A competitive sales compensation program is essential for stellar recruiting, hiring and retaining the best salespeople.
If you don’t pay well enough, your sales program won’t be as successful as you like. If you pay too much, your sales staff won’t be motivated to grow your revenue.
There’s a myriad of details to consider before you decide on a commission percentage.
Generally, to improve your bottom line:
- It’s important to implement the right commission scale.
- Pay commissions promptly.
- Reward all behaviors you want your sales staff to repeat over and over again.
- Consider a tiered sales-pay model in which your salespeople earn higher commission rates for attaining certain goals.
To determine the best commission structure, assess the following:
- Your company’s sales budget and goals.
- Identify how much you want your staff to sell and how much to pay.
- Consider a salary, commission plan, and bonus or incentive structure.
- Determine which products/services lead to the most profit.
- Standardize the sales cycles for your products/services.
- Determine your salespersons’ role such as lead generator, order taker, professional closer, or any or all the three capabilities.
- Continually evaluate the effectiveness of your salespeople.
- Assess and continuously improve your salespersons’ skills in follow-up for customer satisfaction and in landing referrals.
Accountability with SMART sales goals
Accountability is paramount.
Your sales goals should be bigger than the marketplace obstacles you face. If your goals in doing sales footwork are small, your obstacles will seem overwhelming.
Your sales goals should be bigger than the marketplace obstacles you face. If your goals in doing sales footwork are small, your obstacles will seem overwhelming.
Along the way, fine-tune the image of your company and that of your salespeople, and establish the right dialogue with your customers.
So, once you’ve mastered the above eight points, determine your SMART sales goals, which should include pay formula and performance measures.
For accountability in your planning, remember SMART – the acronym with five elements:
- Specific, which is setting up exacting expected standards for sales footwork. A specific SMART goal is identifying new prospects and contacting a certain number each day and to follow up with a percentage of existing customers to check on customer satisfaction and to seek referrals.
- Measurable, the criteria for measuring your progress toward goals. Determine the right number or the desired percentage increase for each upcoming quarter.
- Attainable, challenging but achievable goals. Make certain your goal can be reached.
- Relevant; that’s alignment with the salespersons and organization’s goals. Make certain the goals align with your company’s mission.
- Time related; establish a deadline, or a due-date, for your salespersons’ footsteps.
Broaden your horizons
Ask yourself:
- What do we want accomplish?
- Where?
- How?
- When?
- With whom?
- What are the constraints?
- What will be the results if we succeed? What will happen if we fail?
In essence for goal-setting, it’s vital for salespeople to write goals and then to take action steps:
- List your goals. Make certain they’re income related.
- Ask yourself what steps are necessary, and then write out the action steps which should include attempts to make sales.
- Set benchmarks – measurements to classify your steps and when you achieve success in each step.
- Establish a timeline for each of your actions.
- Create lists of centers of influence (organizations and people who can refer business to you), prospects and other resources to help you in your footwork.
Key performance indicators
Key performance indicators, or KPIs, are necessary. Therefore, you need performance trackers in your computer system.
Some sales representatives get nervous at this juncture because they sometimes resist monitoring by management. This is not the same as micromanaging.
Salespeople need to list each activity, such as attempts to create sales opportunities and top-of-mind awareness. This will provide information to enable them to reach their goals.
In addition to sales reporting, a weekly sales meeting is recommended or more often if needed.
Fair and effective commission structure
To inspire and motivate your salespeople, you need a five-step approach:
1. Know your profit and sales goals, and your sales expense budget
— Study your gross sales profit. That’s the profit after you subtract the expenses in making and selling products. It should be on your income statement which is calculated by deducting the cost of goods sold (COGS) from revenue or sales.
Calculate your COGS and percentage of sales revenue. COGS is the direct cost of manufacturing products, including the cost of materials and labor. It excludes indirect costs such as distribution and sales costs.
Commission is usually determined by the total price per sale. But it can be based on other things such as gross margin or the net profit.
— Determine your profit margin, which is the difference between revenue and costs. To figure out the margin, divide gross profit by the revenue. To make the margin a percentage, multiply the result by 100.
Small businesses should spend 7 to 8 percent of gross revenue for marketing and advertising if the net profit margin – after all expenses – is 10 percent to 12 percent (of which 3 to 5 percent of it should be advertising).
— Percentage of sales is called the expense ratio. You can calculate it by dividing your operating costs by net sales, which is your percentage sales revenue.
— Analyze your sales revenue goal.
2. Determine job factors
— Conditions in your marketplace and what’s considered fair for this position.
— Your expectations.
— How and who generates sales leads.
— Expected post-sales support.
— Expertise and industry knowledge required for success.
— The average of your current sales opportunities and average length of sales cycle.
— Complexity of your sales process.
3. Identify sales goals and fair compensation
You have to consider more than just the time the salesperson spends at work. It’s important to set benchmarks for your salesperson. Make sure your individual sales goal is high but attainable, and include bonus incentives.
Theoretically, for example, if you have a sales compensation budget of 15 percent, out of it you could pay 7 percent in salary. Five percent could be paid in commission with 3 percent in additional incentives if higher sales goals are met.
4. Evaluate what wage payment plan best incentivizes your employees
As long as you have profitable margins, you can choose to pay a salary, salary plus commission, salary plus commission and bonus, a 100-percent commission base, or a tiered commission structure. Personally, I discourage a draw against commission method of payment.
5. If profits allow, consider benefits and perks
Salespeople appreciate and love to boast about perks from a terrific office to free memberships.
From the Coach’s Corner, here are links to relevant articles:
Checklist – Top 18 Attributes of the Best Salespeople — What’s needed to be effective in sales? Merely having a gregarious personality will no longer cut it in the 21st century. As a manager, if you want to improve your company’s sales performance, become a winning sales organization and review your recruitment techniques in hiring salespeople.
6 Rules to Keep Your Pipeline Full for Continuous Sales — It doesn’t matter what type of business you have. Even if your sales are great today, there will come a time when sales will crawl to a halt unless you take precautionary measures to keep your sales pipeline full.
Sales Success: Flawless ‘Brand Personality Appeal’ Is Vital – How you can gauge your brand’s personality appeal – if it’s suitable to yield great sales. Here’s a checklist of 16 important factors to measure your brand’s personality.
Critical Essentials to Develop the Best Marketing Formula — There are critical essentials for marketing, which includes the right channels and developing the right message. That includes the right branding slogan and logo. Unless your targeting upscale consumers, many consumers prefer value marketing — not cute, which doesn’t necessarily mean selling at a lower price than your competitors.
How To Write Effective Online Listings – Here are valuable writing tips to help you sell online more profitably. Plus, a terrific infographic to guide you.
“Pretend that every single person you meet has a sign around his or her neck that says, ‘Make me feel important.’ Not only will you succeed in sales, you will succeed in life.”
-Mary Kay Ash
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