Sales Compensation

shutterstock_125638022-mx6lt7f7mb98olo6sov4atad177e7przljxsj89600What’s the best way to incentivize sales reps? How much is too much, and how much is too little? You’re not the only one with these burning questions on your mind. You don’t want to overpay and undermine your profitability, but you also don’t want to underpay and risk losing your best sales reps to a higher-paying competitor. This guide will share time-tested techniques—provided by CharTech sales training expert Alex Rogers—for finding the right incentive ranges for your sales teams.

Costs

Contrary to popular beliefs, you should pay out on a percentage of profits, not gross sales. This protects you against having to pay commissions on unprofitable deals. Plus, it also keeps your sales reps from going after a nightmare client just to make a commission goal. Know what a profitable customer looks like, what sort of agreements will result in profit and what don’t. It can be hard to figure all these metrics out on your own. Fortunately, you don’t have to. There are plenty of business management platforms available to provide the visibility you need to determine what makes a deal profitable. Whatever you want more of is what you compensate on. You want more profit? Compensate on profit. You want more agreements? Incentivize agreements. Want more customers? Pay on number of acquired customers. What you compensate on may change every year, but base it on your business plan and business goals. Determine what’s more important to your organization. If you’re transitioning to an a-as-service model, it’s a great way to get your sales people to sell service contracts and the like. Before you can begin to pay out incentives, you first need to have a thorough understanding of your total cost of goods and services. Consider the following when trying to determine your total costs.

Identify Your Cost of Goods:

• Hardware/software 
• Labor burden 
• Expense account (lunch, golfing, presents, entertainment) 
• Outsourced services

All these areas eat into your profitability and should be excluded when considering commissions. For instance, if your sales rep spends $1,500 on golf and drinks with a client to capture a $10,000 deal with a 25% profit margin, you should only pay a commission on $1,000 of that $2,500 profit.

Incentive Considerations

Paying a base salary is incredibly important. It’s going to take time for your new rep to learn how to effectively sell your products, and most people need a steady paycheck in order to make ends meet.

I believe in having a 60-day ramp up period. During this time, there shouldn’t be any selling, just prepping to sell. Knowing that, what are you going to do to help them become successful?

Once you have a handle on the on-boarding, it’s time to think commission. Certainly, some reps can evolve into a commission-only plan, but they require a mixed approach up front. No one shows up on day one able to close tons of business for a product they’ve never sold before. Give new sales reps time to build relationships, learn the products inside and out, and become a part of your company’s culture.

The prospect of forgoing commission for 60+ days can keep a sales superstar from opting to work for you. In special cases like these, we recommend the commission ramp-down option.

With this model, they don’t have to sacrifice commission up front while they learn how to sell your products and services. The idea is that their skill level and sales will rise to meet the reduction in guaranteed commission each month until they’re achieving 100% on their own.

How a Commission Ramp-Down Plan Works

If you really want an established sales superstar, and their desired salary range is something you can afford, consider a guaranteed ramp-down commission plan to sweeten the deal. If he or she wants to make $150,000 per year, do a guaranteed, six-month commission ramp-down where the candidate gets:

100% of their commission in the first month 
83% in the second month 
66% in the third month
49% in their fourth month 
32% in their fifth month 
15% in the sixth and final ramp-down month

Roles and Responsibilities

To keep business running smoothly, it’s important to define each role clearly and to give them shared goals. Look at the various activities that tie your team together, and use these common areas to create intertwining goals. Below are some of the typical roles you’ll find in a sales organizations—and recommendations around how to compensate them.

Sales Admin

This role is the heartbeat of the sales team. It takes all the administrative burdens off your farmers and closers, so they can identify and capture more business. This is typically a salary-only role, but everything this role does can be tied to deals won. As such, we recommend adding a small incentive attached to won opportunities. This ensures everyone is motivated and focused on achieving the same goal.

Farmers

Finding and nurturing leads, farmers qualify, follow up with, and help nurture prospects into customers. Their performance should be measured against call volume and sales-qualified leads. The key is volume. Track the volume they produce without micromanaging them. A business management tool can help you do this. This role should receive a mid-level salary. More than admin, but less than closer.

