I’ve recently received a number of questions about recovering outstanding draws when an employee leaves a company. I’ve heard from both sides of the issue, employer and employee.
This week, I received the following note:
I am an employer with an employee owing a large amount on his recoverable draw. I now find he is being aggressively recruited by a recruiting company.
This has been a large investment for my small company where not wanting to lose my employee I agreed to a longer term/higher amount than I should have. Everyone knows once he leaves my chance for recovery is slim.
Is there anything I can do to either discourage the recruitment or cause the new employer to be liable for interfering with my business?
Here is my response:
You are in a tough position. I recently wrote the following to an employee who wanted to extend his draw. I think it also applies to employers. There is risk associated with draws, but they are a valuable tool if applied properly.
Draws are a two-edged sword. You need to be careful of what you ask for. In essence, a draw is a loan from the company to the sales rep that is repaid through earned commissions. A lot of sales reps don’t like to take a draw because they recognize that they are going into debt with the company and, when commissions start flowing, much of those commissions are used to repay the outstanding draw. Sales reps by nature, I have found, don’t like to owe money on their draws.
On the other hand, draws provide a very valuable service. Draws can help sales reps maintain an even cash flow through lean sales periods. Draws can keep the valleys from being too deep while skimming the peaks off the too high mountains.
From an employer’s perspective, you are at risk if the sales rep goes deeply in “the hole,” owing a lot in draw that he or she may not be able to offset with commissions. In these situations, employees may start to look to leave the company without repaying the draw.
In some states, companies can demand repayment of the outstanding draw with legal recourse. In other states, such as New York, companies cannot recover the outstanding draw if the employee leaves for another opportunity. In general, collecting outstanding draw amounts are very difficult to do. The prospective employer has no requirement to pay the draw. Check with your labor attorney, but I don’t think you would be successful claiming interference unless you have a well-defined employment contract with your employee.
For you to entice your employee to stay with your company, you might consider a few things:
Do you want this employee to stay? Are they capable of generating the revenue necessary to pay for themselves and grow your business?
If you do want them to stay, is there sufficient opportunity and is the commission plan structured (rich enough) for the sales rep realistically to make their on-target earnings?
If your sales rep is too deep in the hole, consider forgiving some or all of the outstanding draw. If the sales rep leaves, you’re likely to lose it all anyway. Why not help the rep out and garner good will in the process? Consider the previously paid draw as the cost of on-boarding your rep (water over the dam).
In any event, contact a good employment law attorney in your area to understand your legal options and limitations.
How does a company based in Palo Alto manage a sales team in Mumbai?
It’s not easy. They are 8,400 miles and 13 time zones apart. And the business customs are very different in California and India.
Needless to say, it’s a balancing act. Palo Alto wants control. The Mumbai team wants flexibility and autonomy.
The Global Sales Management Framework
The answer is to create a global sales management framework that balances Palo Alto’s and Mumbai’s responsibilities in four areas: culture, strategy, metrics and sales/territory management.
Drives the corporate culture, branding, product offerings, and goals
Provides support and coaching
Mumbai creates the local strategy and executes it to achieve its assigned goals.
Certain aspects of corporate culture are sacrosanct wherever the company operates: vision, values, and legal and ethical positions. These are central to the company’s identity. Call it holy writ.
Vision encompasses the company’s brands, product and service offerings, and product roadmap. The corporate home office must maintain its image represented by its brands wherever the company operates.
Values are the company’s core beliefs. For some, values include honesty, respect, diversity, service, and quality. For others, they are lowest market prices or win at all costs.
Either way, the corporate home office must transmit its values globally throughout the company.
Legal and ethical positions protect the company’s assets, tangible and intangible, around the globe. Common legal and ethical positions dictated by corporate home offices include:
Respect for all laws in the company’s home country and the laws of the countries in which the company operates
Vigorous defense of its intellectual property in all jurisdictions
Refusal to pay bribes or other inducements to win business
Zero tolerance for theft or other violations of law by employees
Guided by the company’s vision and values, the corporate home office sets goals and targets for the overall company and its local markets. The home office also provides the engine to make the company run.
This includes product and service offerings, product road maps, the tools necessary to communicate and track information, CRM and ERP systems, financing, and technical and management support.
Each local sales management team creates the local strategy to accomplish its goals — financial, market or product — and has the autonomy to execute the strategy.
The corporate home office sets and evaluates key performance indicators (KPIs) that measure progress toward achievement of goals: corporate, regional and local.
Each local sales management team develops key performance indicators (KPIs) to measure local progress against local goals, strategy and execution. The local team evaluates its own performance.
The corporate home office (or an office in another country or region) may retain responsibility for directly managing key global accounts. Local office support may be provided as needed, or to maintain local relationships.
Key global accounts may be managed centrally for
several reasons, including: need for a consistent sales approach and message across the account, sales that may affect the customer across multiple locations, or need for a single point of contact for the customer.
Other factors that may determine central management of a customer include:
Value to the company in revenue or profitability
Size and scope of the customer company — Does it span multiple geographies?
