Sales Compensation – Real Life Example

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.

Top Line:

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.

Top Line:

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.

© 2010, David P. Wallace

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Lead Management – Managing, Tracking and Reporting

To generate leads, you’ve spent a lot of money on advertising, trade shows, telemarketing, direct mail, etc.   Plus you’ve spent more money qualifying those leads.  How do you ensure that your sales team will follow up on and close on your leads?  You need a system to manage your leads.  This system should also provide tools to track the leads and to report progress to management and the sales reps working on the leads.

Lead Management

Two keys to successfully managing leads are:

(1)    Make it easy for your sales reps to maintain the information and follow up on the leads;

(2)    Set the expectation that management will review leads and hold sales reps accountable for lead development.

Sales representatives manage their limited resources very efficiently.  If your sales reps need to work extra hard to qualify, follow up on, or manage leads, they are less likely to do so. However, if you integrate your lead management process into your sales reps’ established sales processes, you will significantly increase the likelihood that your reps will use the process.

Create a repository for leads and the data associated with the leads.  Integrate this database with your CRM system (customer relationship management).  This will allow a seamless hand-off to the sales team as leads become opportunities and prospects become customers.

Accountability is equally important.  Sales representatives need to know that you are committed to developing new business through new leads and that you will review the status of all leads distributed to your field sales team.  With a strong management commitment, your sales representatives will be more motivated to follow up on leads and report their results to headquarters.

Lead Tracking and Reporting

After your lead data is consolidated and maintained in a centralized database, the information can be analyzed and viewed in multiple ways to facilitate tracking leads and evaluating marketing campaigns.  Here are some reports you should consider creating:

  • Aging Report – presents leads by date to ensure action on more recent leads and immediately identifies leads that have been ignored by the sales team.  You can develop aging reports by: individual sales rep to evaluate performance, lead status (A/B/C), markets, products, and tactics.
  • Won/Lost Report – tracks your efficiency with closing leads. You can develop reports showing: initial lead status, markets, products, and time from lead identification until close.
  • Tactic Code Report – compares relative success of various marketing tactics.
  • Territory Report – compares leads by sales region, sales representative or other territory.
  • Competitor Report – identifies possible competitive weaknesses.

Finally, tie the lead management database to your order entry system so that when a lead becomes a sale, it can be tracked and sales reps can be rewarded.  This also provides you with key conversion information and allows you to track the success of your marketing campaigns.

For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.

© 2010, David P. Wallace

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Lead Management – Qualifying Leads

Sales leads are the lifeblood of your company.  They’re your link to new customers, new opportunities, and future revenue.  However, not all leads are of equal value.  The ideal lead identifies a prospect who wants to buy your product or service immediately ,has more than enough budget, is not price or term-sensitive, is looking to make a significant purchase, and has identified your company as the sole source.  Ideal leads rarely occur, if ever.  Usually, one or more of these seven variables affects the value of the lead:  decision timeframe, requirements, budget, price, terms, deal size and competition.

Your sales representatives will spend time on each sales lead according to the rep’s perceived value of the lead.  If the rep perceives value – easy to close, immediate decision, large deal size or significant follow-on business, and little competition – he or she will be more likely to follow up on the lead.  By establishing a good lead qualification process, you can provide reps with a reasonably accurate assessment of each lead’s value.

Lead Qualification Process

The lead qualification process involves gathering information about the opportunity and the prospect.  The amount of information gathered and the effort expended should vary based on the size of the deal and the timeframe involved. Smaller deals, deals with very short sales cycles, or low-margin deals do not justify a major lead qualification effort.  Larger transactions or leads for prospects that represent significant future business potential justify a much greater effort.

Once you’ve collected the data needed to qualify your lead, rank the lead “A,” “B,” or “C.”  “A” leads are the most important.  They represent significant opportunities with a high likelihood of closing.  Your sales reps should follow up on “A” leads immediately.  “B” leads are important, but may be smaller in size, less likely to close, or have other obstacles your sales team needs to overcome.  “C” leads are the least promising leads or they may require a significant investment of time and resources to close.  Sales reps should actively pursue “C” leads, but with a lower priority.  Over the life of a lead, you may adjust its ranking (from “A” to “B” or “C” to “A”, for example) as conditions change.

