Figuring Out Sales Commissions

Figuring Out Sales Commissions

Your Sales Compensation Plans Speak Louder Then Words?

The first thing you really need to grasp regarding sales commission is that it is as much about income as it is about social engineering. Your sales compensation plan and structure will inform your salesperson what you want them to accomplish no matter what you say. You can advise them you want to focus on client retention and that it will be as significant as getting new customers.

Figuring Out Sales Commissions

But when you pay them a lower commission for add on sales and a higher one for new sales, all they’re going to hear is go out and get new sales and ditch existing clients since that is where the cash is.

Good sales people catch on exceptionally fast. They’ll be money driven and are going to look at what their compensation plan tells them to focus on. So be very careful to not use your plan to have your sales people focusing on the wrong things.

Another very important part of this, is to be cautious not to developed your plan so that it results in bad habits as well. If you start providing bonuses for sales at the end of the month, quarter or year, then that’s when your sales will come in. If you want steady sales flow, plans that compensate at the end of a period will not help you reach this goal.

Salary, Draw, Base, Commissions

One of the tougher issues when hiring sales people is how to pay them and get the most effective outcome. There are three areas to this question, the first has to do with the type of business you are in, the next has to do with what you are making in the way of revenue and the third has to do with what your competition is doing. To clarify your competition is not only other companies in your industry it’s all businesses that might be in search of similar types of sales people.

If you are in a very high ticket business that needs a lot of technical skills and has lengthy sales cycles, you are likely to be providing mostly salary using a smaller percentage in commissions. It is harder to attract sales people with high tech experience and harder to keep them if it takes a very long time to produce a sale with no income. This type of sales person can also be a lot different then most, as base compensation might be important to them, they may be less likely then some to become as money focused (not always true, but something to keep in mind).

Most other types of good sales people are money focused and you’re going to need to make sure that they can make a great income. That income level will be defined by the market around you. One of the better ways to determine what the level of compensation the market will bare is to take a look at the local online and off line job boards, look at everything from Craigslist to and all the other sources where ads are placed.

Once you have an idea of what total compensation looks like within your market and geography, you need to put together a plan that allows your sales people to make good money. But keeps them hungry as well. Usually a small base, or temporary base or draw will force them to get out and be aggressive. If they are comfortable with their small base then remove them as fast as you can, they aren’t going to help your company. You need your sales people to always feel uncomfortable.

Using Compensation to Weed Out Bad Sales People

Along with how to motivate your sales squad, you also must make sure that you are eliminating the bad apples quickly. Unless you’re in an extended sales cycle business, you will need to have the ability to eliminate dead weight fast. Unfortunately there are a lot of bad sales people out there who are happy to take you for whatever base they can get and ride that base for as long as they can.

So again, make that base small and the commission structure larger. But also have a cut off point if sales aren’t being made. When you have a lower ticket price item that can turn quickly, provide your new sales people adequate time to turn business and then make sure your comp plan reduces the base or simply cut them loose, no excuses. If they are not producing let them go. Non performing sales people will destroy your company faster then a plane smashing into the side of your building.

By  John Hester

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