Customer’s history with the company
Local team’s experience and history — Have they worked successfully with the customer?
Each local sales management team has responsibility for local, non-key accounts. They have decision-making and negotiation authority for accounts in their territory. The corporate home office empowers the local sales management team to drive the business so they reach their goals.
Peyton Manning announced his retirement from football last week. Whether you are a fan of the Denver Broncos, Indianapolis Colts or any of the other 30 NFL teams, you’ve got to admit that Manning is one of the all-time greats to play quarterback in the league.
Manning’s career is remarkable not only because of the records he set, but also because of his consistency. In 17 years of continuous play (except for the 2011 season when he was recovering from a neck injury), he amassed a 70% winning percentage during the regular season, posting only one losing record — in his rookie season. In 11 seasons, Manning won 12 or more games including a streak of seven 12+ win seasons in a row.
While Manning certainly had the physical skills to play quarterback at a high level, he did not have the strongest arm or the fastest legs. By his own admission, “There were other players who were more talented, but there was no one who could out-prepare me.”
Preparation is the key to success.
Like Peyton Manning, your sales representatives can raise their game through preparation and planning. The following six steps and associated questions can guide you to greater sales success.
At the start of every season, Manning set goals for himself. Aggressive goals. He wrote his goals down and held himself accountable. Manning then worked hard throughout the season to achieve all the goals he set for himself and his team.
All sales representatives need to set goals for themselves. As a sales manager, you must make sure your sales reps’ goals also contribute to your achieving the company’s goals.
How much revenue will we generate?
Which products will drive that revenue?
Which customers will buy our products and services?
How much will each customer buy?
How many new customers will I land? Who are they?
What intermediate goals must I achieve to ensure accomplishment of the larger goals?
Before every game, Manning’s coaches set a game plan. Manning tweaked it, knew it and implemented it. Sometimes, he adjusted it on the fly, but that was not very often since Manning already knew what his opponents were likely to throw at him.
Once goals are set, your sales representatives need to create their own game plans. For each territory, customer and opportunity, your reps must create a plan to win.
What customers do I need to sell to?
What traditional views will I need to challenge?
What customer needs am I addressing?
What obstacles will I need to overcome?
Which tools will I apply and in what situations – sales calls, product demonstrations, pilot programs, presentations, proposals?
When should I run my plays/apply my sales tools?
Scout the Competition
Preparation goes beyond goals and game plans though. Manning was legendary for remembering blitzes and defensive plays opponents ran against him years earlier. He reviewed films of his opponents, learning and remembering every nuance.
Like Manning, your sales reps need to scout their competition, know their competition and anticipate their every move.
What are my competitors likely to do in various situations?
What are my competitors’ strengths and weaknesses?
What can I do to thwart the competition?
How can I avoid competition altogether?
Practice, Play, Practice, Play
Manning was constantly on the field, working with his teammates and improving their game. Manning spent hours with new receivers to ensure they knew what to do without thinking about what to do. Manning was always the last player to leave the training facility at the end of the day. And, it wasn’t just practice. Manning got in the game. Manning holds the number two position for consecutive starts by an NFL quarterback with 227 games over 14 years.
To be the best at their game, your sales representatives need both practice time and game time. Between sales calls, reps need to hone their skills. They need to research customers and opportunities, practice presentations and demonstrations, and conduct mock sales calls. Practice improves and reinforces the skills your reps need to become the best.
Further, give your reps playing time. Get them in front of customers to put their skills to use. Practice makes perfect, but only playing time will teach them to win.
Which products or solutions do I need to learn more about?
How should I handle common objections? Uncommon objections?
What are some non-selling situations where I can practice my selling skills?
Have I practiced my final presentation/demonstration aloud and standing up at least three times?
What training programs can improve my sales skills?
Review Every Game
Peyton Manning reviewed every play and every pass looking for weaknesses and areas he could improve. He installed video equipment in his home so he could review plays both in season and off season. He carried a tablet computer to review video while on the road. Manning spent more time reviewing game film than anyone who ever came before him.
Customer reviews, plan reviews, opportunity reviews, loss reviews. Like Manning, your reps must make the time to understand what works and what doesn’t. Adjust plans, learn from mistakes, adapt to counter your competitors’ tactics.
Reviews serve two purposes. First, they show you where and when you need to correct course to reach your goal. Second, they teach you to be better at what you do and more efficient by uncovering weaknesses in your skills, plans or offering.
Am I on track to meet my goals?
What am I doing well? Where do I need to improve?
Is my customer plan/opportunity plan working as well as possible?
What did we do that enabled us to win that deal?
What could I have done to avoid losing that deal? Why did we lose?
Formalize your Planning and Review Process
Peyton Manning went to extraordinary lengths to prepare for his seasons and games. He also had a coaching staff to rely on for support. You can too.
Wallace Management Group leads and facilitates one-day and multi-day planning sessions for companies serious about meeting their sales goals. We help our clients prepare for the sessions so that they are as productive as possible. Then, we facilitate the meetings to ensure that each of your reps — and you — know exactly what is supposed to happen this year and how it will get done.
