Part 3 of a 4-part series on managing seller-doers.
In Part 1 of this series for those managing a team of seller-doers, I wrote about creating a sales culture in your organization. In Part 2, we explored the process for creating your sales plan. And in this part, we’ll talk about compensating your seller-doers for their sales efforts.
Introduction
There are too many types and variations of compensation plans to explore them all, so let’s focus on the most common structure: a base salary plus commission plan, where a commission is paid as a percentage of sales.
Why Sales Commissions?
There are two reasons that a firm would/should elect to install a commission plan for its seller-doers…
- It rewards success. When your seller-doers grow revenue, they make more money… and, in doing so, the firm makes more money. Win-win!
- But that’s just the secondary reason for it. The primary reason to implement a commission plan is to drive the desired behavior you want from your team. That is, create a commission plan that aligns with your organization’s strategic goals, and the seller-doers can help you achieve them. Simple example: imagine you’ve just launched a new software platform for online qual (after a couple years of investment and development) and want to ensure a strong start in the market. You could help address that with your commission plan. Pay your seller-doers a 5% commission on all revenue except from the new platform… and a 10% commission on revenue from the new platform. That will encourage your team to give your new product more emphasis during sales conversations.
How It Works
First and foremost, commission plans should be driven by sales goals. Whether you pay from dollar one (I’m not in favor of this, by the way) or later in the process, the ‘big money’ shouldn’t kick in until sales goals are met.
And there are an unlimited number of ways to slice and dice sales goals… it’s a matter of aligning with your firm’s overall goals. For example, you can pay on:
- Total revenue
- New client revenue vs. revenue from existing clients
- Revenue by service line or product line
- Revenue by industry or market served
Beyond that, most firms set their sales goals annually… dividing them monthly to set targets for their seller-doers. And that’s fine, but there are a couple of alternatives to consider:
- Set sales goals quarterly. While it requires a little more work, it allows management to adjust the plan every three months to account for changes at the firm or in the marketplace (though your seller-doers might not like the frequent changes).
- Ramp up the goals over time. We all know that the sales cycle with most new clients takes many months. So, for example, a new prospect found in March may not yield any revenue until September (or later). So perhaps, sales goals for new business should be weighted more heavily toward the end of the year.
Management Guidelines
Structuring the commission plan is only part of the process. Next, is determining how to manage it effectively. To that end, here are some guidelines to consider:
- Pay on revenue, not profit, because that’s their job – to sell.
- Pay monthly… anything less and it’s just not that motivating.
- Pay when the clients are invoiced, not when payment is received. It’s the seller’s job to sell, not to collect.
- Set ‘reasonable’ sales goals… not so low that the seller-doers blow them out of the water, but not so high that they are never attained.
- Keep it simple. You really should be able to plug a revenue number into a spreadsheet and generate a commission amount. Too many firms have lots of ‘exceptions’ and ‘extra rules,’ making the process complicated for both managers and the seller-doers.
- No limits. Don’t put a cap on commissions… the more your seller-doers earn, the more your firm is benefiting. In fact, consider an ‘escalator.’ That is, pay a higher commission percentage the more they exceed their goal. For example, exceed your goal by 1-10% to earn a 5% commission; exceed it by 11% or more and earn a 7% commission.
- Remember, nothing is forever. Commission plans can – and should – be reviewed regularly, always ensuring they are in alignment with company goals.
- And most importantly… the commission plan should be fair to both the seller-doers and your firm.
Bottom Line
I wish I could say that there is a perfect, one-size-fits-all sales commission plan, but that would be a lie. Every firm will have something different… and that’s OK. As long as your plan motivates your seller-doers, aligns with your firm’s strategic goals and drives results… then it’s a good plan!