EPISODE C4.003 Sales Compensation

Introduction
Here we are in the last week of July and the first month of the 3rd Quarter is ending - how much closer are you to success?

If you have been with us all month, you know we have been railing against the politicians and bureaucrats for acting arbitrarily in response to the pandemic; and any illusion they are making data-based decisions should have been dispelled by now. This is not about a specific political party or group, it is about the arbitrary use of power at the expense of the most important global community - you.

People like us, Living the Life, employ 57% of the planet's population and yet are treated as the source of its problems. Not here, we celebrate the contribution you make to a better society and our focus is to improve your chances of success. 

This week we continue the new programming structure. We use a Balanced Scorecard to format our weekday shows: Finance (Monday) = Operations (Tuesday) + Sales (Customers) + People (Employees) with Fridays dedicated to Owners. Look at the week this way - Monday through Thursday is working IN the Present, Friday is working ON the Future.

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Have a great business week.
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Show Objectives
We come to one of the fun topics and responsibilities of the Owner or the Sales Manager - designing compensation plans. Notice I didn't say plans that work because all plans work -you're just not happy with the result. The following is our accumulative experience of running a sales organization.

Key Issues - ​Owner/Manager Perspective:

1. Compensation mistakes to avoid.
2. Solid sales design parameters.
3. Stay flexible - a plan is not a contract.

What You Need to Know
About 1/2 of businesses mix between base salary and variable pay for sales compensation. 18% use a mix of 80 percent salary and 20 percent commission. 16% use a 70 percent salary, 30 percent commission ration. And 14% reported a mix of 60 percent salary and 40 percent commission.

Simple Compensation Mistakes to Avoid

• Understanding the Difference Between Top Line and Bottom Comp: in the early stages of growth when any sales are needed - reward top line on revenue; when the business is established - reward bottom line or margin.
• Making it Complicated: when designing a compensation plan, the tendency can be to go overboard getting really detailed and trying to address every possible scenario. 
• Failing to Align Metrics with Business Goals: your plan should be tailored to incentivize behaviors that are really going to move the appropriate needles for your company’s particular business model and stage of growth. 
• Treating Your Plan Like a Contract: the goal shouldn’t be to confuse, intimidate, or bore your sales reps to tears. 
• Using Metrics You Can’t Track: nothing kills a plan quicker than basing it around metrics that are difficult or impossible to actually measure. 
• Not Providing Line of Sight: even with the most simple plans, it’s important to provide a way for reps to calculate how much money they can make and where they stand in relation to their quota. 
• Not Preparing for Staffing Challenges: turnover in sales is typically high. Be sure to take it into account along with ramp-up time for new hires and other potential challenges you’re not anticipating. In short, always incorporate some wiggle room.
• Not Reserving Room in Your Budget for Ad-Hoc Spiffs; give yourself flexibility to launch quick contests and campaigns. You never know when you’ll need an extra boost.

​What You Need to Do​
Build Compensation Plans - Design Parameters

• Sales Targets / 10 = Total Package (example $1,000,000 sales target = $100,00 possible) or determine your own multiple based on current and future sales projections
• 50% of all compensation plans range from 80% salary + 20% commission to 60% salary + 40% commission
• 80/20 better choice for initial businesses without solid sales record
• 60/40 better choice for existing businesses with solid sales record 
• Commission based on top-line (Revenue) better choice for initial businesses without solid sales record
• Commission based on bottom line (gross margin or gross profit) better choice for existing businesses with solid sales record
• Bonus can be linked to growth in sales performance year to year (consider this in year 2 going forward)
• 3 elements to total compensation
  • Base Salary – never pay enough to make the individual comfortable
  • Pay for Performance (sales activities) – determine sales best practices based on what the company sells and to who(m) and pay for these required activities; combination base salary and pay for performance should still leave the individual financially uncomfortable
  • Commission – based completely on sales closed

Build a spreadsheet and plug in possible scenarios and pick the mix that you can afford and incentivizes the individual to be successful at sales

Shows

• Previous: EPISODE C4.002 SALESFORCE DEVELOPMENT
• Next: C4.004 Marketing & Sales Collaboration