For complex, high-margin transactions, the following information is generally valuable when qualifying a lead and jump-starting field sales involvement:

  • Customer or Prospect – Is this lead for a new prospect or an existing customer?
  • Transaction Size – How large is the transaction?  What is the budget?
  • Timing – When will the prospect make a purchase decision?
  • Products and Services – What products or services are being considered or are needed?
  • Decision makers – Who are the decision makers at various levels within the company?  What are their levels of decision-making authority?
  • Contact points – Get name, title, address, phone, email address, area of responsibility
    • Procurement/purchasing –Who will make the vendor selection? Who will issue the purchase order?
    • Business Executives – Who will make the buying decision? Whose budget is paying for the transaction?  How does this purchase affect their business?  What are their relationships with other lines of business?
  • Prospect’s Level of Interest – Is the prospect actively looking for new suppliers?  Is the prospect interested in a particular product?  When does the prospect plan to make a decision?
  • Competitors – Which competitors are in the account?  What products do they supply?  What are their volumes?  Which customer business units do they serve?  Which competitors are being considered for this opportunity?
    • Size of company – How large is this prospect?  Is the prospect of a sufficient size that the sales representative will want to spend time developing it?  Is it large enough to warrant a call?  A visit when in the area?  Arrange a special visit?
    • Revenue – Annual revenues of the company?  Growth rate?
    • Number of outlets – How many locations, plants, stores?
    • Volume – How much business do they do in your market today?
  • Company’s product mix – What products does the company sell?  How much of each line?
  • Business mix (markets) – Into which industries do they sell?
  • Future growth potential – What is the company’s revenue growth rate?  Rate of product introduction?  Expected growth of the prospective application?
  • Corporate structure – How do the various departments and product lines relate to each other?  Which departments are strong?  Which departments are well positioned for future strength?

Who Should Qualify Your Leads?

You have several options to consider. You can use your marketing staff, inside sales team, field sales reps or outsource the function to a specialty company.  The option you choose will affect the quality of leads passed on to your sales force.  It will also affect how many leads are followed up on and how many ultimately produce new business.  You will want to select the option that will:

  • Accurately evaluate leads
  • Effectively leverage your resources
  • Deliver value to your organization at a reasonable cost.

First, evaluate whether it makes sense to outsource lead qualification or bring the operation in house.  Here are the key questions to ask when comparing an internal group with an outside firm.

  • Which represents the least expensive option?
  • Which one will present the benefits of our products/solutions to prospects most effectively?
  • Which one will gather the most information during the lead qualification process?
  • Which one will follow up most effectively with the field sales force?
  • Which one will qualify leads fastest?

Whether you use an internal or external group, it’s critical to properly train those responsible for lead qualification. They need proper telephone and sales techniques. They need to be motivated to act fast, with a sense of urgency because leads can go stale very quickly.  Leads must be qualified quickly and delivered to the field sales representatives while the opportunities are still hot.

To be most effective, lead qualifiers need to be thoroughly grounded in your company’s:

  • Products – Basic understanding of every product and where each product should be used.
  • Solutions – What customer problems your products can address.  Tools and services you have available to help your customers.
  • Markets – the different markets and industries you serve.  Your strengths and weaknesses in each market relative to the competition.
  • Sales organization – Your sales organization structure and responsibilities.
  • Qualifying criteria – Specific criteria used to prioritize leads as “A”, “B”, “C” or a non-lead, developed in conjunction with the field sales force.
  • Qualifying questions – Questions which help determine whether a prospect meets the qualifying criteria and to what degree.
  • Information gathering – Techniques for gathering as much information from a call as possible.  Includes:  questioning skills, listening, probing, and analyzing responses.

Sales leads fuel your company’s growth and help maintain its competitive position.  Make sure you fully realize their value.

For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.

© 2009, David P. Wallace

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Lead Management – Collecting Leads

Sales leads are a product of the marketing engine that identifies new customers and new opportunity.  They represent future revenue and growth for your company.

Your marketing team develops programs that target prospects, generate interest and produce leads.  Prospects demonstrate interest by actively responding to an overture from your company or by positively responding to a telemarketing or service inquiry.  However, when a lead that is handed off to the field sales team is ignored or otherwise left to go stale, sales and marketing managers get frustrated.  With just a little effort before the hand-off, sales representatives will embrace sales leads as the valuable source of new business that they are.