Do each of my sales reps have a territory/customer/opportunity plan? Are they written down?
Have I conducted a sales planning session this year? Did I document the results?
Have I conducted formal plan reviews for each territory and rep yet this year?
Do I have bi-monthly or quarterly reviews scheduled for the rest of the year?
Contact Wallace Management Group at (203) 856-9400 to schedule planning sessions for your team.
Today, I got the following question from a sales rep about the repayment of their draw.
I am paid a $2,000/month draw and required to sell $22,500 in services each month. I am paid 15% commission on all sales. This has been the case since I started 5 years ago. I consistently meet and exceed my quota and am paid my commissions only but have $1000 taken from my check each month. Is this legal???
I responded as follows.
From the information you have provided below, it’s unclear to me what is actually happening. I’ll assume it’s one of the following scenarios:
You have an outstanding draw amount that you are repaying. Check your compensation agreement (I assume you have a written commission plan). It should spell out how the draw is repaid and over what period. The company may have paid you a draw during your ramp-up period when sales were less than breakeven ($13,333 per mo.). The company is now recovering a portion of the outstanding draw amount each month from your earned commissions. This is perfectly legal and common practice.
You have no outstanding draw amount from prior months, however you continue to receive a draw each month. In this case, your net commission check would be the total commission earned less the monthly draw. For instance, if you sold $22,500 this month, the commission check would be $3375 ($22,500 x 0.15) minus $2000 (monthly draw paid) for a net commission check of $1375 (less benefits and taxes). This is also legal and common practice.
You should receive a commission statement with each commission check that explains how the commission was calculated. Most commission statements identify all your sales transactions individually, listing date, customer and net revenue generated. It should also list each and all deductions or offsets, including sales reversals (returns), discounts, draw recovery, tax withholding, and benefits deductions (i.e., health insurance, health savings accounts, 401K contributions, etc.). I recommend that you speak with your sales manager and review your commission statement. Ask about anything you don’t understand. If your manager does not know the answers to your questions, ask him or her to find out the answers or introduce you to the person who can answer your questions. Everything about your earnings and commissions should be transparent to you.
If after speaking with your sales manager and appropriate senior managers (VP Sales, Head of Human Resources, Finance Manager, company President), you still think you are not being paid correctly, consult with your accountant and then a labor or employment attorney. They may be able to explain the process more clearly or initiate legal steps if warranted.
I apologize for not having posted to this blog for a while. In March, I agreed to lead the turn around of a business in the coin handling (high-speed sorting, counting, dispensing) industry. Much of my time has been devoted to that endeavor.
Last weekend though, Norm Eagle — Director of Sales for Meta Health Technology, sent me an email summarizing multiple comments he’d collected on developing sales compensation plans. As part of his evaluation of the sales compensation plan for his own team, Norm solicited input from a group of high-level sales executives via the Marketing Executives Networking Group (MENG). MENG members are senior sales and marketing executives with business-to-business (B2B) and business-to-consumer (B2C) companies, both large and small. MENG members lead sales and marketing organizations across the United States and around the world. As you might expect from such an experienced group, the responses Norm received were full of valuable insights.
I share with you a slightly edited version of Norm’s summary below. If after reading this post, you would like to contact Norm directly, please let me know and I will put you in touch with him.
FROM: Norm Eagle
SUBJECT: Summary Sales Plans and Incentives
Thanks again, lots of good advice and suggestions. Here is a summary of all the information I received.
Everyone agreed that what is most important is that a Company knows where it stands in the marketplace as well as knowing what it wants to accomplish.
Where does a company stand as to Market Share, Recognition, and Revenue, etc.?
Middle of the pack
Being honest about these answers allows you to better accomplish what you want to get done.
Increase market share
Sell the company
Add new customers
Up sell to existing base
Certainly combinations of the above are the norm. If a company is really looking to be sold, then their needs are going to differ greatly from the company that is staying in business. If you are looking to sell the company, then driving revenue is of paramount importance and profit is usually less important. Again there is lots of room for interpretation here.
Answers to the above questions will help you build sales plans and provide incentives for the salespeople.
The advice and suggestions I received include driving revenue from new sales as well as from the current base of customers. Most agreed selling to new customers was harder, took longer and was more costly. Given the greater difficulty, the feeling was to pay a higher commission rate for those sales. Sales managers justify lower commission rates for sales to existing customers because it is an easier sale. Since you know the players, the sales process and, given you are doing well with other products in the account, up-selling will hopefully take less time and be less costly.
There was some disagreement here and some felt you should pay the same commission on new sales and sales to existing customers. Here, the justification is that the sale to the old customer is easier and could generate revenue for the company more quickly. As a result, the sale is less costly so why not pay the higher commission rate. I’ll leave that to others to decide which way to go.
There were a number of suggestions on sales plans and incentives for salespeople and they included:
Setup a “quick start” incentive – some extra payment or extra percent of commission for the first sale of the year or maybe the most sales by number or revenue for the quarter. Anything to promote some fast deals.
