We all need motivation to do our best work – and money is a great source of motivation.
But the structure of salesperson commissions can only matter as much as the actual amount. We aim for salespeople compensations to reward for big sales, give opportunity for growth, and keep people motivated to sell even more. Here’s how we do it.
Foster the Mini-Business Mindset
Good salespeople have spirit. When they use that spirit to operate their sales like their own mini-business, they’re successful. Start by making them financially literate about the business so they understand how and why they’re paid. That doesn’t mean you have to divulge all the company’s financial information to them. Instead, explain how the company gets paid. Does the company earn recurring revenue from a sale, or is all payment up front? Then structure their pay similarly. If it’s a one-off sale, they’ll get paid once. If it’s recurring revenue, they’ll earn a recurring commission.
When salespeople understand how the company makes money, they’ll mimic that in their sales approach. Plus, they’ll learn that what’s good for the company is good for them. The more ownership they take in growing their own “business”, the better they become at their job. They’ll foster a consultative relationship with their customers, doing whatever it takes to keep that customer satisfied and offering additional products and services that meet their needs. In turn, they understand the business on a deeper level, which makes them an even better salesperson.
But, if they don’t get paid the same way as the company, mistrust starts to grow. If you get paid recurring revenue, but the salesperson doesn’t, they feel cheated. They start to distrust leadership. And they stop treating their job like a business.
The Average Commission for Salespeople
Since salespeople want opportunities to grow their business and income, try to match commission structures to how the company is paid. As a rule of thumb, the average commission is one sixth of what the company makes. So, with every sale, the company makes six times what the salesperson is paid.
The 3 Phases of Sales & How to Separate Them
Should you offer more commission for a new sale or a retention? If you offer more for a new sale, will your retention levels drop? How you weigh salespeople compensation depends on the business. But separating types of sales strengthens your business and better equips your team.
Think of sales as three phases: hunting, farming, and account management. We want to separate those roles as much as possible so people can focus on the area in which they’re most skilled.
Hunters are the people who go out and find new sales. They find prospects and qualify them — and they’re good at it. If you have someone who finds new opportunities, keep them hunting. You want them capitalizing on their strength of bringing you new customers.
Once a prospect becomes active, you move them to the farming category. This is the nurturing and cultivating stage. It is where you want the salespeople who can close a deal. Farmers are people in front of customers, moving deals through the pipeline.
These are the people who keep the client happy. They provide customer service to the client, answering their questions or coordinating repairs. Maybe this is your technology person who can keep things running smoothly. Sometimes the best technology or service people aren’t great salespeople. It’s just a different personality type.
The more separate you keep these roles, the better. But also, remember to move clients between categories. You don’t want a salesperson servicing the copier, but they can still coordinate the relationship between the client and the service technician. And, when the client is up for renewal, it’s the farmer’s turn to deal with them again.
When you have a cap on a salesperson’s commission, you’ll stop making money off of them. And it’s an easy way to make your sales team unhappy. Find a solution where, if they make a million dollars, you make six million – then it’s worth it for everyone.
The exception comes when the salesperson no longer services an account. Let’s say someone just gets paid on monthly recurring revenue from something they sold but no longer manage. In those situations, limit the timeframe on the payout or scale down the commission over time. Maybe the first year they earn 5%, the second year they earn 2%, and then the third year they earn nothing. Why? Because if a salesperson always gets a piece of the pie, they’ll stop hunting. They won’t look for new prospects because they won’t need to.
Bottom line: make your sales commission structure clear to your salespeople. Make sure they know what it’ll take to succeed and that sales are worth their time. After all, when your sales team does well, your company does well too.