Companies whose sales reps effectively follow up on their sales leads manage the process from start to finish.  You can do this too.  Incorporate leads and lead management into your sales processes, making it easy for your sales representatives to follow up on leads.  Build upon the resources your company already has in place, especially your customer relationship management (CRM) system, such as, Siebel, Sage or Act!  It’s important to create a process that gathers as much qualifying information as possible and as quickly as possible before sending the lead to the field.  This increases the likelihood that your sales representatives will follow up on the leads quickly and reduces the amount of time the field is asked to spend on potentially unproductive work.

You also want to develop your lead management system so that it becomes very difficult for your sales reps to ignore leads or allow them to become stale.

The four stages of lead management are:

  • Lead Collection
  • Lead Qualification
  • Lead Nurturing
  • Lead Tracking and Reporting

Over the next few articles, I’ll discuss the stages of lead management and what you can do at each stage to improve your lead management system.

Lead Collection

Leads are generated through many channels.  Marketing programs produce leads that can come through telemarketing, direct mail, email, trade shows, blogs, social networking, pay-per-click advertising, SEO (search engine optimization) marketing, bingo cards or any number of other tactics.  Leads are also generated through attentive customer service reps or other customer-facing personnel such as accounts receivable reps or equipment installers.

It’s best to funnel all your leads through a single lead management function within your organization.  Create a single point of entry.  Ideally, this will be in your marketing department.  By having a single point of entry for leads, you’ll have better control of the evaluation, assignment, tracking and following up of leads.  With a single point of entry (and a single point of responsibility), you can also better measure the ROI of various marketing and advertising campaigns.

All marketing collateral, advertising, public relations releases and marketing campaigns should refer to a single contact number, URL and postal/email address for information.   This information delivers new business prospects directly to your marketing group responsible for managing new leads.

Encourage other departments to forward leads to your marketing department when they uncover opportunities.  Encouragement may be formal such as an incentive program.  With an incentive program, you pay employees a fixed dollar amount for leads they deliver.  To encourage qualified leads, pay more but only for leads that become closed deals.  Some companies build their corporate culture to encourage customer service and lead generation.  Every employee is trained to identify opportunities for the company to deliver additional services to its customers.

When your marketing department receives leads, it should “register” the leads, whether they come from employees or external marketing programs.  By registering leads, the marketing department can ensure that all leads are identified and followed up on appropriately.  This also allows you to measure the total effectiveness of your marketing programs.

Once leads have been received and registered, they need to be qualified.  Look for this topic in my next blog posting.

For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.

© 2009, David P. Wallace

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Sales Training

Sales reps are made, not born.  Plus, selling is a skill which has evolved from “getting people to buy” whatever you are selling to fulfilling customer and market needs with your products.  Like elite athletes, your most successful sales representatives are always “in training.”  They are learning your market, products and competition.  They’ve been trained to find prospects, identify needs, gain trust, develop solutions, and deliver value.  Truly successful sales reps do not sell by instinct.  They apply experience and training to direct the sales process to a successful conclusion.

Many company owners and sales managers hire sales representatives and expect them to go right out, call on customers, and start closing business.  This approach might work for high-volume, low-value commodity sales. However, it does not succeed with relationship-based sales of differentiated products or complex solutions.

If your business differentiates itself and its products from competitors based on features and benefits rather than on price, your sales force must be well trained.  They need to master:

  • Sales processes
  • Solution selling
  • Relationship selling
  • Features and benefits of your company’s products
  • Demographics and needs of your target market
  • Competitive positioning
  • History and culture of your company

Sales Processes

When you hire new sales representatives, including experienced sales reps, spend time up front to ensure they know the fundamentals of selling.  In particular, train your sales representatives how to sell using your company’s sales processes.

Sales processes include the basics – understanding the length and steps of the sales cycle for your product or service, sales call steps, uncovering needs, objection handling, relating benefits and features to customer needs, closing.  Sales processes also include your company’s specific sales management systems.  These include customer relationship management systems (CRM), order entry, contracts, customer service, shipping, operations, accounts receivable and collections.  Your sales representatives should understand how every operation within your business affects your customers.

Solution Selling

In today’s business-to-business sales environment, your sales representatives need to understand how to deliver solutions to your customers’ problems.  Given the opportunity, many sales representatives will sell on price.  When confronted with competition or customer objections, these weaker or less experienced sales reps will reduce your price in an effort to close the sale.  This approach is flawed because price is rarely a customer’s top decision criterion.  Plus, after you cut price, it’s nearly impossible to recapture the lost margin.  The next time this customer considers your company, he or she will pressure your sales rep to offer even deeper discounts.  Sooner or later, your position becomes untenable.

