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Compensating Salespeople

by Frank Ross on December 21, 2012 · 1 comment

Money Can’t Manage Our People

The question of how to best compensate a salesperson has tested some of the greatest minds in the business. And, likely as not, were you to take a poll of the industry, you will find that most sales compensation systems are ill-conceived and/or just do not deliver the desired results. Main reason? In my opinion, it is because we think money can manage our people for us. That if we put enough carrots out there, it will entice an ill-prepared player to be a superstar. Sadly, I’ve never seen it happen and it is because we designed the compensation plan badly.

Compensation Based on Profit of the Job

Is there a system whereby we can compensate an individual based upon the profit of the job? Short answer is yes, though conditionally. The single condition is, if the individual literally controls the profit of the job, then he can be compensated by its performance. Think of a project manager who estimated, negotiated, sold, and runs the job through to completion. He, we can compensate based upon the job’s performance. He controls the job – he owns the job; ergo, he can be compensated from the spoils of the job.

If we take the control of the job away, we will want to compensate in another manner. If a salesperson only sells, compensate him for selling, period. If you have a problem of him underselling the job, give the estimating and pricing responsibilities to either a strong system or another person.

The 50,000 foot view is that I want to compensate and benchmark an individual for exactly what he does. Good sales plans work because that is all we ask of that individual. “You sell and we will pay you for what you sell.” If I load up a sales person with other responsibilities but only commission him on the jobs he sells, he will disappoint me because he will only do those things for which I pay him. If I attempt to commission him for results over which he does not have complete control, he will perform badly and I will ruin his chances for success.

Designing Your Sales Plan

So, were I designing a plan, I would keep a couple of things in mind:

  1. Make sure the person is capable of performing the job.
  2. Design the job description for specific results. Make sure the desired results are tangible and measurable.
  3. Make sure the person is able to take full ownership of the results on which compensation is to be based.
  4. Design the compensation plan to pay for those specific results.
  5. Measure often and provide results equally as often.
  6. Remember no matter how good, a compensation plan will never take the place of effective management.

{ 1 comment… read it below or add one }

Jim Crockett February 19, 2013 at 4:08 pm

An issue for consideration on sales is total job profitability. By this I mean a job’s sale price is usually based on one year duration and a renewable contract. If the salesman is paid a percentage on the contract annual value, he’s done. It’s operations that needs to perform and retain that contract assuming it was properly bid. I always include a clean-up estimate to start the relationship so standard maintenance can begin the second trip to the property. Does he salesman control the profit – it better be yes even though he/she has no performance role. The estimating process must be solid.
Through the year, I want the salesman to maintain the relationship with the client and develop upscale extras which is paid out as another one time sales percentage. The largest issue I had in previous companies is getting sales and operations on he same road. That’s another topic, but I can say it can be done.

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