Backload the sales plan to include retroactive money once quota is achieved. On a million dollar quota, once your sales rep hits the million, pay a 1 percent retroactive kicker. The kicker is now worth $10,000 for hitting quota. This could vary based on quota.
Also set up more retroactive money for 150% and 200% of quota.
Some people suggested accomplishing the same thing by raising commission rates when you get over quota. Pay 7% for all sales over quota instead of the 6%. Raise the payout number again when your reps reach 150% or 200% of quota. I use 6% as the starting number but that will vary by company and products and size of the deal.
Some suggestions for mid-year contests etc., special prizes for a weekend away for biggest deal of the quarter, gift cards and so on.
The other topic discussed was what you pay on Term-Use deals versus Perpetual-Use deals. I received a lot more suggestions on this one. Perpetual Use was pretty easy as commission was figured on the value of the contract because it was all paid up front. Here are the suggestions on commission of Term Use Deals:
Pay full commission of the full value of the 5 year deal (I am using 5 years but it could be different depending on the deals your company does)
Pay full commission on the first three years and then a lesser commission on the remaining two years. The reasoning here is that if the customer tries to back out of year 4 or 5 and doesn’t pay, you don’t lose as much money on paid commissions. I have not seen this happen very often and in my experience it is very rare unless there are some problems with the product or service.
I have also seen dividing the 5 years into 60 monthly payments and then multiplying the monthly payment by 50 and paying full commission on that amount. Taking out the 10 payments and not paying commission on that amount is charged to cost of money and waiting for 5 years to get all the money due.
Another suggestion was to pay some lesser percent on the full 5 year deal (maybe 4.5 out of 6) and then on the fourth year of payment the salesperson gets 1.5% retroactive payment of the original 5 year deal. This would only go to the original salesperson so this might be a way to keep salespeople around longer and build long term loyalty.
Some additional points everyone seemed to agree on:
Keep your sales plan simple and understandable
Sales plan should match up with the goals of the company
Sales plans drive the desired behavior while rewarding sales reps for results
If the sales plan is set up right, salespeople make a lot of money and the company does extremely well.
I believe that is all of it and if I missed anything my apologies. Thanks again to all that contributed.
When you employ both an inside sales team and an outside sales team, how do you divide your sales responsibilities?
Without a clear definition of responsibilities, inside and outside sales reps can battle with each other instead of with the competition. If they battle over territories, customers and job roles, your customer gets caught in the middle.
You can assign responsibilities for your reps in a number of ways. I’ve successfully used these four divisions of responsibilities. I have applied them individually and in combination. You’ll need to evaluate your business and customers to decide what works best for you.
Prospecting vs. Account Management
Prospecting involves lead identification, lead follow up and lead qualification. It’s vital to maintaining your company’s health and growth. Prospecting activities often involve high-volume calling with a low success rate. Because of the low success rate, it generally does not make financial sense to prospect in the field. The return on investment in time and travel is not justified.
Prospecting activities are ideally suited for inside sales reps. Since your inside sales reps prospect their territories via the internet and telephone, they do not incur the extensive travel expenses that outside sales reps incur. More importantly, your inside sales reps can contact many more prospects and follow up on many more leads because they don’t spend time traveling from one prospect to the next like outside sales reps do.
Account management focuses on developing professional relationships which become the basis for expanding sales, cross selling and developing new opportunities in different parts of your customers’ organizations.
Outside sales reps are very effective at developing deep account relationships through personal interactions. During customer visits, they are able to develop relationships throughout an organization. This often results in their uncovering unknown opportunities and expanding sales. You can justify the higher cost of outside sales by applying the value of existing customers, the larger transaction sizes, and the higher likelihood of closing sales to your overall sales model.
Small Accounts vs. Large Accounts
Smaller accounts generate less absolute margin for your business. Their order sizes are generally smaller and they order less frequently. However, they are still valuable to your company. I use inside sales teams very effectively to manage smaller accounts. Your inside sales reps can manage a large number of small accounts and still drive a significant level of revenue and margin.
Each of your large accounts may be key to the success of your business. Their higher revenue potential and profit value demand a high level of attention from your team. Outside sales reps deliver the customer service and attention necessary to both develop the account and reduce the risk of losing a valuable customer.
Dormant Accounts vs. Active Accounts
Dormant accounts are accounts that have not placed an order with your company in over one or two years, depending on the length of your sales cycle. Accounts may have become dormant for a number of reasons: lack of need for your product, changing business conditions and economic conditions, or inroads by your competition. Given that now dormant accounts were once active accounts, you likely have existing relationships with these accounts. A good way to maintain or rekindle those relationships is to have your inside sales team call on your dormant accounts in an attempt to uncover latent opportunities and provide a level of customer service.
Active accounts require more direct contact. They are more valuable to your company than dormant accounts. If your active accounts are sufficiently large enough and important enough to your company, consider assigning outside sales reps to call on these accounts.
Small Transactions vs. Large Transactions
Finally, I’ve successfully managed territories by assigning sales responsibility based on transaction size. I assign smaller transactions (i.e., transactions under $10K) to my inside sales representatives and larger transactions, which tend to be more complex, to outside sales representatives. This enables the inside sales teams to focus on frequent “quick hits.” The outside sales reps spend the time needed to close larger, complex deals.