It’s best to train your sales representatives to sell based on features and benefits that meet your customers’ needs.  Train them to understand where your product fits in an overall solution for your customer.  Solution selling requires a higher level understanding of the customer’s business, needs and challenges.  The sale may be more challenging, but it will yield stronger customer relationships and better margins.

Product Features and Benefits

When sales representatives join a new company, they are usually well trained about product features.  What’s more important to the customer is the benefits realized as a result of using those product features.  If you train your sales reps to understand their customers’ businesses and needs, they will be better able to relate the features and benefits that address customers’ needs.

Market Demographics and Market Needs

Your sales representatives need to know and understand your target market.  Who are your customers and prospects?  How do you find them?  What are their business needs?  How can you help them?

Given time in the field, your sales representatives will learn much of this information in depth.  However, to hit the ground running and become productive as quickly as possible, you should teach them what you’ve learned about developing your market.

Competitive Positioning

It’s critical to know and understand your competitors.  What are your competitors’ strengths and weaknesses, target markets, products, features, benefits, and sales styles?  Who are your competitors’ customers and where are they looking to expand?  Your company has a marketing plan; your competitors do too. Learn as much as you can legally and ethically about those plans.

Keep your sales force informed about the competition.  Continually gather competitive intelligence from your sales reps.  Since they know what’s happening in the field, they are excellent sources of competitive information. Share competitive information across your sales team.  Every sales rep needs to know what is happening in other territories, with other customers.

Company History and Culture

Your sales representatives are your company’s face in the marketplace.  They need to know your company’s history and culture.  Teach them to emulate your business values.   Assimilate your sales reps into the culture you’ve created.  Use your company’s culture to drive success and leverage it as a competitive tool.

For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.

© 2009, David P. Wallace

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Sales Force Mix

Multiple channels exist for bringing your products and services to market – inside sales, dealers and distributors, and direct sales.  Is one channel preferred over another?  Can you use multiple channels simultaneously?  Can the different channels support one another?

Channel Preference

Different channels efficiently address different markets and situations.

Inside sales teams effectively sell commodity-like products to a widely dispersed market.  They can contact many customers in a relatively short time period.  Inbound telesales reps can often manage 10 -12 or more transactions per hour. Outbound telesales reps can conduct 8 – 12 substantive sales calls per day where they speak with a decision maker and have a meaningful conversation.  When you add email and web-based interactions to the mix, inside sales reps can manage multiple transactions simultaneously which increases their productivity substantially.

Inside sales efforts become less effective when your sales opportunities involve a longer sales cycle and a more complex product.  These sales often require face-to-face interactions where the customer and sales representative know each other and have built a relationship over time based on friendship and trust.

Dealer or distributor networks provide a more effective approach when your product is moderately complex and your target market is large and geographically dispersed.  A dealer network gives you access to independent companies who sell your products and other companies’ products to their customers.  Often the dealer will bring their own value to the sale through a variety of services.  Dealer services may include integrating your products with complementary products to create custom solutions, delivering training, or adapting your product to meet industry-specific requirements.  If there’s a market need that your product can be adapted to meet, then a dealer or reseller will gladly create the solution.  Some dealers deliver value simply by having relationships with the customers you want to reach.

A direct sales force becomes essential to penetrating the market when your product is more complex and critical to your customers’ operations.   Customers whose operations or reputation depend heavily on the product or service solution will choose what’s safest and most reliable for them.  Personal trust is important; but the company must trust your product, your solution and your company.  They need assurance that your product will perform and that you will do whatever is necessary to support your product.  This establishes a relationship between two businesses, not simply between a sales rep and a buyer.

Using a direct sales force gives you greater control.  You do not compete for your sales reps’ time or attention because, unlike dealer reps, direct sale reps sell only your company’s products and services. You control your reps’ activities and compensation.  You control the sales message.  You control the sales process.

This graphic shows where the various sales channels are most effective:

Sales Channel Graph

Using Multiple Sales Channels

Depending on your situation, you may choose a combination of sales channels in your go-to-market mix.  To expand your market presence, you can use all three channels.  Your direct sales force can manage key account relationships and sell to prospects in your home geography.  This allows you to maintain control of your relationships with existing customers.  The field sales reps who are already in place can continue to develop prospects in their territories.