Closers

Once leads near readiness to buy, they’re transferred from the farmer to the closer, to seal the deal. This role is highly persuasive and responsible for winning business. It should receive a medium/high salary.

Sales Managers

This role is fully dedicated to removing sales barriers. They’re compensated on the overall success of their sales team, and they typically receive high salaries.

Account Managers

This role sells into and acts as the primary point of contact for existing customers. Their salaries will vary based on experience, but usually fall somewhere between farmer and closer. They should be incentivized on customer retention rates, upselling, add-ons, and upgrades.

Quotas

Quotas are your primary measure of sales success. Without these, your sales team can easily lose focus of company goals. To make sure your team is on track, you need a smart business tool that empowers you to track sales goal progress, activities, as well as call volume via real-time dashboards. All these key pieces of data can be early indicators of failure or success. And you can use them to coach and manage your team.

Consider Having Quotas for (and Measuring):

1. Hardware profits
You need to make sure these traditionally low margin products aren’t being given away for free.
2. Labor profits
Product installation and maintenance comes at a cost. By creating quotas around this, you’ll ensure your sales reps aren’t recklessly discounting labor.
3. Contract amounts/agreements
Net new business is a must if you want to keep growing. As such, reps need to be goaled on capturing a certain amount of new business each month.
4. Retention/Annuities
Anyone can sell something once, but keeping customers happy and coming back for more is another story. Reward reps with annuities for clients who renew service contracts with your company
5. Proactive sales
Activities This is the one quota that should be met every quarter. It includes follow-up calls, appointments, client or prospect visits, thank you letters, quotes, emails, or any other activities that have been demonstrated to move the needle in your sales organization.

5 Commission Recommendations:
 
1. Pay commission every single month 
2. Pay commission on the past month 
(e.g. September sales get paid in October) 
3. Print out all supporting documentation 
4. Job cost the projects 
5. Beware of changing it up

By putting these incentivizing best practices into place in your sales organization, you’ll position yourself to fairly compensate and motivate your team to succeed.

In Sales process “part 3”, I’ll talk about how to generate and hold accountability to sales practices that not only help your sales reps be more successful overall, but also give you dashboard visibility to sales tracking.

for more information in hot to grow your business. visit mastermind2020.com or request a business assessment at BiZion Group

 

 

 

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About Sales Process

“Excellence is a continuous process and not an accident.” –A. P. J. Abdul Kalam

Once you have the greatest incentive plan, processes, and sales training in place, it’s so important to measure your efforts. You might have the best of everything, but without a way to gauge how well it’s working or what needs to be adjusted, you’re driving blind.

I’m about to share actionable ways to make the most out of your efforts by putting the right tools and processes in place. By doing so, you will gain a strategic view into your sales operations and performance, and be able to take your business to the next level.

Better Forecast Where Sales Will Land

forecast-toolsIf you don’t know where sales are tracking today, this week, or this quarter, you can’t effectively manage to the set goals. You’re literally driving blind, and that’s not good for anyone. This lack of visibility also means you might not be able to see which sales reps are in good shape to hit their quotas, and which are struggling. It’s really challenging to lead a team when you have to trust them to bring issues forward. It’s hard to admit you’re not performing well. No one wants to have to do that. By putting automated tools in place to deliver real-time tracking by individual and team, you can start to proactively help your team stay on track to achieve sales goals. These tools might include a business management platform, like ConnectWise, paired with a quote and proposal automation solution, like Quosal, to track, guide, and streamline the sales process from inception to completion.

Create & Automate Sales Processes

In order to make your sales team as effective as possible, you’ll want to create a guided approach to selling. This process should include steps that help reps avoid common selling pitfalls—like not following up on time, forgetting to send a quote, failing to include terms and conditions, and underquoting your services. A sales manager’s least favorite question is ‘where are we with this deal?’ They don’t like having to ask their sales people for updates. And the sales reps don’t like being questioned either. That’s why companies buy a customer relationship management tool (CRM); it creates accountability. With a system that notes every activity as it’s performed, no one has to ask for updates anymore. They can just check the system. It eliminates the guesswork, saves time, and makes everyone happier. Part of the selling process should include identifying how customers typically buy from you. Don’t be surprised if a managed services deal is consumed differently than a onetime installation or integration. It all depends on what you’re selling. Every solution has a unique buying cycle. Certainly, there are exceptions to every rule, but generally speaking, you’re not going to run into a prospect who is ready to buy immediately.

