Here’s a question that comes up in my Business Acceleration Intensive ALL THE TIME: How do I compensate salespeople — paid for performance? Or on salary?
While I can’t answer this for you guys specifically, through my blog, like I do at my BAI Weekends, I’ll start with an example or two to get you started.
BAI participant #97 shares: “I have a salesperson I am planning on paying a commission to secure corporate sponsorships. Her job will be to complete proposals, call companies, obtain sponsorships, and follow up throughout the year with them. I would appreciate your advice on how to structure payments to her. I was planning 100% commission (no base), but I am not sure of the commission amount.” Here’s a few solutions to consider:
Christine Comaford’s Rules of Thumb on Paying your MVPs: There is a learning curve for salespeople—often up to 60 days. Also, you must give your salesperson a standard process to follow, and it will take you some time to develop this if you don’t have it already. Follow these rules of thumb to get going. If you provide the leads and your commission-only salesperson closes them yet you are still involved, that’s worth about 10% commission.
If your commission-only salesperson generates and closes leads, that’s worth 20% commission. Always provide a quota and accelerators so salespeople have an incentive to exceed their quota. Here’s an example to clarify what I mean by accelerators: The commission-only salesperson gets 20% commission on all sales up to her quota amount. When she exceeds her quota, she gets 22% on all sales from there to the next level.
Don’t cap the amount of compensation salespeople get. This will kill their motivation once they reach their cap.
Use the following example to understand how the above scenario would work. Let’s say the salesperson has a quota of $100,000 annually. For all sales up to her quota of $100,000, she gets 20% commission. For every dollar of sales over her quota and up to 25% over it, she gets 22% commission (sales from $100,001 through $125,000). For every dollar of sales over 25% of her quota and up to 50%, she gets 25% commission (sales from $125,001 through $150,000). For every dollar of sales over 50% of her quota, she gets 27% commission (sales from $150,001 and above).
You can apply this commission rate quarterly or annually, depending on how you structure your compensation. If annually, you’ll have to pay a balloon payment at the end of the year to accurately account for the total of accelerated commission for the fiscal year. If your salespeople are paid a salary, you’ll probably want to start their sales commission at 5%, and have accelerators set from there on upward, using the formulas above.
If you’d like to learn from me LIVE, in PERSON, with a SMALL group of rockin’ CEOs, I’m taking my BAI weekends on the road and building communities of business builders all over the country. Because Business Acceleration is not a theory, and it’s NOT a joke. It’s your legacy. http://bit.ly/ComafordBAI
Christine Comaford, Executive Mentor
CEO of Mighty Ventures, Inc.
NY Times Best Selling Author
Christine is the leading authority on business acceleration and optimization.
She has built and sold 5 of her own businesses with an average 700% ROI.
She has served as a board director or in-the-trenches advisor to 36 startups.
She has invested in over 200 startups including Google.
Christine has consulted to the White House (Clinton and Bush),
as well as 700 of the Fortune 1000, and 300+ small businesses.
She repeatedly removes obstacles and optimizes performance in companies large and small.