To expand into new geographies or industries where your direct sales force does not have a presence, you may elect to develop a network of dealers or manufacturer’s reps.  The dealer reps have existing relationships that will speed the introduction of your products and services into new markets.  The dealer network cost should be less than that of an expanded direct sales team.  However, your marketing costs will not decrease.  Marketing efforts become very important because you need to support your dealer network with training, collateral, advertising and other programs.

For the market areas beyond the reach of either your direct sales force or your dealer network, you may elect to employ an inside sales team.  Using marketing, internet and inbound/outbound telesales, you can reach customers and prospects that are not otherwise served by your company or your competitors.  The relatively low cost (no travel, entertainment or expense accounts) and broad reach of an inside sales team makes this a very attractive option for pursuing otherwise hard-to-reach businesses.

Channel Harmony and Support

Your various sales channels can and should work together.  Successful channel harmony exists when you clearly define and agree on responsibilities.  If your sales strategy involves direct sales, dealers and inside sales, you need to define territories.  Be specific “up front” about where each channel can and cannot call and when a deal or transaction must be handed off to another channel.  You also need to put a fair process in place to resolve channel disputes.  If you have two parties claiming rights to a deal in a “gray zone” territory (a territory not previously assigned), they should know the process for resolving this dispute.  Plus, they should feel confident that their long-term interests will be protected regardless of how a particular dispute is decided.

By defining territories and responsibilities, you encourage the different channels to work together and support each other.  For example, inside sales reps might be used to generate and qualify leads.  Their sales compensation will focus on the early stages of the sales cycle.  Direct sales reps, on the other hand, may be closers.  Once an opportunity has been qualified, the direct sales team may develop it further, close the deal, and earn a commission for their contribution to the sale.

Supportive sales channels also allow you to leverage your dealer network. While your dealers identify and develop opportunities, your direct sales force can be used to provide product support or technical support to further the sales effort.  In this way, you gain broader market reach through your dealers and leverage your highly trained direct sales reps to close key opportunities.  This approach is also effective in using your direct sales force to train your dealer network.

By leveraging multiple sales channels, you can effectively reach a broader segment of your target market.  Since the different channels have different cost structures, you need to choose the channel or channel mix that extends your reach as cost-effectively as possible.

For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.

© 2009, David P. Wallace

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Negotiating Job Offers

When you bring new sales reps on board, you need to negotiate job offers.  To drive a successful outcome, there are a number of principles and strategies to keep in mind as you negotiate.

Negotiation Basics

  • Define the limits of your offer before you begin a negotiation.  Understand what your goals are, the value of each of the elements of your offer and what you are willing to trade.
  • Herb Cohen, author of the best seller You Can Negotiate Anything, says that when negotiating, “You’ve got to care, but not that much!”  Don’t get attached to gaining an agreement.  Sometimes, you’ll gain more if you are willing to walk away from a negotiation.
  • Whenever possible, understand your candidate’s negotiating position.  Keep in mind that what’s valuable to you may be very different than what’s valuable to your candidate. Anticipate his or her negotiating strategy.
  • Rarely are you negotiating a zero-sum game.  Find positions that benefit both you and your candidate.  Avoid winning at the candidate’s expense.  Remember, you want the person you’re negotiating with to work for you, without regret, and to feel good about the deal.
  • Never negotiate on your own behalf.  When negotiating job offers, have your human resources representative or recruiter manage the negotiation for you.  By having an intermediary, you avoid the risk of committing to terms without sufficient review.
  • If you must negotiate on your own behalf, never commit to terms without giving yourself time to fully consider what you are agreeing to.  Defer to a higher authority for approval (even if you own the company!).  The higher authority can be your boss, president, or board of directors.  If there is no higher authority, defer to one anyway.

The Compensation Discussion

  • Don’t bring up compensation during the first interview.  You want to focus on skills, qualifications and cultural fit.  Save the compensation discussion for the second interview when you’ve narrowed your applicant pool.
  • Don’t be the first person to name a compensation number because that becomes the starting point of negotiation.  If the employer speaks first, the number will likely go up.  If the applicant names a number, you can negotiate down from there.
    • If you ask what they are making, the applicant may counter by asking what you are offering.
    • If you then ask what their salary requirements are, they may ask how you value the position.
    • This may go back and forth several times as each party tries to gain an advantageous position.
    • As an employer, I used the “defer to a higher authority” tactic effectively.  It gives you a reason for getting information from the application first.  You can say “I at least need a range to make sure we’re on the same page.”  Or, “The Board won’t allow me to proceed unless we have some numbers.”
  • Recognize the risks and rewards associated with bonuses.  In a weak economy, you’re not likely to pay the full amount.  In a strong economy, you may pay more than the target bonus.
  • Fewer companies offer signing bonuses these days.  If you offer a signing bonus, explain that it covers transition expenses such as foregone commissions, relocation, commuting, etc.

