiring is going to have some demonstrated success and they are not going to leave a current role for a 100% commission with no income guarantee. There are ways to stair step someone into 100% commission over time, and that may make sense for your business at some point.
In terms of how much of a base salary depends on the answers to the list of variables listed in the above section. As a general rule, the more consultative, high ticket, long sales cycle sales roles are going to have a higher base salary. Just like other roles you hire for, experienced people get paid more.
Hiring entry level people can be a way to minimize spend on a salesperson, but it requires a significant amount of effort internally to onboard these people. Not only do they have to learn your business, but selling is likely new to them as well. If you have great systems and processes to plug them into, this can be a great option, but don’t expect to bring this type of person in and have them be able to figure it out successfully.
What % of total pay is variable?
The variable part of the compensation plan is the “pay for performance” part. This could take the shape of monthly commission, quarterly and/or annual bonuses as well as spiffs.
If your target compensation (meaning if the person hits their goals, you expect them to make X) is $100,000 (base + variable), the percent that is base salary is going to depend on the type of role.
If you are looking for a sales hunter, this type of role is typically heavier on the variable. These types of people are motivated by the opportunity to earn commission. 50/50 (base/variable) is a good place to start. An example of this would be they have a $60,000 annual base salary and the variable part of the plan is targeted at 60,000 annually ($5,000/mo). So if goals were hit by the salesperson, they should make the $5,000 in variable a month and if they exceed goals, their commission would also increase. (Note: these numbers are for illustration purposes only. They do not reflect a recommended comp plan structure or pay rate).
If you’re looking for a farmer type (manage/upsell existing business), their split will be heavier on the base salary. You still want them to have incentives and goals, but they may be 80/20 or even 90/1 (base/variable).
领英推荐
BDR or SDR (aka. business or sales development rep). This is an appointment setter type role. Somewhere between a 60/40 and 70/30 split (base/variable) are typical for this role.
How do I structure the commission plan?
Whatever amount is allocated to the variable part of the compensation plan, you then determine how they earn the money. Are there targets, accelerators, decelerators? (Some refer to these as carrots and sticks). What must they sell to earn that? That could be based on units, profit dollars, or revenue.
You can also incorporate an activity/behavior component. This could be qualified opportunities, meetings booked, meetings sat, calls made, emails, LinkedIn activities (connections, inMail, etc), etc.
How do I know if I’m paying too much or too little?
You can do research about your competition, industry, and sales roles in general if you are unfamiliar. There are many job benchmarking sites and recruiters can help provide intel as well. Sales job titles tend to be a bit all over the place and don’t all mean the same thing.
Overall, if you’re looking to attract and retain salespeople, the arrangement must feel like a win for the salesperson. If you feel like you got a deal, the person you hired likely fits one of two scenarios:
1. The person isn’t very good and this will become evident many months down the road - after they’ve been paid a base for many months but not produced.
2. They are really good and produce sales results. They figure out they’re underpaid. Then they do 1 of 2 things. a). They ask for a raise or b). They start looking for something else, get an offer, and turn in their notice.
Both these scenarios are stressful and create chaos in the business, dragging you back into the weeds.
Core principles around hiring and compensation:
Person 1 in the example above really should have never been hired or managed out very quickly when it became clear they were not on track with leading indicator KPI’s.?
Person 2 you want to retain. The cost of retaining them (ie. a bump in salary, a bonus, or more lucrative variable plan are all options) is much less than replacing them. Recruiting, hiring, training, and ramp up time are costly - in time and money.
Sales compensation doesn't have to be a confusing black hole. A well defined sales strategy and sales process with KPI's and goals makes creating the right compensation structure 10x easier.?
Developing a motivating compensation plan that's a win-win plan for the employee and the business is absolutely do-able and within reach for you. It takes some real thought, planning, and maybe some tweaking but using what you learned here will put you on the right path.
//
If you’d like some help developing your sales processes and infrastructure and want to have confidence in your ability to move the business forward and get to the next level, perhaps I can help.
Whenever you’re ready, book a call with me?here. Based on where you’re at, it may or may not be a great fit, but either way you'll leave the call with some new insights.
Otherwise, you can check out my free training, “The 5 Pillars of an Effective Sales Machine”?here.
Until next week,
Melanie
CAIO - CEO @ Nexigen - Ultra Curious, Humble - Cyber Security, Cloud, Smart City, AI, Quantum, Human Centered, Psychology, Leadership
2 年Great write up Melanie!