This is part 3 of a 3-part series to help answer a few important questions for those firms in the Market Research industry that are thinking about hiring their first sales rep.
In part 1, we discussed the advantages and disadvantages of Inside vs. Outside sales rep. In part 2, we talked about the Hunter vs. the Farmer role. In this post, it all about the money…
Question #3: How to compensate salespeople?
Know this – and I say this with 100% certainty after 30+ years working in sales & marketing for different companies in different industries – there is no such thing as the perfect compensation plan for salespeople. Look at 50 companies with sales reps… and you’ll find 50 different ways to compensate them. And you’ll also find that those 50 companies are regularly tweaking those plans as their company, their sales team and the business environment changes.
The goal is straightforward: to reward salespeople for bringing business into the company in a way that is fair to both the sales rep and the company. Sounds simple enough, huh? Yeah, right…
There are three broad categories for compensating sales reps:
- Straight salary
- Commission only
- Salary plus commission
Straight salary: I have read some articles in the just the past year that some companies are going to salary-only sales comp plans, They say it takes the focus off of making money, puts it back on taking care of clients and in the end, everyone wins. Maybe, maybe not… but I have yet to come across a sales rep or company in our industry where some sort of commission is not part of a sales rep’s comp package. When a sales rep has sales success, I believe it’s reasonable for them to be rewarded for it… they earned it.
Straight commission: Again, in my conversations in our industry, I haven’t come across a pure commission comp plan. I’m personally not a fan of them either… I think it puts undue onus on the sales rep to close deals at any cost (when it might not be in the best interest of the company or the client) and it is often most associated with non-professional sales roles – selling ads in the yellow pages or pest control services.
Salary plus commission: Clearly the most prevalent in the MR industry (and most others, for that matter)… it provides the sales rep with a base salary that is generally there to pay for their experience, their non-selling time and the maintenance of existing business (see hunter vs. farmer) plus a commission for bringing in revenue from new clients or increasing revenue from existing clients. Some firms pay commission from ‘dollar one’… others pay only once the sales rep has passed a certain threshold. Some have flat percentages, others have escalating percentages – paying a higher commission rate the more revenue that the rep brings in. There are a thousand ways to skin this cat!
Variations: There are some variations on the three primary structures discussed above…
- Residuals: In this scenario, the sales rep gets a large commission when they first bring a new client into the business and then a small percentage of any on-going revenue every month for the life of the client (or some other extended time period).
- By service line: to grow a certain service line – or because some service lines are more profitable than others – some plans pay a different commission percentage for one service line vs. another.
As you can see, there are countless ways to create a plan… but – regardless of which direction you go – keep these 4 things in mind:
1. Pay on revenue, not profit… because that’s what sales reps are paid to do – generate revenue.
2. Pay ASAP after the sale (the next month is best), not just when client pays; it is not the sales rep’s job to do collections. And the more instant the gratification, the more that sales reps are apt to go out and do it again. Pay commissions once a quarter (or less often) and they will lose motivation.
3. Set realistic, but reasonable goals… and rewards reps once they reach those goals. If they blow the goals away… then pay them with a smile on your face, because it means that they’re bringing in lots of revenue – and everyone is a winner when that happens!
4. And remember… comp plans influence behavior. For example, if the commission is higher to bring in new business than to keep existing business, where do you think your reps will spend their time? Make sure the sales comp plan is in alignment with your company’s goals.
There are tons of other questions you could spend time discussing before you pull the trigger… but don’t do it. Think through what you want out of the position, think about how it is to be structured and how you will compensate… then start recruiting for it. Here’s the thing… you’ll learn as you go, constantly tweaking and improving as you do.
Good luck and good selling.
Do you have a favorite comp plan structure – and why? We welcome your feedback below.