Whichever way you choose to define responsibilities between your inside and outside sales teams, make sure you communicate them clearly and leverage the strengths of each channel to drive revenue efficiently.
Next, we’ll look at sharing commissions and handing off accounts from inside sales to outside sales or vice versa.
For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.
Business owners and sales managers frequently debate about whether to invest in an inside sales force, an outside sale force, or some combination of the two. With inside sales, your sales reps visit with customers and prospects via the telephone, email, and internet. They do not leave the inside of your office, hence the name. Outside sales is where your sales representatives visit with customers and prospects at their business locations, outside of your office.
Generally, budget drives the inside vs. outside sales force decision. Since inside sales reps incur no travel and entertainment expenses, companies with small or limited sales budgets often start with an inside sales force. They view this as a practical trade-off. However, there are variables to consider which may dictate that an outside sales team is a better investment for your business.
Consider the variables in this table to determine whether your company is better off with an inside sales team, an outside sales team, or a combination of the two. A combination of inside and outside sales is generally preferred when you have a mix of variables that sometimes lean towards inside sales and sometimes towards outside sales. We’ll discuss more of that later.
Product or Service Cost
Customer’s Perception of Product Value
Low – Medium
Medium – High
Medium – High
Medium – Large
Wide (long distances)
Narrow (close by)
Product or Service Cost
If your product cost is low relative to your customers’ budget, or if your product is a commodity, then an inside sales team may be a very effective channel to sell to your customers. However, if your product has a high price tag, customers may want the reassurance of face-to-face contact with your company. In these situations, outside sales may not only be preferred, but necessary.
Customer’s Perception of Product Value
Even when your product cost is low, if the customer’s perception of the product’s risk or value is high, you may be better off employing an outside sales team. Shear bolts used in turbines are a good example. The bolts themselves cost only a few dollars apiece. However, if they fail to perform to specification, they may ultimately cost your customer hundreds of thousands of dollars in downtime and repairs. The risk/cost ratio is high. In cases like this, you’re much better off developing a personal, face-to-face relationship with your customer.
Complex products or new applications for products can be intimidating to customers and prospects. These situations often require the careful direction and reassurance that an outside sales representative delivers. Inside sales reps can handle more complicated sales, especially using video demonstrations that are available via the Internet. However, inside sales calls generally take longer to close than face-to-face sales calls.
Inside sales teams can be very effective in identifying, qualifying, and closing relatively small transactions – from a few dollars to a few thousand dollars in size. Dell Computer demonstrated this very clearly in the personal computer market. However, when transactions are larger in size, whether by dollar amount or number of units that add up to a large dollar amount, customers prefer the relationships and commitment provided by outside sales representatives.
When your product generates a large profit margin for your company, you want to eliminate as many obstacles as possible to making the sale. In these situations, face-to-face contact and personal relationships can go a long way to closing the sale efficiently.
If your company serves a large geographical area, involving an entire continent, multiple time zones or the world, you may find it necessary to employ an inside sales force. Sometimes it is not logistically feasible to cover your target market with outside sales representatives. Inside sales representatives can cover extensive geographies, time zones and cultures from one central location.
If you need to have outside sales representatives covering a wide geography, consider supplementing them with an inside sales team. The inside sales reps can generate leads, qualify opportunities and nurture leads. This allows the outside sales reps to focus on key opportunities and imminent deals. After deals are closed by the outside sales team, inside sales reps can maintain customer contact to ensure that your operations team quickly identifies and resolves customer satisfaction issues.
Inside sales teams and outside sales teams each have their own niche in which they work well. However, try not to view the decision as “either/or.” As your business grows, you will find that a combination of inside and outside sales teams can work well together, complement each other and allow your business to grow faster.
In my experience, I have used inside sales reps to close deals with short sales cycles. These transactions typically involve low cost, commodity-like products. I complemented my inside sales team with outside reps that develop key account relationships. I also used inside sales teams to develop opportunities early in the sales cycle with a hand-off to an outside sales rep. During the key decision-making period, when the customer needs personal contact and during the proposal development period, my outside sales teams were closely involved with the sale. After the sale and product/service delivery, the inside sale rep followed up with the customer.
When you have multiple sales reps working together on the same transactions, make sure you clearly define each rep’s role and how each rep will be compensated for his or her contribution. This helps ensure cooperation across your sales team.
For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.
Five key elements help you manage effective sales teams and grow a successful business:
Processes and tools
Flexibility and adaptation
Well-defined, precise plans are roadmaps to success. They present your goals and strategies for how you will achieve those goals. Success follows when you develop specific plans for each part of your business:
Overall business – business plan
Functional areas – marketing plans, product plans, human resource plan, financial plan, etc.
Sales – territory plans, customer plans
Individuals – personal performance plans.
By documenting your goals and the strategies for achieving those goals, you’re in a better position to reach your goals. This holds true at all levels within your business. Without a plan in place, you are less likely to focus on your target and on what you need to do to succeed. As Lewis Carroll wrote, “If you don’t know where you are going, any road will get you there.”
