Great Compensation Plans Need Great Salespeople
Joe Miller, Chief BlueChip and CEO, BlueChip Solutions
As a sales recruiting consultant who has spent the last ten years studying a number of different sales organizations – from the Fortune100 to the mom-and-pop businesses of America – I’ve gathered considerable research and had the chance to see what works and what doesn’t. Following are some corollaries gleaned from my experiences related to sales compensation.
You Get What You Pay For
Great sales talent costs money. Pay for top performers and you will get top performance. Demand top performance through accountability so salespeople are always aware of the true cost of poor performance and the rewards of stellar performance. Your bottom line can be transformed with these three simple steps:
- Decide what a great salesperson can sell in a year
- Decide what is the most you would pay a person to generate that amount of sales.
- Make sure the comp plan delivers that amount of money at that level of sales.
Compensation for your sales force is not the place to trim costs; don’t ever let it get in the way of keeping great talent. The battle for top sales talent in America today is heating up and will only get hotter.
Learn To Recognize True Talent
The diamond in the rough does not exist. I have never seen an underperforming salesperson miraculously transform into a star player. But don’t confuse the diamond in the rough with the eager, young associate who, if paid and trained correctly, can grow into a great salesperson and serve the company well. If you do hire green associates, recognize their talent and be willing to invest in it to keep them around. Otherwise you serve only as a revolving door. Remember: learned, burned, and turned (over).
Know Your Salespeople’s Needs and Goals
Get to know them as people. Understand their needs and goals outside of work. If you get to know this first, then you will compensate correctly. Assuming you truly understand your business, and now you truly understand the person within the salesperson’s needs, you can start to put together a sales compensation package. Think of the amount of money they will bring into your business and pay them the most you can for that income.
Tailor Comp Plans for the Individual
While all great salespeople are motivated by money, their individual motivation differs slightly. The ratio of commission to base is as varied as the kinds and numbers of salespeople in the world. Therefore, the best compensation plans are custom made for each person. Even if you have twelve or more salespeople, you can still have twelve or more plans. If one of your team member’s plans isn’t working, then you can tell him he is not selling, or you can sit down and rewrite the plan. But this person’s compensation should have nothing to do with one of his colleague’s compensation.
Let Sales Associates Choose for Themselves
The best comp plans I’ve seen allow salespeople to choose for themselves from a range of plans, the only commonality being this: the higher the base, the lower the commission; the lower the base, the higher commission. You can have plans with a 10 percent base and a 90 percent commission, a 90 percent base and a 10 percent commission, and a host of options in-between. The difference is the salesperson who hits quota on the higher-percent commission plan makes more money than the person who hits quota on the plan having a lower-percent commission.
Bridge the Gap With a Draw or Advance
This may be one of the most important considerations when thinking about a compensation plan – especially for new hires. Regardless of the base/commission model, any great salesperson is making solid money right now and is, in turn, spending most of it, or even slightly more than they make. They can’t live for very long waiting for commissions, and they need to maintain the level of income that sustains their spending habits – habits that have been formed over years and will not change. I have seen some great salespeople fail because they could not hold on long enough at the low base, waiting for their commission to come in. Make sure that the salesperson has a draw or an advance to bridge the commission gap.
Do Your Homework
Be sure to find out if you are hiring a person that left their previous position for good, ethical reasons and is not saddled by unreasonable debt. Remember, 90 percent of Americans outspend themselves by about 10 percent or more every year. Simply put, if they are coming from a company at which they were paid forty thousand, they will need fifty thousand to perform for you. You need to understand if they need any of it up front, and if it’s because they are under a heavy, high-interest loan, you know there’s a problem.
© 2006 Ewing Marion Kauffman Foundation. All rights reserved.