Making the Deal

  • Recognize the value of trade-offs.  You might gain a reduced base salary in exchange for variable compensation, perks or other benefits.  You may opt to increase the base salary if your candidate doesn’t need a health plan, car allowance, or other benefit.
  • Include all perks and benefits in your offer.  Quantify them.
  • Use perks as bargaining chips in the negotiation.  If you can gain a concession by offering a high-value/low-cost perk, do it.  Flexible working hours or a work-from-home option are examples of such perks.  The same can be said for low-value/high-cost perks such as health care insurance for an employee whose spouse has a plan that covers the employee.
  • Companies are offering relocation packages less frequently these days.  If you do offer relocation, keep in mind that packages vary widely.  They can range from total reimbursement (very rare) to flat dollar amount.  Sometimes these packages include moving expenses, temporary living expenses, and commuting expenses. Rarely are mortgage points covered and very rarely is sale of the employee’s house guaranteed.  Many companies manage their risk by capping the relocation expense reimbursement.

Finally, quantify the value of the total compensation package, not just the cash portion.  Include all perks and benefits including vacation, holidays, retirement plan, bonus potential, and business tools (cell phone, computer, and car allowance).  Demonstrate how generous your offer is beyond the base salary.

For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.

© 2009, David P. Wallace

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What Support Should I Give My Sales Force?

Honor and glory typically go to the soldiers on the front line.  In business, the front-line soldiers are your sales force.  Sales reps are in the field working with your customers, understanding their needs, developing solutions, selling your products and services.  Your sales reps drive revenue every day.

But, can they do it alone?  No.

Sales support teams are often overlooked.  In the military, they are comparable to the support units that manage supply lines, cook meals, evacuate the injured, and handle logistics. When they are effective, they are all but invisible.  When they are not, progress grinds to a halt.  In a sales organization, that results in incomplete proposals, inaccurate pricing models, little or no collateral, slow contract negotiation and poor execution.

Sales support teams are the lifeblood of your sales force.  They provide your sales reps with the tools, knowledge and logistics needed to succeed.  There are three primary sales support functions:  technical support, administrative support and marketing support.

Technical Support

Most often, your sales reps don’t have the depth of technical knowledge that your customers have.  Your sales rep’s strength is not necessarily in his or her depth of technical knowledge, but in his or her sales skills complemented by a veneer of technical knowledge.  When your customer wants or needs to get very technical, your sales rep may call for technical support from elsewhere in your organization.

Your technical support team may consist of technical sales reps, systems engineers, product engineers or design engineers. Some technical support team members may work with customers as a regular part of their job.  They accompany sales reps on customer calls and advise on the technical aspects of sales solutions.  Other technical support team members may have full-time responsibilities in other parts of your organization, such as manufacturing, production, product development or R&D.  They rarely interact with customers, but when they do, their voice is both powerful and respected.

When your customer needs to understand how your solution will address his or her needs at a technical level, you need to provide technical support to close the sale.

Administrative Support

Administrative sales support truly keeps your sales force efficient.  Without administrative support, your sales reps will spend more of their precious time in the office completing paperwork and less time selling to your customers.  Teamed with an effective sales rep, the cost of administrative support is inexpensive compared to having your rep in the office not out selling.

Sales administrators perform these functions: order entry, contract preparation and review, proposal development, proposal assembly, special bid pricing, logistics, management of loaner or demo programs, appointment scheduling, and legal review.  Not all sales administrators perform all functions by themselves.  Sometimes they coordinate or manage the back-office functions; sometimes they do the jobs themselves.  A lot depends on how much needs to be done, the volume of deals and the availability of specialized resources in your company.

Marketing Support

Marketing sales support personnel provide your sales team with the tools they need to sell your products and services.  They develop sales collateral, programs and tools.  Collateral includes:  presentations, white papers, and product specification sheets.  Programs include:  trade show events, incentive programs, loaner or demonstration programs, seminars, webinars and customer communications.  Tools include:  pricing models, business cards, letterhead, web sites, compensation plans and competitive assessments.  While these lists are not comprehensive, they give you an idea of the types of services marketing support teams provide.