It’s important to involve your team. Once the plan is developed, successful execution depends on communicating it and getting “buy in” from the team that will implement it. Clearly define your goals for your sales teams, management team and across the organization. Deliver progress reports and communicate results of short-term and long-term actions. Clear communication establishes your expectations for every person in the company. If every employee knows their role, they will work to perform it.
Early in my career, I limited access to business plans, goals and progress reports to a small number of key managers and executives. I was concerned that my business plans were proprietary. If too many people knew of them, I would be at a competitive disadvantage. Similarly, I was reluctant to share financial information – information about how we were doing as a business, information about product lines that were losing money, information about lines that were very successful. I didn’t want my team to be distracted by bad news or become complacent with success. This approach doesn’t work.
This information must be made available to the employees who drive your success. You need to trust your team to think and make decisions based on clear goals and plans. You will experience greater success when you provide employees with the information that helps them measure progress toward their goals.
Processes and Tools
Efficient sales processes and sales enablement tools can yield highly targeted sales efforts and broad sales effectiveness.
Sales processes are the systems you put in place to collect data, share information, and provide customer-related decision-making tools for your organization. They facilitate customer relationship management, gathering key account information, and making field sales forecasts. Successful sales processes are designed with two principles in mind. First, design them to work seamlessly with your sales reps’ existing processes. This reduces disruptions to their work habits and will make them more likely to use the new processes. Second, design processes to deliver useful and valuable resources back to your sales reps. Your processes need to save reps time and provide them with valuable customer or market information. When reps perceive your processes as having value, they are more likely to use them.
Sales enablement tools also affect your sales team’s performance. Provide your sales reps with tools that will improve their efficiency. These include: technology (wireless communications for voice, email, Internet access; laptop computers with current software tools), presentations, collateral (both hard copy and electronic), proposal templates, contract agreements, pricing tools, and configurators. If these tools make the sales rep’s job easier, they will sell more effectively to their customers.
Performance measurements are a key element for motivating your team. Plans, communications, processes and tools give your team direction, tell them how they can reach their goals, and give them the tools they need to execute. But it’s the performance metrics that show your team that you hold them accountable for their success and failure.
Like a GPS in your car, performance metrics provide you and your sales reps with feedback telling them whether they are on track to reach their goals. The more granular your metrics, the more closely you can help your team steer a path to success. At a high level, important metrics include: revenue, expenses vs. budget, and deals won or lost. At the sales rep level, you can measure: sales calls made, proposals delivered, new customers landed, and revenue by product, by customer or by geography. At another level, you can measure: the effectiveness of individual web pages, number of dials per day made by inside sales reps, or inbound calls generated per dollar of advertising spent.
Your key to success is measuring the specific activities that drive desired performance, balanced by the cost of measurement. Measurements should cost little to gather, but provide valuable information on your team’s performance.
Flexibility and Adaptation
Finally, you need to be flexible and adapt your goals, plans, strategies and tactics to take advantage of changing market conditions. Your plans should be dynamic documents, open to change. The economy may grow faster or slower than you forecast. New markets may open for your products. Your customers or sales team may identify new applications for your products. In situations like these, you must adjust your goals, adapt your plans, and demonstrate flexibility to move with your market. Sticking with a plan, simply because it’s “your” plan, can have disastrous results for your business.
For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.
In our last post, we read about the negotiations a new business sales rep was having with her employer. Here is the conclusion.
Reader [and Top Line Response]:
Firstly, I greatly appreciate your taking the time to get back to me, and share your insight.
I managed to address the following, so far, final agreement signed and terms are still pending.
– Percentage of commission on repeat business for up to 1 year. Previous contract did not have this (my mistake), and first round of negotiation they recommended 6 months only. i pushed for 2 years, but alas, no. [Top Line:]Good catch on the repeat business. One year is not bad, but it will focus you on new accounts. After that first year, your relationships should be fully transferred to account managers or partners in the firm. It will not benefit you to continue working those relationships. Also, at what point does an account become inactive and, therefore, eligible for you to prospect them again?
– Employer to honor the full 1.5% commission for 2009, for which I brought new clients and initial projects with 1.7 million revenue 2009. I brought over $3 million in opportunities, but we did not win them all. Ultimately I will be compensated 4% on that revenue, or 115K 2009 year. As I shared, they are trying to say now that I “did not do my job to warrant the full 1.5%” for which I highlighted that no one shared that with me at any point in 2009. They also tried to limit commission to 0.5% for a very desirable client I brought in, claiming that this client knew of our agency. It’s true one individual there had met with our Partner, over 2 years ago, but no opportunity came of it. when I started, I began building the relationship, i log all my correspondences, who I spook with and when, and presented that during a recent negotiation, for which I feel they will agree that I am solely responsible for bringing that opportunity, so that’s good. [Top Line:]Partners should live up to their agreements. Any changes should be in writing and on a going forward basis, not retroactive. Also, are they paying you on effort or results? If you are paid on results (i.e., how much revenue you bring in), then it shouldn’t matter how much effort it takes. If they want to pay on effort, then the commissionable events should be clearly defined.
