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I get asked almost everywhere I go about compensation plans for salespeople. What is too much? What is not enough? Why aren’t my salespeople happy with their pay? Therefore, in order to address this issue, I’ve listed several principles to guide you when considering your compensation plan.
Structure it fairly to match the effort of the salespeople
If it’s too low, it can be a significant de-motivator. The amount of effort is not worth the little commissions they receive. This causes frustration and salespeople will lose their drive. Likewise, if it’s too rich, they will “coast” on fewer sales and not be driven to go get more.
For example, we did work with an organization that set their salary too high for the salespeople. As a result, the salespeople weren’t motivated to sell because they were already making so much money – without selling! We “adjusted” the compensation plan by reducing the base salary and increasing the commissions. If the salesperson hit their goals, they would make more money than on the previous plan. As a result, the worst performers left and the top performers stayed. We helped them hire more “sales champions” and it worked out quite well.
The company’s financials come first
Your organization must make sufficient margin, otherwise your commission structure is too rich. If a salesperson is making too much money on each deal, you stand a chance of not delivering sufficient margin to supply the company with the necessary revenue needed to accomplish your goals. Make the commission equal the effort and gross margin on the deal.
Don’t promise unless you plan to deliver
This is a big mistake many organizations make. Don’t establish a commission plan and then go back on your word. Truth and loyalty must prevail. Many salespeople get demoralized by the egocentric sales managers and owners who redefines the compensation plan after they’ve achieved their goal because they didn’t want their salespeople making more money than them or they felt it was just too much money to pay out. Too many good salespeople quit their jobs because they were lied to about their incentive plans. Don’t do it.
Drive more earning potential towards performance
The base salary is designed to provide the salesperson with enough money to smooth out cash flow issues in between commission checks and to take care of their basic necessities. For prospecting oriented salespeople, their base salary should not be the dominant source of their income. You want to drive the incentive plan towards performance – the more they sell, the more they make.
When hiring a new salesperson be wary if they say, “I need a much higher base” during the early part of the interview process. If they are pushing you farther than the base salary allotted for the position, think twice about hiring them. If you’re looking for an Account Manager, a “farmer”, then your incentive plan will probably be weighted more heavily towards base due to the nature of the sales role. If the role is for a “hunter”, a top performer will want more commission because they know the real money is in the sales – not the base salary.
Assess their core drivers
In the final analysis, you need to perform a “final analysis”. You must determine if your sales candidate values making money and how much. Assessing their drive for financial gain is critical because many salespeople will say that they want to make a lot of money, but that does not mean they will be driven to engage in the activities necessary to acquire a lot of money. Those activities are prospecting, qualifying and selling.
About the Author
Barrett Riddleberger is an internationally recognized leader in the practice of sales assessment, sales training, sales recruitment and retention. His new book, “Blueprint of a Sales Champion,” details how organizations can find, train and retain top performing salespeople even in a highly competitive market. An accomplished author and sales consultant, Riddleberger is also highly in demand as a business development and motivational speaker for organizations seeking to drive their sales force to greater levels of performance. For more info go to www.ResolutionSystemsInc.com or www.BlueprintOfASalesChampion.com or call 336.665.0506.
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