Richard Lyon - Effective Sales Compensation

2018-03-12

What compensation do your sales personnel need to achieve your business goals?

There are two trains of thought on how to pay a sales team – I have met very few sellers who prefer the option of a full commission. The variable income places them under huge pressure – most people can’t stomach the stress of uncertain earnings from month to month.

Of course, there are brave hearts out there who positively thrive on the adrenalin rush that pure commission gives them, but they are certainly in the minority.

On the other hand, employers frequently opt for commissiononly packages in the belief being that this will force their sales personnel to extend themselves and deliver a better performance.

Not true!
Most often the opposite is the case. When I was put on 100% commission as a young rep, I found the stress overwhelming. It stifled my enthusiasm and passion for the job, which seriously affected my performance.

So, my view?
First, it depends on the industry and skills level required by the salesperson.

In hard sales industries such as car sales, telemarketing, copier/printer sales, door-to-door sales, etc. a 100% commission structure is the preferred way to drive a seller to perform. But the risk of this approach is that the employer loses control of the sales result.

Not all people have the same appetite for success. If your donkey is happy to plod towards a fairly small carrot at the end of the stick, your business won’t enjoy any growth. Yes, you will find some people who trot
energetically towards much larger commissions (and earnings for your company). But in most cases the uncertain size of the carrot is transferred to a shaky bottom line for your business.

Rather take control
If the employer wants to control what happens to the bottom line, a more stable sales remuneration strategy is required.

For companies that have to train and develop sellers to become full consultants (which takes time, effort and expense) the return on investment must be stable and consistent delivery from the sellers. Here you need a more settled salesperson, one who will respond far better to earning a basic salary with an added incentive.

The control comes in when you set clear performance expectations for the basic package. Yet most companies forget that a sales position, like any other in the business, has certain performance expectations.

It is standard practice that every employee, regardless of position, should have deliverable expectations to meet. If someone does not perform, the course of action is usually to issue warnings; and if that individual continues to underperform, this will ultimately lead to his or her dismissal.

Similarly, sales personnel should be required to meet certain expectations. But too often employers don’t apply this rule to their sales staff. Instead, their view is that the salesperson who isn’t performing will earn less and that this is penalty enough.

Wrong!
To allow a non-performer to continue to represent you without bringing home the bacon is, in fact, doing your business a great disservice.

All salespersons have an enormous responsibility to the companies they represent. So much so that they can actually make or break a business. Because without sales and sales generation, you have no business; period!

Link KPIs to basic salary …
Experience has taught me that the most effective salesperson’s package is a basic salary that is linked to minimum realistic expectations. In other words, their basic package covers those KPIs and they are paid to achieve those results.

… and reward only on the extra miles
Only if the set target is exceeded, should a salesperson be rewarded, as he or she has then performed beyond the company’s expectations.

Commission-only package often result in non-performers being allowed to underperform for far too long, in the belief that they are not earning and will leave on their own accord. In the interim, they cause damage and loss of bottom line to your company.

Irrespective of what sales remuneration package you settle on, please follow this one piece of critical advice, and STAND BY IT (you will thank me forever)!

Set an expectation and hold each seller to it.
Performers will always perform, regardless of remuneration type, and will enhance your business. Non-performers will always be unable to meet any set expectations, and should be let go as soon as possible to minimise the damage done. 

Look out for the JCCI workshop on creating and introducing the right fit compensation scheme for your requirements – 6th April, 2018.

Contact Anthea on 011 726 5300 or anthea@jcci.co.za