I attended the Insights Association’s CEO Summit last week (by the way, if you run a business and have never been – put this event on your “must do” list!) and by far, the topic that generated the most audience engagement and questions was around sales commission plans.
So, for those of you who were not there, here are a few guidelines as you think about your seller-doer team…
First, Set Your Goals
In most cases, before a commission is paid, sales goals need to be met. And while performance against revenue goals is usually what dictates the level of compensation, there are other goals worth tracking, as well.
- Activity Goals. While the end goal is, of course, to generate revenue, it’s the steps in the process that get you there. Make no phone calls, send out no emails, deliver no capabilities presentations… and you’ll generate no revenue. Bottom line: sales activity is critical to sales success! And it’s these kinds of items you should consider setting goals for and tracking, especially if your firm has employees that are new to the seller-doer role.
- Results Goals. These are success metrics that involve revenue… but aren’t revenue. E.g. How many new clients will you acquire this year? What percentage of last year’s clients will renew this year? How many RFPs will you receive? Since you can’t always control the size of a project (i.e. the revenue), keeping an eye on these metrics is important, too.
- Detailed Revenue Goals. Since most commission plans are based on total monthly and total year-to-date revenue, start there. Beyond that, though, there are some other revenue targets to monitor: revenue by service line, revenue by industry and revenue by Key Account.
For a few ideas on how to set your overall revenue goal, click here: http://bit.ly/comm_plan
Commission Plans… Buckle Up!
Know this – there is no such thing as the perfect commission plan in the world of sales. Look at 50 firms with seller-doers and you’ll find 50 different ways to compensate them. And you’ll also find that those 50 firms are regularly tweaking those plans as their company, their seller-doer team and the business environment changes.Know this – there is no such thing as the perfect commission plan in the world of sales. Look at 50 firms with seller-doers and you’ll find 50 different ways to compensate them. But there are some guidelines you should follow... Click To Tweet
The goal is straightforward, though: to incentivize and then reward seller-doers for bringing revenue into your firm, in a way that is fair to both them and to the business. Sounds simple enough, right?
There are really only two ways to compensate seller-doers:
- Straight salary: Some companies are going away from including commission as a component of compensation and back to salary-only plans. The theory is that 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. We have only come across a handful of firms in our industry where some sort of commission is not part of a seller-doer’s comp package. And, not coincidentally, these seller-doer teams are not performing very well.
- Salary plus commission: Clearly the most prevalent comp structure in the MR industry (and most other industries, for that matter), these plans provide seller-doers with a base salary that is there to pay for their ‘doing’ work. On top of that, a commission is paid for bringing in revenue from new clients or increasing revenue from existing clients. Some firms pay commission from ‘dollar one’, others pay only after revenue 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!
- Note: Commission-only plans are another option for full-time sales reps, but with the seller-doer model, there has to be a salary component to cover their ‘doing’ work.
Variations: There are also variations on the primary structures above. For example…
- Residuals: In this scenario, the seller-doer earns a large commission when they first bring a new client into the business… 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 specific 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.
There are countless ways to create a commission plan. But regardless of which direction you go – keep these six things in mind:
- Pay on revenue, not profit, because that’s what the sales function is for – to generate revenue.
- Pay on invoicing, not when the client pays; it is not the seller-doer’s job to manage collections.
- Pay monthly; anything less frequent and your team may lose their selling motivation.
- Be reasonable when setting revenue goals. If they blow away the goals, then pay their commission with a big smile on your face, because it means that they’re bringing in lots of revenue – and everyone’s a winner when that happens! Note: Consider including your seller-doers in the process of setting their goals. After all, no one knows their clients and prospects better than they do.
- Simplicity matters. A commission plan must be easy to administer and easy to understand. For the sales manager, it should be as simple as plugging a revenue number into a spreadsheet and automatically calculating the commission amount. Likewise, the seller-doer should have a very good sense of the amount of their commission with each new sale.
- And remember, commission plans are not just for rewarding behavior… but, as importantly, for influencing For example, if the commission percentage is higher for bringing in new business than for keeping existing business, where do you think your seller-doers will spend their selling time? Make sure the commission plan is aligned with your firm’s strategies.
As you can see, creating a commission plan that both your firm AND your seller-doers think is fair and reasonable is not an easy thing to do. But, it is a critical element in helping to drive revenue growth. Do it right and your seller-doers will be energized and enthusiastic about ‘selling.’ Miss the mark and you’ll find them focused only on the ‘doing’ part of their job.
If we can provide some help and context as you develop your commission plan, please don’t hesitate to reach out to us. Email info@HarpethMarketing.com or call us at 615-721-5330.