Compensating Sales Reps
A DISTRIBUTOR ASKS: I am a small distributor considering hiring a straight-commission sales rep. I have never done this before. Any tips on how I should structure the arrangement? Should I offer 60/40 to start and then transition to 50/50 at some point? Are there any resources on how to set this up?
I truly believe that the idea of the 100-percent commissioned salesperson is going the way of the dodo bird. Companies need to invest in their sales teams as a long-term strategy to develop them as a strategic decision for their companies. This investment might take the form of:
1 Education in our industry and outside of it. Think ongoing sales and marketing training
2 A base of accounts to manage and nurture
3 A marketing program that drives inbound leads to your sales team
4 Inside support to help your salespeople with administrative work so they can be on the offense versus defense
5 The consideration for base pay plus a smaller commission with bonus plan based on growth and profitability
6 A commitment from management to spend time guiding the salesperson to a place of accountability and, ultimately mutual success
Brand Fuel is proud that one third of our staff have been with us for 10-plus years, but we don’t always get it right. We have churn, too. And it is because we have not done all
of those things above like we preach. We all know to hire slow and fire fast. But do we know how to retain great talent? What is your plan for retention? Income is only one part of the equation. We also know we can teach skills but it is very hard to teach culture fit. How do you know if someone will be a culture fit? I strongly suggest you consider behavior testing, DISC profiles, etc. It is unnecessary as well as a liability to your business to find out that the person who looked great on paper and smiled pretty in that first interview is really a Negative Nelly, Debby Downer or Lazy Larry.
DANNY ROSIN, CAS
I’ve been in this business for 30 years and I would get your new hire to straight commission ASAP. I find straight commissioned reps have more drive to keep earning and continually have that fire lit to keep working hard for the sale versus someone who is salary/commission. I do not like enabling people and I think that is what offering a
“salary-plus” does in a sales profession like printing/promo specifically. I also find that straight-commission reps always seem to sell for profit versus just getting the sale at very low margins because they know the commission isn’t 100 percent and they have that guaranteed income to fall back on no matter what. I am certain there are those hard-working commission/salary reps out there, but again this is my opinion and experience. If you want to offer something to get started, fine—but after, say, one year or once they hit
$100,000 in sales, they go on straight commission. Also, if a mistake is made and it’s the rep’s fault, it hurts more as a straight commission, so the incentive is there to do things correctly, listen and to be organized. And it certainly doesn’t hurt to find sales reps who love money and love to earn as much as they possibly can. We do 50/50 to start and move to 60/40. And if they reach $1 million-plus, then 70/30.
Vice President Sales and Marketing
If you’re thinking of hiring a sales rep and you don’t have a support person in place
(CSR, etc.) start there before hiring a sales rep; otherwise you’re going to waste much
of your own time mentoring and providing support for that person and your sales will quickly suffer. Just my two cents.
Proforma Progressive Marketing
One thing I would ask while you are getting started is, will this person be completely dependent on this income as their only source of revenue? I ask this because I think a lot of small distributors have this problem. You don’t have a lot of capital to invest in paying a monthly salary, but the lifecycle of an order and the lifecycle of enough orders to get a solid stream of income is sometimes 60 to 90 days or more, depending on how strong the salesperson is. You’ll find that without some sort of a base salary or stipend, your salesperson will burn out pretty quickly.
National Account Coordinator Peerless Umbrella Co.
Any time I was 100-percent commission I worked way harder than when I was on salary—no motivation!
JUDITH SKINNER PEACOCK
When considering commission structures, I believe the most important starting point is the book of business, if any, that the sales rep is bringing to your company.
If you are hiring an established rep with a decent book of business, then a 50/50 split would seem to be an acceptable option—speaking from a 100-percent commission salesperson. You would also need to establish rules as to what the split includes or does not include. Expenses such as sample costs and freight, travel and other related business expenses must be considered and agreed upon upfront. It needs to be a win-win, in writing with no gray area.
Both sides must feel they are getting something in exchange for the split—whatever it
may be. New sales reps with little or no book of business would need to be started on a different scale including one that may be a split between commission and salary.
It’s going to take some time to establish a book of business and you’ll need to consider investing in your sales rep at the early stages. As sales increase, the salary should decrease and the split should start heading toward that 50/50 arrangement. You should establish sales hurdles or specific dates where those various parameters would change.
You should also detail what, if any, help you will provide to grow the sales rep’s business—and if that business will also fall under your agreed upon split. I don’t believe there’s one hard and fast way but I have found the 50/50 split, when constructed with all parameters discussed and documented, makes both parties feel good about the arrangement. In the end, the goal is for everyone to grow the business and enjoy in the shared success. You can help your salesperson achieve that success and, more importantly, stay around by making sure the arrangement is documented and agreed upon before that first sale is recorded.
Vice President Sales and Marketing
Global Sourcing Connection
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