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How to Compensate Your Sales Reps

Business owners and managers who are about to hire their first sales person (or their second or third, the first one or two having failed) often ask, "How should we compensate a sales person?  Should they be on full commission, a draw against commission, a base or base plus commission?"

What they are really asking is, "How do I structure compensation to sufficiently balance motivating the sales person to sell and minimizing the investment at risk if they fail?"  However, this is the wrong question.

Bigstockphoto_Us_Dollar_Symbol_-_Button_5027155 The right question is, "How do I structure my company to set the sales people up for success rather than failure?"  Compensation is only one piece of this structure.

  1. Brand Marketing/Lead Generation--Is there an ongoing, successful brand marketing and lead generation system in place or will the sales person need to create brand awareness and prospect for leads purely through cold calling and networking?
  2. Lead Nurturing--Is there a structured lead nurturing process for those leads that are not yet ready to buy or will the sales person be required to manage that on their own?  Note that without a system, most leads will be lost.
  3. Sales Process--Is there a sales process, or "sales funnel," in order to consistently replicate success?
  4. Sales Management--Is there a qualified person to support and encourage the sales person while holding them accountable for the right activities or will you go down the "need self starter with personal leadership skills" path?
  5. Customer Relationship Management System--Is there a quality electronic system in place to help the sales person manage leads, customers relationships and their activity?
  6. Sales Training--Will the sales person receive initial and ongoing sales training or again, will you go down the "need self starter with personal leadership skills" path?
  7. Job Description and Administrative Support--Will the sales person be required to spend a significant amount of time with non-revenue generating activities or will they be free to focus on sales most of the time?

In a nutshell, by putting those items above in place and continually improving in those areas, you will establish a steadier and more predictable sales pipeline which will allow you to successfully use a low base plus compensation, draw against commission or full commission structure.

There are four other non-corporate considerations to mention as well. 

  1. How long is the sales cycle?
  2. Is the sales simple, complicated or complex?
  3. What is the dollar amount of the average sale?
  4. What caliber of individual (such as education and business acumen) do you need to relate to your prospects?

Like everything in business, determining sales compensation is a blend of art and science.  Answering good questions will help you narrow your options and then you must make a decision based upon your intuition and experience and that of others.

IowaBiz readers can get a simple scoring tool to evaluate these areas by sending me an email request.

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