Look at past sales successes. What actions preceded sales? Many successful sales processes include a mix of the following activities:

1. Discovery call 
2. On-site meeting 
3. Demonstration 
4. Quote delivery 
5. Follow-up 
6. Close

Once you’ve identified your steps in the process, you can make your team accountable for placing the opportunity in the right step, and systematically moving it along the sales cycle. And you’ll give managers 360-degree insight into every step along the way.

Eliminate Guesswork

With an automated process in place that pings your team when it’s time to perform the next step in the sales process, you’ll never have to worry about your team missing vital steps in the process. We’re human. We have a lot on our plates, get distracted, and forget important TO-DOs. And sales reps aren’t fans of documentation tasks. They’re a pain. By providing your team with easy processes (and tools to make them even easier), you’ll find it much easier to get them to document steps. It’s important to earn buy-in from your team. Explain the benefits and alternatives. Together, you can create processes everyone can agree on. Take the guesswork out of opportunities. Smart workflows keep your team members moving forward until opportunities are either won or lost.

Measure Each Stage of the Sales Cycle

What would you do if you found a certain step in your sales process was outdated and ineffective? You’d probably update or remove it. But if you’re not measuring or don’t have the tools in place to measure, you’ll never get to see what’s working, and you’ll never know which adjustments to make. The end goal of your sales process should be to shorten the sales cycle, close deals faster, increase profitability, and move opportunities forward more quickly. One way you can shorten stages of your sales cycle is by using a CRM, like the one inside the ConnectWise business management platform, to log key activities. This way, you can identify sales barriers, and start to brainstorm solutions.

How to Manage Your New Sales Process

A CRM will give you a 360° view into all of your company’s sales opportunities, activities, and goals. This gives you the benefit of being able to quickly identify and respond to areas that require improvement. Once you’ve got your hands on the data, act on it. Hold weekly sales meetings or daily huddles to review key stats. Use your CRM data to create real-time sales team performance dashboards—and forecasting dashboards based on historical trends. Deal with issues right away, instead of letting them take you by surprise weeks later. Build sales funnel reports that follow the opportunities moving along in your pipeline. For instance, show what percentage moves from the first stage to the second stage. This equips you to make more accurate sales forecasts.

How a Business Management Platform Benefits You

Sales doesn’t end with the dotted line. What if you could tie in your CRM and sales process with everything else in your business? A business management platform can help you achieve this by offering CRM, ticketing, projects, procurement, and invoicing functionality that works together. You gain visibility into every aspect of your sales process. Overdue activities and tickets appear in red, so you can easily get back up to speed simply by ‘getting the red out.’ That’s what your weekly sales meeting should seek to accomplish. This type of a platform even gives managers the ability to see what reps are working on (or ignoring), which makes it easy to see who is a high-impact employee and who may require more training or isn’t the right fit.

Managers can even assign leads to sales reps within a business management platform, giving reps the ability to see which leads they’re expected to work. And, managers can easily access and respond to prospect concerns when their reps are out of office. Serving as a centralized database for all customer information, a business management platform makes it easy for new reps to ramp up because it gives them access to any client’s entire history. ConnectWise does all this, plus offers top educational materials every step of the way as you implement your very own sales processes. You can use ConnectWise for every team within your technology company—Service Delivery, Project Management, Sales & Marketing, and Finance. It’s one integrated tool for every facet of your business.

Conclusion

A great sales process lays the foundation for scalability. Documented processes simplify the training and on-boarding process. So, as you add new sales team members, you’ll more quickly realize the benefit of their talents as they’ll be following best practices unique to the way you do business. Supercharge sales by adding automation tools like a business management platform or quote and proposal automation solution to drive efficiencies within your processes. By automating keys steps of your sales process, you’ll cut down on errors, and so much more.

to learn more about How to grow your Business go to Mastermind2020.com or get a Business Consulting with BiZION GROUP

In part 1, I explained what you need to have in place before hiring a sales team, then (in part 2) I explained how to effectively compensate sales reps.