Marketing support teams give your sales reps reasons to visit and re-visit your customers and prospects.  They develop sales messages which position your product in the market relative to competitors.  These messages also articulate how your products or services address your customers’ needs.

In addition to technical, administrative and marketing support, your sales force also demands and receives support from other parts of your organization such as:  IT, human resources, and finance.  Selling is truly a team effort.  All functions must work together to achieve your business goals.

For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.

© 2009, David P. Wallace

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When Should I Expand My Sales Force?

To determine when to expand your sales force, you need to ask yourself two questions: “What can I afford?” and “What can the market support?”

What Can I Afford?

Sales reps produce revenue. They prospect for customers, present your products and solutions, and close deals. The more sales reps you hire, the more revenue you can count on. Based on this logic, as long as the market is not saturated, you should always hire more sales reps. They will pay for themselves.

There’s a problem with this logic because when you hire a new rep sales do not flow immediately. There is a lag from the time the rep starts work at your company and the time when cash flows from the sales your new rep closes. This time lag results from three major factors: on-boarding, training and the sales cycle.

  • On-boarding represents the time it takes for a new employee to come on board your company. It’s the orientation period during which your new sales rep is learning your company, its processes and its procedures. There are forms to fill out and people to meet. The on-boarding period can last anywhere from a few hours to several days or weeks, depending on the size and complexity of your company and the number of interactions your rep needs to have across the company.
  • Training can last from hours to days, weeks or even months. Your new sales rep needs to learn your products, culture, markets and competitors. The more training your rep receives, the more likely he or she is to be successful.
  • The sales cycle constitutes the longest period before revenues flow from your sales rep’s efforts. During the sales cycle, your rep needs to identify prospects, qualify them, develop rapport, establish needs, sell features and benefits, close, invoice and collect revenue. In a retail operation, the sales cycle may only last a few minutes. However, in a complex business-to-business transaction, the sales cycle can last a year or more.

During the time lag, you still need to pay your sales rep, whether it’s salary or draw. You also have other costs associated with your sales representative – computer, phone, travel, expenses, support staff, etc. As the time lag between hiring and revenue production increases, the cost of the sales rep also increases.

Before hiring additional sales representatives, you must make sure you have enough resources to pay for your new sale reps through the period when they are hired until cash revenue is flowing from their sales. Here’s how to get a good estimate of how much you will need to cover a new rep. Multiply the rep’s compensation by the length of the time lag, then add in costs of computers, phones, travel, expenses. Finally, uplift that amount by 50% since things always take a little longer than you expect.

What Can the Market Support?

To answer this question, you need to consider two different perspectives. First, how will customers and prospects react to your additional sales rep? If they are already overburdened with sales reps (including yours) calling on them, they may react negatively to the new rep or to your company. However, if you offer a new product, a better product, or unique benefits that address critical customer needs, then the market may welcome more sales reps. Your goal is to either create new demand for your products, thereby expanding the market, or take existing market share away from your competitors.

Second, how will an expanded team affect your own sales force? When you add a new sales rep to an existing team, it may reduce everyone else’s earning potential. If your sales force is already covering your market thoroughly, adding a sales rep could have the following effects:

  • Your existing reps will have to give up prospects and the associated potential income,
  • Your existing reps will have to give up established customers and the associated income,
  • Your new rep will be assigned the neglected prospects who likely have lower income potential,
  • A combination of the above.

On the other hand, if the market is not saturated, then adding new sales reps can result in additional sales and revenue for your company. It can also produce a sales team that maintains a strong income level and customers who are pleased to buy more products to meet their business needs.

For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.

© 2009, David P. Wallace

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Sales Compensation Plan – Draw Against Commission

When you bring a new sales representative into a territory, he will often ask about a “draw.”  The first time you hear the term, you may not know what it is or why it’s important.  A draw is a pay advance against expected earnings or commissions.  It can be important to both your sales representative and your company, but for different reasons.

Importance to Your Sales Rep

Selling high-priced, complex products or services can involve a lengthy sales cycle.  From first contact through the close of a sale, months may elapse.  The time needed to develop a fully productive territory can range from as few as three months to a year or more.  During this ramp-up period, your sales rep may experience severe personal cash flow shortages.  His or her base salary is usually significantly less than the total expected compensation plus commissions haven’t kicked in yet.  To help your sales rep get through this initial period, you may pay your rep a draw – an advance against future commissions.

