Owners Never Go Broke Signing Large Sales Commission Checks

You may have read my recent blogs about sales strategy, tool kits and managing talent. In this blog I want to focus on the goal of all sales – making money!

“An owner will never go broke signing large sales commission checks.” Frustratingly, there is a lot of fear and uncertainty in designing highly rewarding commission plans for sales teams. Too often plans fail to match company strategy and are designed for the sales person to be only moderately compensated – not at a level that will change lives (theirs and yours). Why is that?

Good Sales Commission Plans Lead to Strong Sales

With the economy offering significant opportunity, companies are hiring as many sales people as they can find.  But simply hiring good sales people will not guarantee new and good revenue growth. Ever heard of the 80/20 rule? It fully applies to sales and goes like this: 80% of your gross profit will come from 20% of your sales people.  Therefore, designing commission plans to keep the 80% happy is a recipe to generate the same results – just with higher labor costs. It’s time to focus on the top 20%.

The goal for developing great sales commission plans is to do just one thing – make both the sales person and the owner very happy. Here’s how to build a solid (and successful) commission plan.

1. Start with a decent base salary.

You want your sales people to sell aggressively but strategically. Provide your sales people a solid base salary so they can eat and sleep comfortably, no more and no less. Make sure that they enjoy the fruits of their labor – in variable compensation. 

2. Set the quota levels aggressively but intelligently.

After calculating your company growth targets, assign them throughout your sales team, but leave big growth to those who can achieve it.  There is no sense in handing similar growth targets across the team.  Identify your team members with the talent, will and commitment to make big numbers – and focus on them.  Motivate your top performers to sell at their best.

Align with your Sales Plan

3. Create a clear Sales Plan.

A strategy of “Go with God and come back with money” is a disaster for a small business. Expect sales people to focus on the markets, products and customer size that matches your Sales Plan, not allowing them to figure it out on their own. Take the time to communicate your Sales Plan to eliminate deviation and avoid selling to prospects which the competition has already walked past.

4. Make certain that your sales commission plan is fully aligned with your Sales Plan.

The only thing worse than having people sell the wrong things is not rewarding those who sell the right things. Not only should you build your commission plan to incentivize all your growth areas, but you should over-incentivize those areas which are your biggest areas of focus.

The 80/20 rule applies here, too. Companies generally make 80% of their profits from 20% of their products.  As a business owner or sales leader, you must know which products provide the greatest profits and make sure your commission plan is laser focused on those products.  Just like with quota setting, don’t offer the same commission percentage across all of your products.  Maximize the points paid on the products creating your greatest results.  Show your team the map toward the gold and then drive them to the bank when they earn it.

Simplicity for Success

5. Keep the plan simple.

I see way too many plans where the sales rep has no idea what the payout will be until they get their check every two weeks. If that’s your story, you might as well increase the base salary and forget sales commission altogether. I like plans where the spouse can calculate the commission – now that creates focus and motivation!

6. Create levels of success.

After quota achievement, provide incentives with additional bonus levels. Offer more money at 25%, 50% and 100% above quota. Then, based on your strategic goals, identify specific targets which again will benefit the company significantly; targets like new large customers, geographic growth where you are weak, specific payouts on your new products, and closing deals above a certain size are great for additional rewards.

The best way for an owner to get rich is if their sales people also enjoy the fruits of sales success. You don’t want to pay commission on revenue that is not bottom-line positive. Instead, cutting large commission checks on deals that bring the right results will motivate your top performers to be more focused and successful. Think big, plan big and get big!