– Commissions paid quarterly agreed, previous contract was annually. [Top Line:]This is much better. It keeps them from having too much buyer’s remorse when it comes time to pay you. Also, with a small company, you don’t want to carry the risk that they won’t have the cash to pay you at the end of the year.
– When I was first hired, I requests 90K base and 3% commission, this was agreed and then partner came back with 1.5%, sharing that there would be no way that I could single handedly close new business. It’s true, there is always a team involved in the process, so there really isn’t the opportunity for me to handle the close, even if I wanted to. Partners do all negotiating. Unfortunately, in my agreement, it states that I get commission on clients i close, clearly this should have never been written there, and now it has come back to justify there reluctance in paying me. i highlighted the fact that we went from 3% to 1.5% specifically because I would not be expected to close, and they still came back with, going forward 1% commission. Adding that they seem to feel that I don’t do anything of greater value than their PR person?? I beg to differ. I see more value in being able to hand select clients according to our companies growth, build a relationship out of nothing, thus bringing in the best client they’ve had – at the start of a 5 year engagement for revamping their entire online business. Our company stands to make +5 million in revenue in 2010 alone., as we already have 3 SOW prepared for subsequent work. When I brought this client in 2009, the original SOW was $2.5 million, and our partner offered a discount to $1.4 million, so that directly affects my commission. Furthermore, our new clients comment time and time again, that while they get numerous “cold calls” daily, mine have been truly effective, mutually beneficial, and the only one they consider receiving. [Top Line:]You may want to stay engaged in the sales and negotiation process (even if only peripherally) to ensure the partners are not undoing the work you’ve already done. It should also demonstrate to the partners that you do more than simply pick low-hanging fruit.
– There’s been talk by our operations manager, about the possibility of my employer paying me for all new introductions & meeting, thus, even if no opportunity comes from it, I get paid regardless. And this would replace all commissions. I’m a little suspect of this, but willing to see what they come back with. 2009, I arranged 21 new client meetings with stellar clients, from those we pitched 6 opportunities and won 2. From those 2, we have long term relationship potential. [Top Line:]This is not a bad idea. However, they will need to clearly define the commissionable events and agree upon how much commission the event is worth. I would consider this as an addition to your revenue commission or a partial replacement. If you are paid only for the meetings, you will have no incentive to qualify the customers or seek larger deals.
I wish there were some way of knowing definitively, the value of what I do is for the company. Given the recent events, I feel slighted and not sure I can trust my employer, that he’s shown himself to “backpedal” and he has for the first time belittled me during our negotiation meetings, when all last year, he would say enthusiastically, “we’ll take care of you” and “your doing a great job!” I’ve thought about approaching the other partner, who runs the creative team, so not my direct supervisor and most likely completely unaware of my agreement. He seems to really value what I do. Somehow, I think this individual would be more generous and immediately accommodate to what I feel is fair. Again, I’m not asking for something that is excessive. [Top Line:]Unfortunately, I think your boss views negotiations as win-lose situations – if one party “wins” the other must “lose.” This is bringing out his crudest personality traits because he sees himself as in a fight and does not want to lose. You will need to move him to a win-win perspective. This can be tough to do with some people.
– I don’t know what range the margins are in, and will try to find out. [Top Line:]It might be difficult. Partners in small, private companies sometimes don’t like to share this information. It’s a little like asking your boss, “So, how much do you make?” You’ll need to finesse the issue and come at it from a pure business perspective.
– In terms of my role, currently, I a) open doors for our company to have introductory meetings with potential new clients b) build relationships with new clients to the point that they hand me an RFP, at which point, our partner and new business director come on board for an intro meeting, a proposal then get crafted by our new business associate, sometimes we have our business strategist involved, a team of leads then meet to pitch the project to the client, our partner negotiates and closes. [Top Line:]Keep stressing that sales are a team effort and you are a key member of the team. Without you bringing in new prospects and customers, the rest of the team would have a lot less to do. You also free up the partners to focus on what they do best. I’d bet their strengths are not cold calling and prospecting.
– I highlighted that at 90K base plus 1% commission, as I bring more revenue yearly, my overall compensation percentage decreases… e.g. 3 mill/year I would obtain 4% overall or 120K/year, if I bring 5 mill/year I would obtain 2.8% overall or 140K/year. This structure doesn’t incentivize. Sadly, my employer won’t consider incentives. [Top Line:]You might consider proposing a quota system. Set your quota at a level that the partners and you agree is reasonable, but a level that the company would not achieve without your involvement. It may be set so that it’s a bit of a stretch for you. Then set the commission up to quota to be 1.0% of revenue. Commission rates for achievement above quota should then be set at 50% (or 100%) above the base commission rate. Then it becomes a win-win for everyone. Quotas can be paid annually or quarterly. Quarterly quotas keep you focused every quarter and allow you to have kickers throughout the year. However, it limits your ability to have one or two deals carry you for the entire year.
Anyway, thank you again. I have had a hard time finding clear info around this topic, and really do appreciate your recommendations.
