Every SME business wants to grow, ideally organically and the key is to find good sales people. Judging by some of the claims being made on Salesperson’s CVs, this country is awash with good sales people but it’s the excellent sales person that will make a difference and the ones that can “walk the walk” rather than “talk the talk.”
Always work on the basis that every Sales person has that ability to embellish and don’t take all their achievements on their CV at face value – probe and dig deeper at interview. Recruiting excellent Sales people is one thing but incentivising them is a further challenge.
There is no science behind the development of a sales commission scheme – it is simply about ensuring that you develop a scheme that fairly incentivises the salesperson and is aligned to the business goals.
Here are 10 factors to be mindful of when developing a scheme for a sales person.
- The Sales Director – is this person a participant in the scheme and is he/she a potential beneficiary of the scheme? If so, there is a conflict of interest.
- Decide whether to base it on Revenue or profit – there is no right or wrong answer and it will depend on a multiple number of factors for the business at the time. The FD will always say profit whilst the sales person will always opt for revenue but if you are going to base it on profit, be clear about the definition of profit and ensure that it is based on factors that the salesperson can influence. For instance, it is unlikely that the salesperson can directly influence central overheads.
- Guaranteed commission arrangements. Quite simply, why would you guarantee a salesperson commission. If a new sales person is joining the business, they should be excited about joining the business, share its vision and be confident about contributing to its success. They should be confident that that the sales target is achievable and they can hit their numbers. If they need to ask you to guarantee commission, alarm bells should be ringing. Is it because they aren’t confident – when did a business last recruit a sales person who lacked self belief?
- When do you trigger payment of commission. Don’t pay it too soon and certainly not before the deal is in writing because the devil will be in the detail and sales people aren’t renowned for attention to detail! Similarly, you don’t want to be paying it as long as the customer still has the option to back out. Specifically, be wary of commission on service or maintenance contracts or anything where the customer has an early cancellation option.
- Staging payments – is it appropriate to stage the payments and pay the commission in instalments. The FD will say yes because it benefits cash flow whilst the salesperson will not be keen. From a business perspective, it will assist with retention because a salesperson will think twice about leaving if they are waving good bye to some commission. Instalments or staged commission payments also gives the company a get out clause if the contract doesn’t turn out the way it was anticipated commercially.
- Don’t pay commission until the customer has started paying you. What if the customer doesn’t pay you……nightmare scenario – you’ve paid the salesperson 100% of the commission and the customer decides not to pay or withhold payment unreasonably, this is now taking up capacity in your Credit Control function.
- Who should be eligible? The old Teamwork argument – virtually everything we do in work involves teamwork and very rarely can a sale be attributed to one person. Eligibility needs to be very carefully considered because if not handled carefully, it can be highly demotivating. Putting double glazing to one side, spare a thought for the others who have contributed to winning the sale not forgetting the Sales Admin support person that burned the midnight oil fine tuning that presentation and doesn’t get overtime.
- Clawback – controversial but there should be a provision where you at least reserve the right to clawback commission. The Salesperson will always resist and argue and will say that they’ve spent the £5k commission but in a small business, a badly negotiated contract that fails to deliver the forecast margin can be damaging and ultimately affect job security. Again highly demotivating especially as sales people aren’t the best at keeping quiet about how much commission they earn.
- The rules of the commission scheme must be in writing – and the following must be covered
- What happens if the Salesperson leaves for whatever reason and is owed commission?
- Be clear about the period that the scheme is effective from and to. Good practice would suggest reviewing every year in line with your Company financial year to ensure the scheme is aligned to budget and strategy
- Allow yourself the option to withdraw, review or revise the scheme at any time
- Be clear about who has the absolute authority to resolve arguments about commission payments
- Is there a cap – you may want to either put a cap on earnings from the scheme in a year or a cap on the commission for any particular contract? No right or wrong answer – but if a cap is to apply, make sure it is in the scheme rules.
- Sense check the scheme before launch. It seems obvious but take a couple of contracts or potential wins in the pipeline and run the numbers through the proposed commission model and check that the commission seems right taking all factors into consideration. Finally, ensure the scheme is independently validated by a key internal stakeholder – ideally the FD.
One thing is certain about sales commission schemes – you won’t be able to develop one that satisfies all the people in your business all the time and if it does, it is probably too generous!
Finally, you want your sales team highly motivated and engaged but some will look for the next opportunity and it will invariably be to join a competitor. People may be your greatest asset but your sales pipeline is your crown jewels and you must do whatever is necessary to ensure your confidentiality, non-solicitation and non-compete clauses are robust and enforceable.
Excellent sales people can make a business but dishonest salespeople can brake it and ruin it for everyone. By all means, look after your good sales people but guard your sales data with your life.