Compensation strategies come in more flavors than Ben and Jerry’s Ice Cream. To push the analogy a bit further, the wrong compensation strategy can give you a fat, dumb and happy salesperson OR a thin, starving salesperson – in neither case will you make a lot of money.
Building an optimized compensation plan requires thought and preparation. You want it to be effective not just for the current setup but also for the years to come. We recommend that you write a Position Contract first, where you identify the work required for the position.
One of the best models was developed by Michael Gerber: Identify Strategic, Tactical and Entrepreneurial work needed to succeed. There are examples that you can edit in the Member Area.
Once your Position Contract is complete, it’s time to plan the Compensation Agreement.
Here are factors you need to consider:
- Are you providing leads that are ready to close? Is there a steady flow of them or are these leads sporadic?
- How quickly, if your sales studs are good, will they be closing deals?
- When a deal closes, how quickly do you get money in the house?
- What is the average value of a deal?
- Is there residual backend revenue? Do they have to sell this or is it automatic?
- How many deals can top performers realistically close if they are hustling once they get going, say six months down the road?
- Do you want your sales closers to be doing sales service work or do you prefer assigning that to a low paid assistant?
Top sales performers expect to be able to earn $100,000 a year within an 18-month period. If they are indeed high sales achievers, they are worth every nickel of this. If you don’t believe that then move along, there’s nothing for you here. Serious. You’re living in yesterday land. You need to open your eyes to the worth of genuine salespeople to your business.
Now, you need to create your Compensation Agreement so that during the first period when they are doing the prep work to close deals, they can eat and pay their bills. You don’t want them to starve but you don’t want them to feel too comfortable either.
The next step is to design the commission stage; it’s important that as the deals close, they see the money coming in to them. It should be a percentage of the closed deals. If a deal is 95% profit, then you can pay a bigger percentage vs. if a deal is only 10% profit. The goal is to pay your salespeople for results.
In addition, make sure there’s some way for your plan to be adjusted in the future. I have seen bad plans that reward top performers too heavily for recurring revenue – and after they are earning their $100,000, they stop doing what they do best – close new deals. With a comprehensive commission plan, you keep your salespeople on their toes at all times.
Note: Be sure to include a clause that the plan can be adjusted and you’re all set!