If you have any thoughts on this situation, send me a note, or add a comment below.
For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.
Last week I had an email exchange with one of my readers. This sales rep was in the process of negotiating (and re-negotiating) the sales compensation package. I thought you might be interested in the exchange.
I came across your Blog about Sales, and would love to get some advice.
Over the last year, I have brought stellar new clients to the interactive firm I work for, I’ve built strong relationships with key individuals within organizations, thus when RFPs and new projects come about, they come to us, or perhaps us and one other firm.
At the time of RFP being issued, the interactive firm partner and new business team take over, so my role is really bringing the new opportunity.
I have brought [Large Beverage Company],[Major Retailer], [Luxury Goods Company], [Regional Airline], [Domestic Airline], [Toy Manufacturer], to name a few, for which we have signed projects for 1.7 mill in revenue, with subsequent engagements currently in the pipeline at over +3 mill in revenue.
I would love to get a sense of what would be a fair compensation for what I do based on revenue. Should you have any insight, it would be greatly appreciated.
I’m glad you found my blog.
The role of new business rep is unique. You have the toughest sales job of all. Your calls are cold or, at best, lukewarm. It sounds like you turn over leads once they’ve been qualified to the point of RFP. Someone else does the closing.
For your compensation, I would look at a number of things.
What is the close rate on the RFPs you bring in? The higher the close rate, obviously the more you’ve qualified the opportunities you work on. This should result in higher compensation to you since the company does not need to expend resource at the back end responding to proposals you will not win.
Are you paid for bringing in RFPs or for proposals that your company wins? It sounds like you share in the risk that the firm partner and new business team may not be able to close a deal that you have already won.
Are you paid on revenue generated, gross margin or projected margin on the opportunity? I revenue, I would expect you to be paid a lower percentage than margin. If you are paid on margin, does the company share with you what the expenses are on each transaction. If you are paid on margin, you should know this information.
Are you paid on the initial business only? Or, are you paid on follow-on business? Typically, commissions on the initial business are higher and commissions on follow-on business are a lower percentage.
If you are paid on follow-on business, is there a time limit for which follow-on business counts? Some companies will continue to pay you for all follow-on business. Others will limit you for business closed within one or two years of the first transaction. After that, the account management team receives the commissions.
What is the gross margin on the business you bring in? Higher margins should generate higher commissions. So, if you are paid a commission on revenue and your deals usually have higher margins than other reps (say, account managers), then your commission rate should be higher.
Thank you kindly for your response.
My current compensation structure is as follows:
90K base + 1.5% commissions on revenue, 50K cap/year on commission, commission paid yearly. Originally I requested 3% commissions on revenue, but since several other team members would be involved in seeing an opportunity to close, 1.5% was agreed.
I recently proposed a review of the compensation terms, that the 50k/year cap be removed, commission be paid quarterly, and commissions awarded on subsequent projects / revenue from clients i bring, since typically clients award us a small project and then a larger one thereafter.
My employer came back with 90K base, lowered to 1% commissions on revenue – he now feels that my involvement in the sales cycle is minimal, 0 .5% commission for any clients that may have known of our organization prior, commission for 6 months on subsequent projects with the clients I’ve brought in, and is trying to now apply this recent 1% and 0.5% to clients I’ve brought last year, that I am due my 1.5% on, which is wrong.
I am standing by what I feel is fair, 90K/year base, 1.5% commission to include projects revenue for 1 year.
i should mention this is the first year the company i work for has employed someone like me, so there’s a learning curve. Clearly I’m successful and bring value to the company, but want to really be sure that my request is fair. Essentially getting compensated $145,000.00/year for new clients with projects at 3 million in revenue, or 4.5% – this seems reasonable to me.
Would love to hear your thoughts.
What you are proposing sounds fair to me. However, much depends on the gross margin of the projects. If the margins are in the 50% range, then 1.5% of revenue translates to 3% of margin. I would consider this to be very low. If gross margins are in the 25% range, then 1.5% of revenue translates to 6% of gross margin. This is pretty good for you and not bad for the company. It’s appropriate, though that they are reducing the commissions for not taking the deal all the way to close. Is there any reason why you wouldn’t (or couldn’t) do that?
From your other comments, it’s apparent that you are their first new business “hunter” rep. For them to try to change your compensation plan after the plan year is over is unconscionable. I hope you have the original plan in writing. I stand by my view that you should be paid for follow-on business, at least for the first year (especially since the first project tends to be small to “test the waters”). Without your landing the customer in the first place, they would not have the follow-on business. If they don’t pay for follow-on business, then you should be paid either (1) a much higher percentage of the first deal (like 20% or more if you take the deal to close), or (2) a fixed “new customer bonus” that reflects a percentage of the value of the customer for the first year or more.
Also, if they are going to limit pay on customers that may have known about the company, demand that they provide a list of those companies in advance with demonstrable proof that there is a relationship (not just knowledge). Then you would not work on those customers at all.
My next installment will close out this interaction. If you have any thoughts on this situation, send me a note, or add a comment below.
For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.