Sales cycles can also be seasonal.  In the utility industry, energy demand is highest during the summer and winter months; it is significantly lower during the spring and fall.  As a result, companies that service the power generation equipment for utilities experience a well defined seasonal sales cycle.  Sales reps earn much greater commissions in the spring and fall months; summer and winter month commissions can be near zero.  Draws can help smooth out your rep’s seasonal cash flow in these situations.

The draw provides several benefits to your sales rep:

  • Provides a “living wage” during the period when a territory is being developed and commissions have not yet been earned.
  • Reassures your sales rep that the company has faith in his or her ability to be successful in the territory.
  • Smooths cash flow across seasonal earnings.

Importance to Your Company

As a company, you have two key interests when placing a new sales representative in a territory.  First, you want your sales rep to succeed, developing relationships and driving sales.  Second, you do not want to lose the substantial investment your company makes in hiring and training a new sales representative.

By paying a draw, you can help promote these interests.  The draw reduces your sales rep’s cash flow concerns.  Instead of worrying about meeting monthly cash flow obligations like rent or mortgage payments, your sales rep can focus on learning the territory, developing customer relationships and moving customers along the sales cycle.  Without immediate cash flow concerns, your sales rep is also less likely to look for a new job which is less risky from an income perspective.  The draw reduces your sales rep’s perceived income risk and keeps him or her focused on the job – selling your products and services.

Recoverable vs. Non-recoverable Draws

Draws can be either recoverable or non-recoverable.  Recoverable draws are loans against future commissions or bonuses.  Each month during the draw period, you pay your sales rep the draw amount. If your sales rep earns commissions that are less than the draw amount, you pay your rep the commissions.  However you only pay enough draw so that the commissions plus the draw total the amount of the full draw.   The outstanding draw amount accumulates from month to month.  When earned commissions exceed the draw, use the excess commissions to repay the outstanding draw.  Once the accumulated draw is repaid, all commissions are paid to the sales representative.

In the event that a sales representative leaves your company owing an outstanding draw, most companies will write off the outstanding debt.  It is very difficult, if not impossible, to collect monies paid to a departed employee.  Some companies will deduct the draw amount the sales rep owes from other amounts the company would normally pay, such as unused vacation, severance, etc.  However, before withholding benefit payments, check with a labor attorney to ensure you meet local regulatory requirements.

Non-recoverable draws are also loans against future commissions or bonuses.  However, a non-recoverable draw guarantees your sales representative a minimum level of income for each commission period.  If earned commissions are less than the draw amount, your sales rep receives the draw amount.  No accumulated draw is carried to the next commission period.

Recoverable draws are more advantageous for your company.  Non-recoverable draws are more advantageous to your sales rep.  There is a trade-off.  How much risk is the sales rep willing to accept to work for your company versus how much is your company willing to pay your sales rep?

Time Limits

Draws should have a time limit.  The length of the draw period should give the sales rep enough time to establish his or her territory plus the time needed to repay the accumulated draw.  Usually, this works out to one to two sales cycles.

Draw Amounts

The amount of the draw can vary by sales representative or by territory.  I generally look at several factors when determining the draw amount.

  • On Target Earnings (OTE) – What are the OTE for the sales rep?  An aggressive draw can bring the rep’s base salary plus draw to 85% or more of OTE.
  • Territory – What do I expect the territory to generate in revenue and commissions?  Based on this information, I may increase or decrease a planned draw amount.
  • Sales Rep Experience – How quickly do I expect the sales rep to get up to speed?  How much revenue or commissions do I think this particular sales rep will generate?  Again, using this information, I will target a draw equal to 65%-80% of my expectations.
  • Market Expectations – What draw amount and for what time period will it take to get the sales rep to agree to work for my company?  Depending on the competitiveness of the market and how badly I want a particular sales rep on my team, I’ll increase or decrease the planned draw amount.

As with all sales compensation issues, there are no right or wrong answers when determining your draw structure.  You need to consider the goals of your business, the level of risk (draw repayment) you are willing to assume, and how much competition exists for attracting the best sales team you can afford.

For more information, contact Wallace Management Group at (203) 834-0143 or email David Wallace.

© 2009, David P. Wallace

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